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A solid session for the ASX keying off a bullish night in the US, however, news that Chinese developers were getting a state-backed lifeline gave the market another kick into the afternoon. Some big moves in individual stocks, particularly those with large short exposure a clear theme while the resources were the sector to be in!
We are making the following charges to portfolios:
Flagship Growth: Trimming ALL, MQG & GMG
Emerging Companies: Trimming AD8, CXL, Selling NTO & adding to PDN & buying PLS
International Equities: Trimming MSFT US & buying SNOW US
The ASX200 rallied yesterday following the Australian CPI data which showed inflation had jumped to 6.1%, although this was still a fresh 20-year high it was encouragingly below the consensus 6.3% expected by the market – as we wrote on Wednesday “bond traders have been a touch too hawkish since May”. However on every level where we looked prices were higher with the only question being how much!
A disjointed morning before the buyers emerged following inflation data that was marginally tamer than expected printing 6.1% YoY versus the 6.3% consensus, signs that the rate of change in prices may be slowing is a good thing. Healthcare was strong today but the biggest influence from an index perspective came from the banks with CBA the standout up +2.24%.
Equities have slipped into a holding pattern ahead of today’s Australian inflation data and the FOMC’s decision on US interest rates which will be delivered when most of us will be sound asleep tonight. The high likelihood is volatility will kick in after both releases but we are becoming increasingly mindful that over the last few months markets have been pricing in the worst-case scenario for both inflation & bond yields, especially in some pockets of the share market.
The market remained in a holding pattern today waiting on Wednesday’s inflation print to get a better read on which direction to jump – although it has crept up to 6-week highs. Energy the standout with Coal stocks, in particular, roaring higher however we saw decent buying right across the sector, offsetting weakness that crept into retailers thanks to a downgrade from Walmart (WMT US) after-market in the US.
The ASX200 had a very quiet start to the week on the index level as local stocks largely ignored Friday’s weakness on Wall Street, most of the action on the ASX unfolded on the stock level as the quarterly updates gathered momentum. Overall the broad market largely struggled on Monday with less than 40% of stocks advancing but a rally by the influential large cap miners was enough to offset softness elsewhere. Aside from confession season this week looks set to be all about inflation & interest rates, yet again!
We edged tentatively into the new week with the ASX finishing 1pt lower as strength in Materials & Utilities was offset by weakness in Tech & Telcos – the market chopping around in a tight ~25pt range. Domestic inflation data is out on Wednesday which will likely be a big driver of stocks ahead of the US Federal Reserve decision on rates that evening. Consensus is for Aussie inflation to print 6.3% YoY while the US Central Bank is expected to hike rates by another 0.75%.
Both US and local stocks are bouncing on cue helped by a market that found itself positioned with a record bearish bias resulting in a dearth of fresh sellers without supporting bad news but as the chart below illustrates this is slowly moving back to more sustainable levels as global indices grind higher. In our opinion sentiment still remains a touch too bearish across major indicators and as we’ve discussed over the last few months it’s this very same ingrained negative outlook towards risks assets that’s been the catalyst to allow equities to recover from their mid-June lows even if most investors continue to worry around the economic risks of soaring inflation/rate rises and a looming recession.
The ASX200 enjoyed a strong week which saw the index rally +2.8% making fresh 5-week highs in the process, the Tech and Financials led the charge while only the defensive facing Healthcare and Consumer Staples Sector slipped slightly lower i.e. “risk on” has kicked back into vogue with a vengeance. However as we alluded to on Friday MM still labels the current advance as a likely “short squeeze” as opposed to fund managers calling a meaningful market bottom…
