Archives: Reports
A softer session for the ASX today with weakness fairly broad-based although far from aggressive in nature. It simply felt like a lack of interest and if the traffic is anything to go by many have already taken off for School holidays / Easter break. Inflation data in the US tonight which will be a key focus – March CPI expected to be 8.4% YoY up from 7.9% in Feb.
A tepid start to the trading week locally with a small 0.10% gain at the index level courtesy of strength amongst the financial stocks which have enjoyed the onset of higher interest rates, the hope that margin pressure will ease along with some large looming dividends is a hard 1-2 combo to pass up. All the talk this year has been about how hot the Energy & Materials stocks have been and rightly so, however, it’s the boring/defensive sector of Ulilities that has been the quiet achiever. In a little over 3 months, the sector that comprises the likes of APA Group (APA), Origin Energy (ORG) & AGL Energy (AGL) is up over 17%, dramatically outperforming last year’s ‘go-to’ tech sector by more than 35%. As we often say at Market Matters, keep an open mind and 2022 is so far delivering on that call.
The market opened higher this morning however petered out into the afternoon as the resource stocks gave back early gains, particularly in Iron Ore & Lithium. The IT names again dominated the naughty corner as Australian 10 year bond yields topped 3% for the first time since July 2015, however the move was far from aggressive. As discussed in Marco Monday (click here) this morning, we think the respective elastic bands are being tested at their extremes, some reversion is now our preferred scenario.
Last week saw the ASX200 consolidate its recent rally just below all-time highs despite the growing chorus for the RBA to act sooner rather than later and commence the inevitable interest rate tightening cycle, joining the US & Canada who raised by 0.25% in March and New Zealand who have now pushed through three rate increases taking the official cash rate to 1%. When the RBA cut rates way back in November of 2020 to the emergency setting of just 0.10% they based their decision on economic forecasts. By the end of 2022 they thought unemployment would be 6% and inflation would be 1.5%, as it stands now we have unemployment at 4% and inflation at 3.5%, a long way from these economic assumptions.
The second weak of April saw consolidation at the index level with the ASX closing the week 0.20% lower, a positive outcome really given the continued headwind from rising rates into a market that is just 2% below all time highs.
However, when we stand back and look at earnings, the most important driver of stocks over time, the profile of the ASX has been picking up thanks in part to higher commodity prices and in particular, plenty of upgrades in the Lithium space. While some question the strength of the market, earnings are also at a high and it’s not just driven by commodity prices, if we strip those out, the rest of the market is actually seeing an increase. The P/E of the market has moved from 20x at the end of 2020, back to 15.8x now which is only slightly above historical averages, and certainly not scary.
Commodities helped support the local index into the weekend as the index recouped most of the losses see this week. Materials were strong coming on the back of further sanctions on Russia as well as commentary out of Japan as they look for alternative sources of coal and other bulk commodities. Tech remained under pressure with central banks continuing to push higher rates and balance sheet tightening, also weighing on Real Estate stocks.
The local market endured a bad day at the office yesterday falling -0.6% as we followed the US futures lower through both their day session and again during our day time / their overnight session. Over 70% of the mainboards stocks slid on Thursday but it was again the growth stocks that weighed the most on the ASX with all members closing lower leaving the overall sector down -3.5%, ultimately it was a fairly uninspiring day that saw the SPI Futures close where they were trading at 10am.
The market opened lower this morning & tracked sideways in a lacklustre session with weakness across the IT stocks the only real standout, while there was an obvious move into the more defensive areas of Staples, Utilities & REITS. The fact todays -47pt drop was the biggest in 3 weeks highlights how subdued the market has become at the index level, with all the action happening under the hood.
The local market fought valiantly on Wednesday to recover from a very shaky start finally closing down exactly -0.5%, although only 31% of the market closed up on the day a strong session across the influential Banking Sector was enough to offset the broad based losses across the tech and resources stocks. The sentiment towards the banks appears to have lifted following yesterday’s RBA comments which strongly implied they would start hiking interest rates sooner rather than later, historically banks improve their margins in a higher rate environment, assuming bad debts remain stable. Our view towards the sector hasn’t changed for months and if MM is correct things should start to get interesting:
The market was hit on open to trade down ~80pts however it ground back from 11am onwards to re-coup half of those declines, most support coming from the influential banking sector which had a strong day.
The S&P/ASX 200 fell -37points / -0.37% to close at 7527.
Financials (+3.10%) & Consumer Staples (+2.22%) lead the line today, while IT (-2.88%) & Materials (-1.52) struggled.
Tech stocks keyed off underperformance in the US overnight, the almost daily rotation continues however they are gaining more support overall as the pace of appreciation in bond yields slows.
