Weekend Q&A: The bulls emerge as bond yields peak

Friday’s dramatic +2.8% surge by the ASX200 saw the local market close up +3.8% for the week at levels not enjoyed since early June i.e. we’ve already exceeded our target of testing the August highs into Christmas. The weaker-than-expected US CPI lit up equities at the end of last week as hopes increased that the Fed will ease the rate of its interest rate hikes following the painful journey through 2022. Over the 5 days the huge relief rally was primarily focused on the resources stock although the tech names played some decent catch-up on Friday:

Winners: Evolution Mining (EVN) +30%, Sandfire Resources (SFR) +22.3%, IGO Ltd (IGO) +10.8%, and Goodman Group (GMG) +8.6%.

Losers: National Australia Bank (NAB) -2.4%, Whitehaven Coal (WHC) -19.4%, and QBE Insurance (QBE) -0.6%.

MM has been waiting for the final piece of our macro forecast to fall into place and the strong reversal in the $US and bond yields last week following Thursday’s weak CPI appears to be it, if we are correct the growth stocks, led by tech, will now spearhead the market’s recovery into Christmas while companies that enjoy rising interest rates such as QBE Insurance (QBE) and Computershare (CPU) look set to underperform into 2023.

• MM now believes the $US and bond yields have peaked for 2022 following relatively subdued inflation data.

Optimism around US inflation and interest rates extended on Friday night with strong gains in the tech-based NASDAQ and interest rate-sensitive names filtering down across the broad market e.g. Tech +1.7% and Materials +1.2%. Another strong night by commodities should really set the ASX on its way next week, copper +4.9% and oil +2.9% caught our eye, and the SPI Futures are calling the local market up another +0.6% this morning, back towards 7200!

• We continue to believe both US & Australian equities will be higher come Christmas with surprises feeling more likely on the upside.

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