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what matters today Market Matters

The ASX200 rebalances quarterly, which effectively means out with the old (poor performers) and in with the new (strong performers). Stocks need to meet a number of criteria to enter the ASX200, including market cap, liquidity, number of shareholders, and “free float.” This means the index effectively undergoes a quality filter on a regular basis where, unlike investors/traders, it exits stocks which aren’t cutting the proverbial mustard.

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We are tweaking the International Equities Portfolio

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The Match Out Market Matters

A volatile session for the ASX today, however, the bullish vibe overcame better-than-expected employment data and a slight rejig to expectations around rate cuts to push stocks sharply higher, only one good day away from following US stocks to new highs.

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what matters today Market Matters

The Fed reiterated that it is expecting to cut interest rates three times in 2024, with June the most likely start of the pivot, and as we saw overnight, it is great news for risk assets. However, it might surprise some to see the Real Estate Sector struggle to keep up with its peers overnight, only advancing +0.26% compared to the S&P500, which advanced by +0.9%, and there are no obvious signs that this relative underperformance will change, primarily because the sector has already moved 25% from its late 2023 low – it’s a very similar picture on the ASX where most names remain up in the short term, but are still well below their post-COVID highs.

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The Match Out Market Matters

The best of it was seen early on today with a bullish start tapering off throughout the session ahead of the US Federal Reserve’s decision on Interest rates tomorrow morning our time. The index fell 45pts from high to low, largely tracking US Futures which were sold off throughout the session. Energy was one of the few highlights, alongside Telcos which have been choppy of late. Tech was the main drag.

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what matters today Market Matters

Yesterday was all about central banks, with both the RBA and Bank of Japan (BOJ) updating their respective official cash rates. There were no major surprises from either, but equities embraced the cleared uncertainty, at least for another month. As I’m sure most subscribers know, the RBA left the cash rate at 4.35%, as was widely expected, and it was encouraging to see bond yields slip after the release as Michele Bullock & Co. dialled back their previous interest rate tightening bias now saying they are “not ruling anything in or out” on the next move in rates being either up, or down.

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The Match Out Market Matters

While they’re still saying otherwise, the RBA is looking increasingly poised to cut rates in the coming months as inflation comes back into range and labour market pressures ease. Markets are pre-empting the move,  the Aussie Dollar down (65.31c), bond yields down, and equities up as we edge closer to D-Day for Michelle Bullock et al. However, at a sector level today, Materials & Energy stocks bounced nicely and Iron Ore rallied ~5% in Asia, implying some improving confidence around the outlook for the Middle Kingdom, we’re certainly positioned for it!

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what matters today Market Matters

The big news yesterday was China’s industrial production, which came in stronger than expected, rising 7% year on year in February, beating the anticipated 5% and making it the fastest pace of growth in two years. Notably, the markets are very negative towards China; hence, any ongoing signs of improvement are likely to see a dramatic move in some related areas of the market. Even retail sales came in better than expected yesterday, printing 5.5%, above economists’ forecasts of 5.2%, with online sales up an impressive +14.4% to start the year. With fixed asset investment up 4.2%, more than the expected 3.2%, it was a rare good day for the Chinese economic outlook.

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The Match Out Market Matters

A quiet start to the trading week ahead of important Central Bank meetings – the RBA is set to decide on rates tomorrow (no change expected) while the US Fed step up on Thursday, again, no change expected however the rhetoric and associated economic projections will be influential on markets. As it stands, markets are pricing on 3 cuts in the US and 1.6 cuts locally this side of Christmas, which seems on the money from MM’s perspective. i.e. markets and central banks now seem aligned.

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what matters today Market Matters

Copper was the shining light in an otherwise tough week for local stocks, with the industrial metal surging almost 6%, testing 12-month highs in the process. Ironically, the advance coincided with iron ore making fresh 7-month lows, with the divergence between two of Australia’s most important exports certainly garnering plenty of attention. Iron ore has slipped over 30% since early January as Beijing fails to lift hopes around the health of their construction industry, leading to loss-making steel mills buying less ore and creating stockpiles at Chinese ports.

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