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The local market started on the back foot today, but managed to trend higher into the weekend. The banks battled back off their lows but the index was mostly supported by strength from commodities with Energy and Materials the key winners today with the USD coming off. Despite yesterday’s tumble, the ASX had a strong week, finishing up 106pts/+1.57%, carried by strength in Energy while Real Estate and Staples were the only sectors lower.
Thursday saw the ASX200 get clobbered by the Feds sledgehammer, the index finally closed down -1.8% even after bouncing over 40-points from its intra-day low. The selling was broad-based with almost 90% of the market closing in negative territory as the recent buyers retreated into the shadows following the net hawkish rhetoric from Jerome Powell. However, we believe investors shouldn’t be too alarmed, as we touched on yesterday weakness is common in the 1st half of November.
Some mixed messages came from the US Federal Reserve overnight as they raised interest rates by 0.75% as expected. Ultimately, they said rates will likely end higher but the increments of future hikes could be smaller. Overall markets took that as bearish and sold stocks aggressively after being initially up. That weakness filtered into a soft session locally with all sectors (bar Telco’s) down on the day.
Wednesday saw the ASX200 manage to shrug off weakness across US indices and instead focus on a healthy Asian region, it’s been a while since local stocks went looking for good news but two consecutive 0.25% rate hikes by the RBA when many expected/feared 0.5% moves appears to have been just the required tonic to awaken the bulls. Admittedly the market felt tired yesterday morning as it tested the psychological 7000 level and we shouldn’t disregard how far it has rallied in just one month:
The ASX consolidated recent gains today, chopping around in a tight trading range having pushed above 7000 early on – ultimately a solid session given the 113pts we added yesterday taking the bounce back from the October low to more than 9%. Banks have been the big driver in recent times, and while we remain bullish on the space as detailed this morning, it seems like the easy money is now behind us as we run into dividends for three of the majors.
The RBA raised interest rates to a nine-year high yesterday but the controlled 0.25% move was, as MM anticipate, enough to drive equities higher. As we’ve alluded to over the last month Philip Lowe et al appear keen to adopt a more cautious stance as signs emerge that the Australian consumer is coming under increasing pressure e.g. higher rates are really starting to weigh on that Australian sacred cow, housing prices. We continue to believe the rhetoric out of the RBA is slowly becoming more dovish:
The market got the bit between its teeth this morning and rallied nicely from around 11am up ~65points before the RBA decision at 2.30pm where the board raised the cash rate by 0.25% to 2.85%, inline with most expectations, although there was some high profile outliers calling for 0.50%. Post the decision, buyers only became more concentrated and on a day where Victoria was enjoying a cold public holiday and many desks around the country where unattended, buyers were met with little resistance and the ASX stormed 1.65% higher, proving MM’s call of 6900 on a 25bps hike simply too conservative.
The ASX200 enjoyed a strong end to October rallying over 1% following in the footsteps of Wall Street on Friday night – the ASX200 ended the month up +6% as we now head towards the seasonally strongest period of the year. Outside of the Resources/Energy Sectors losers were fairly thin on the ground as only 20% of the main board declined on the day – the RBA’s rate decision today didn’t appear to unnerve too many investors i.e. a controlled rate rise is “old news”.
A choppy but overall positive day to kick off the new week and end the bullish month of October that saw the ASX200 up 6% led by a 12% rise by the Financial Sector. Only two sectors were down in the month, Staples falling -0.19% and Materials -0.11%. That was not a move many predicted with very bearish positioning meeting a less hawkish central bank (in Australia at least) leading to a strong move higher in equities.
