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The ASX200 took another tumble on Monday taking Mays decline to well over 4% in just over a week, the selling was again broad based with well over 80% of the main board closing in the red – the “buy the dip” mantra has vanished almost as fast as investors’ appetite for bonds. We are not seeing any fresh trends emerge it’s just a simple continuation of the last 6-months with any stocks trading on high valuations or potentially optimistic future earnings being dumped as investors move increasingly towards defensive names and cash, just a few simple examples from yesterday’s trading sums up the current market sentiment:
Broad-based selling continued for a second session as investors feared higher for longer inflation and a slowing global economy. Shares in resources companies were sold off on poor China export data which saw growth at a 2 year low on the back of lockdowns in a number of cities. Energy was one of the few exceptions with further sanctions on Russia’s exports tightening the market. Traditional low growth sectors of consumer staples and healthcare also managed to finish higher on a soft day while Real estate shares took the most heat as bond yields continued to rise.
The news & rhetoric coming out of China reminded me and a I’m sure a few others of George Orwell’s famous last novel – 1984! The communist party has kept 25 million people locked down in Shanghai for around 6-weeks as it continues to strive to meet its Covid-zero strategy, they’ve turned the streets into ghost towns and are almost jailing positive cases in “quarantine centres”, I can’t imagine being confined in an average sized apartment in the countries most populated city for that length of time. The rest of the world is living with the virus while President Xi Jinping’s basically doubling down on his probably unrealistic ambitions:
The ASX200 endured an abysmal Friday which finally saw the index close down -2.2%, the session saw only 6% of the main board manage to close in positive territory, conversely the same number of stocks fell by over -7%! There was nowhere to hide from the relentless selling with companies who reported being treated very harshly, even when the numbers like Macquarie’s (MQG) looked ok. To put the end of the weeks drop into perspective it was the local markets largest one day decline since Russia invaded the Ukraine back in February.
The local market copped its biggest hit since February today, falling to a 6-week low after the US market tumbled overnight. Yields were higher again, on the back of the BOE raising rates and also talking to the chance of inflation hitting 10%+ in the final quarter of the year. Tech was the hardest hit, real estate a near second place on the back of the rally in yields. Despite the savage selling, consumer staples held up well to only finish marginally lower.
The ASX200 embraced the Feds milder rhetoric on Wednesday night and in particular their comments which suggested that aggressive 0.75% hikes were unlikely through 2022 i.e. interest rates are going up but not as fast as many feared. Local bond yields retreated substantially on the news with the 3-years falling almost 0.25% from Wednesdays 3.17% high, MM has been looking for bond yields to consolidate their strong advance over the last 5-months and this week’s rate hikes by the RBA & Fed plus not too hawkish comments feel like they may have heralded such a move:
A reasonable session for the ASX today up ~0.80%, although that was against a backdrop of US stocks that rallied ~3% overnight following the US Fed’s more dovish tone around rates. We’ve written a lot around the markets aggressive positioning on interest rates, our belief that markets were ahead of themselves and a pullback in yields played out overnight, a theme that was also obvious locally today.
The ASX200 failed to hold onto early gains yesterday which was a disappointing performance following a solid result from ANZ Bank (ANZ) which helped the influential Banking Sector buck the markets trend i.e. the “Big 4” posted an average gain of 0.7%. However the resources stocks, amongst others, drifted lower throughout the day damaging both sentiment and the index in the process, investors feel more comfortable selling pockets of market strength as opposed to buying weakness although we shouldn’t jump too aggressively on the medias “bear bandwagon” considering the local markets still only 4.3% below its all-time high after being hit with a barrage of macro headwinds through 2022.
The market was strong early keying off a better night overseas and a good update from ANZ which had the banking sector on the front foot early, however as bond yields continued to climb thanks to a stronger than expected retail sales print + Asian markets fell, the ASX lost its early optimism, ending the session marginally lower.
The ASX200 fell -0.4% yesterday as the RBA hiked rates slightly more than expected to 0.35% but interestingly we saw the value stocks dip slightly while tech in particular enjoyed a strong session. However, interest rates have been destined to go higher for months and while yesterday’s move was more aggressive than most economists anticipated it was always a matter of when and how fast as opposed to if they were going significantly higher. The need for the RBA’s record ultra-low COVID 0.1% rate is well and truly in the rearview mirror and MM believes the RBA effectively-acknowledged they’ve let themselves get behind the curve at 2.30 pm, on Tuesday:
