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Macro Monday: It’s May, the RBA is set to hike tomorrow & we’re already set to open down 100-points!
Over recent decades investors in Australian shares have regularly experienced a negative return through May & June, hence the phrase quoted at nauseam “sell in May and go away”. This morning is certainly poised to rattle investors after Fridays -3.6% plunge by the US S&P500 following further disappointing earnings reports. At MM we had been looking for a spike to new highs through March / April to migrate down the risk curve while at the same time increasing cash levels, so far we’ve only increased our exposure to the defensive end of town as opposed to executing some outright selling as the index failed to reach our upside target levels.
The ASX200 fought valiantly on Thursday / Friday to end the week down less than 1% with Fridays strong 78-point recovery taking the index back well above 7400, the market actually popped 10-points in the match to close on its high for the day and yet again find ourselves within striking distance of a fresh all-time high. The index has now spent 13-months rotating between 6750 and 7625, perhaps the infamous May will see a move to a fresh equilibrium although history would favour the bears.
The ASX200 closed out the week on the front foot rallying over 2% on Thursday + Friday taking the index back within 2% of its all-time high. The week saw further volatility focused around China as lockdowns across Beijing and Shanghai reverberated across financial markets i.e. it’s hard to imagine global growth without Chinas participation e.g. BHP Group (BHP) has traded in a whopping $8.60 / 16% range in just a few days as we saw investors try and second guess what comes next.
The ASX200 bounced almost +1.3% overnight as the mining stocks enjoyed a strong rebound which helped the Materials Sector rally over +3.5%. The local market yet again finds itself only 3% below its all-time high although most subscribers would agree it doesn’t feel that strong but we cannot argue with the numbers, at MM we still believe “the path of most pain” for underweight investors is a pop to new highs but after trading sideways for more than 12-months it feels a rash call to say it will happen in coming weeks, especially as the banks are starting to feel tired into May.
The bulls re-emerged today with a focus on the resource stocks pushing the Material sector up by 3.5% in aggregate with strong gains across Iron Ore, Copper, Coal, Nickel & Mineral Sands – pretty much right across the board (bar Uranium, Gold & Lithium). US Futures moved higher throughout our session and that prompted a nice bottom left top right sort of day for the market with the ASX200 back up above 7300.
A week is proving to be a very long time in today’s market, last week the ASX200 tested its all-time high for a second time in 2022 and then yesterday morning we found ourselves 5% lower. The pullback has largely been driven by a plunge in the previously “hot” Resources Sector as China threatens to choke the global economy with further COVID lockdowns, over just 6 trading sessions heavyweight BHP Group has fallen 16%. While MM believes the sector is likely to attract some buying after its savage rerating we remain conscious that investors were positioned the most overweight ever towards the commodity sector which by definition poses some clear washout risks – time will tell if we’ve just witnessed enough of a sell-off to rebalance the markets positioning towards the sector however it seems a strong possibility.
Another tough session for Australian shares although the sell-off had a more pedestrian feel about it with the index tracking up from early morning lows. Inflation data at 11.30am this morning took centre stage and while it came in ahead of expectations, the initial knee-jerk sell-off by equities was met with buying while the reverse played out in the bond market implying that traders are positioned for liftoff.
We are making some changes to Emerging Companies Portfolio, selling Ive Group (IGL), buying Select Harvests (SHV) & Paladin (PDN), and adding to Pinnacle Investments (PNI) and Bapcor (BAP)
The ASX200 tumbled 2% yesterday courtesy of the combination of gathering downside momentum in global equities and China’s deteriorating COVID picture which is seriously threatening to derail global growth as lockdowns loom across the world’s 2nd largest economy. China is following the rest of the world’s approach to COVID elimination only more than a year behind schedule, Xi Jinping et al are now considering locking down Beijing in an effort to follow their zero-tolerance policy towards the virus – good luck with that! The “million-dollar question” is how far will China go to fight COVID…
A tough day for the ASX with the market coming back online after a long weekend losing over 2%. Commodity stocks in the firing line as Chinese lockdowns are starting to create nervousness towards global growth expectations at a time when central banks are raising rates – not a good combo!
