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The ASX200 was clobbered -1.65% yesterday following savage declines on Wall Street, only the healthcare & gold names caught any semblance of a bid while consumer stocks followed their US peers sharply lower around concerns of rising wages / operating costs. Equities are continuing to adjust to higher inflation and interest rates but we believe it’s now predominantly fears of a potential recession on the horizon that’s become investors’ main focus, as we approach the mid-point of 2022 MM feels we probably need a sniff of slowing inflation before markets can find a meaningful bottom.
After looking good yesterday the ASX has flipped on a dime and sold off hard today following a poor night overseas thanks largely to weakness amongst the retail stocks. That theme washed through the ASX today with a 1-2 of rising costs and weakening demand from US-listed Target enough to see local investors indiscriminately dump the sector.
The ASX200 enjoyed a strong “risk-on” session on Wednesday which resulted in a gain of 1% fuelled by over 70% of the main board advancing, gains were led by the recently underperforming Resources, Consumer Discretionary and IT Sectors while selling was noticeable in some of the traditionally more defensive names – a day early after last night! The index has been range-bound between 6750 and 7650 for almost 15-months and yesterday we closed basically exactly in the middle of the range, whatever technical methods some subscribers may prefer it’s hard not to have a neutral bias towards the underlying index whereas beneath the hood the story has been different on the stock and sector level due to a number of major macro events.
A solid session for the ASX with the market keying off a positive lead from US stocks, however, what was also obvious was buying of the intra-session dips that played out today, a theme that MM discussed this morning and a sign that bearish sentiment is starting the wane. Our preferred scenario is stocks now enjoy a decent bid tone through to the EOFY which implies areas that have struggled over recent times will stage comebacks of varying degrees i.e. tech and some commodity stocks have plenty of room to reclaim some of the recent weakness, which was an obvious theme today.
MM are adding to Flagship Growth
The ASX200 managed to close above the psychological 7100 level yesterday courtesy of strong performances by the banking and resources stocks i.e. the value stocks continue to outperform the jittery growth names. Overall we felt it was a solid performance from a market that’s slowly regaining its mojo after its 9% pullback over the previous 4-weeks, noticeably it shrugged off some hawkish comments from the RBA which would probably have sent the market sharply lower only a few weeks ago:
The ASX edged higher today thanks largely to buying in the Energy & Materials stocks while the Utilities were also strong. US Futures ticked up during our time zone, Hong Kong rallied ~3% while the minutes of the RBA’s recent meeting were released which showed they considered 3 different scenarios for rates, before taking the middle ground with a 0.25% hike.
Monday saw the ASX200 surrender most of its early gains as soft Chinese economic data led to weakness both locally and by overnight US futures. As would be expected, when China’s economy appears to be “struggling”, albeit largely self-inflicted due to its COVID lockdowns, our Resources Sector was the main intra-day drag on the index with BHP Group (BHP), OZ Minerals (OZL), RIO Tinto (RIO) and Fortescue Metals (FMG) all falling away to close lower after a strong initial opening.
The market was strong early with futures rallying ~75 points at the outset however weaker than expected data from China saw the market roll over mid-morning. IT stocks had a 2nd session of gains as bond yields continued to stabilize while a takeover tilt for Brambles (BXB) saw the Industrials fire up.
As today’s title suggests this time next weekend may deliver Australia a new Prime Minister, the bookmakers have Labor as a clear favourite but such is the huge macro influences at play in today’s stock market Morrison, Albanese etc are hardly getting a meaningful mention in terms of driving stocks in either direction. So far as we all know 2022 has been all about surging inflation and bond yields e.g. Australian 3-year bond yields have already more than tripled this year and we’re still not into June. The ASX200 has dipped more than 9% over the last few weeks and investors have become more bearish than I can recall since the GFC.
