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The ASX200 only slipped 3 meagre points last week but if you were overweight the iron ore sector it would have felt very different as Beijing’s ongoing clampdown on steel production, courtesy of their migration towards lower emissions, drove the price of the bulk commodity lower. Come Friday afternoon iron ore had more than halved in just 1-month hammering the likes of Fortescue Metals (FMG), RIO Tinto (RIO) and BHP Group (BHP) in the process. We have a few takeout’s from this seismic repricing over recent weeks:
The ASX200 closed last week little changed but under the hood the market was anything but quiet on both the stock & sector level. The influential banks, healthcare and IT names were firm while the resources and utilities struggled but on the week it was almost impossible to look past the collapse of the markets major iron ore stocks, the more dependent the company is on the bulk commodity price for its revenue the harder it fell
The market struggled into the weekend with the heavy weights of the banks and resources stocks trading lower. Iron ore and coal names were hit hard by more aggressive rhetoric out of China as well as the threat of further cuts to steel production hampering the demand outlook. Banks followed the weakness while tech ran it’s own race to trade strongly higher.
The ASX200 rallied strongly yesterday as it enjoyed broad-based buying, by 4pm 60% of the index had closed in positive territory with the Energy Sector again best on ground following the strong rally by crude oil. Outside of iron ore names which have seen the likes of Fortescue Metals Group tumble 35% in just 8-weeks, although it did pay a major dividend on route, the broad market has been devoid of any meaningful selling as we continue to hover within a few percent of its all-time high.
Energy stocks back in favour today underpinning strength in the broader market as 123 stocks in the ASX 200 finished up on the session delivering the markets best gain since early August. Consumer discretionary the only sector to finish lower while the materials were a mixed bag. Options expiry today always busy on the desk so a short & sharp note this afternoon.
The ASX200 slipped 20-points lower on Wednesday primarily because the index is more heavily weighted towards the value, as opposed to growth stocks i.e. banks and resources. Fortunately a strong performance from the Healthcare & IT stocks stemmed the losses as the market continued to embrace Tuesday’s dovish comments from the RBA. To put things into perspective the Healthcare & IT stocks make up by less than 16% of the ASX200 compared to 41% for the US S&P500 i.e. the growth names exert far less influence on the Australian index.
The market finished down today although the worst of it was seen before 11am – the ASX 200 down ~60pts at the lows before a spirited fightback saw it recoup 2/3rds of the early declines. Commodities + Energy the weak links today while another ~7% slide from AGL dragged down the Utilities sector. On the flipside Healthcare and IT did well although not well enough to make hump day a positive one.
The ASX200 again recovered from early losses yesterday to close up 12-points with a 4.5% advance by the Energy Sector the clear standout, coincidentally the day after MM described it as “the cheap pocket of the market” – we remain overweight and bullish oil stocks which have fallen in 2021, even while crude oil has rallied almost 50%. The miners played a supporting role which caught our attention as iron ore plumbed multi-month lows, on balance the reflation trade is slowly gathering momentum.
The ASX was down early however a more dovish speech from RBA Governor Philip Lowe got the buyers off the sidelines pushing the market higher by the close. Again it was the Energy stocks that led the charge – an impressive ~4% gain and the sector looks great for higher levels in the near term – we’ve flagged this for a while and it’s been stubborn – then again so was Uranium before it popped!
The ASX200 enjoyed another classic 2021 day to kick off the week, it may not have managed to close on its highs but the local index still recovered from early weakness to close up 0.25%. The number of winners and losers was pretty evenly matched but the aggressive buying which rolled through much of the Resources Sector was more than enough to offset loses elsewhere e.g. OZ Minerals (OZL) +4.2% and Pilbara Minerals (PLS) +7.3%. MM remains both bullish and overweight the Resources Sector but following our purchase of Alumina (AWC) yesterday it’s probably now time to sit back…
