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The Fed raised interest rates another 0.75% last week but just a few words were enough to change the crowd’s hawkish mindset which not surprisingly sent major ripples through financial markets i.e. bond yields slipped, equities rallied and the $US fell which helped kick start the commodities back into gear:
The ASX200 rallied over 150-points last week taking the local markets gain to more than +5% in just 2-weeks, investors switched in earnest from defensive stocks & sectors just in time for MM to trim a few positions as indices reached our initial target for July. Interestingly it wasn’t the tech stocks which benefited on falling yields as the market continues look beyond the obvious, or perhaps simply 6-months in advance i.e. resources benefitted on the premise that central banks would be easing off on the rate hikes to avoid a recession.
Falling bond yields have helped the risk on sentiment continue for equities with the local market once again hitting a 6-week high, as it closes in on the 7000 level. All sectors bar Healthcare joined in on the rally, though Real estate found the most support today. Local equities piggy-backed on the strength in the US market overnight thanks to weaker GDP numbers and a more dovish tone from the Fed earlier in the week. Bond yields fell significantly today with Aussie 2-year yields down around 15bps to 2.42%.
US tech stocks surged over 4% on Wednesday night following the almost dovish comments from Jerome Powell after the Fed hiked rates by 0.75% taking the US official interest rates to their highest level since mid-2019. The moves on the sector level in the US made sense after the Fed chair eased investors’ fears that the Fed was set on an unwavering path of aggressive rate hikes i.e. although US 2-year bond yields remain around 3% they look & feel unlikely to surge above the 3.5% area which was being tested in mid-June. Hence rate sensitive stocks largely outperformed on Wednesday in the US:
The Crown Hybrid (CWNHB) has been redeemed at $102.75 and we using those funds to buy Centuria (CNI) as detailed below.
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.
