The market clearly doubts whether the RBA seriously considered another hike. We’ve been saying for months that the RBA doesn’t want to hike, although it's not totally off the table, and this view still feels on point. A few days of market volatility, largely driven by the unwind of the “Yen Carry Trade”, isn’t enough to make central banks cut interest rates; inflation is their primary focus, although they will remain vigilant to external circumstances, including ongoing market volatility. If we stand back and put things into context, the ASX200 is up +1.2% in 2024 and posted new all-time highs last week, numbers that shouldn’t unsettle the RBA.
The ASX200 plunged almost 300 points on Monday as global equity markets continued to panic that a recession was imminent for the US and the rest of the world would follow suit. Nobody felt the pain more than Japan following the BOJ’s rate hike last week; the Nikkei was down a staggering 12.4%, its worst day since “Black Monday” in 1987, wiping out all of this year's gains in one fell swoop. We believe the unwinding of the “Carry Trade” has been the catalyst that has ignited the current volatility – more on this later. Market sentiment has turned on a sixpence as reduced liquidity collided with the perceived increased risk of an economic slowdown; cash has become the asset class of choice for many investors, i.e. if in doubt, get out! Everything from stocks, gold and Bitcoin, has sold as “risk off” ruled dominated over recent days.
The end of last week saw a significant change in the market’s perception of “bad economic news”. Instead of being embraced by equities in anticipation of future interest rate cuts, it led to aggressive selling as fears of a recession escalated exponentially.
US equities endured a tough session on Thursday night as a new chapter was turned with rate cuts fully built into markets but fears of a recession are gaining momentum. The concept of a ‘hard landing’ has felt like a dormant beast, with bad economic news being welcomed by stocks because it stoked optimism about rate cuts; this has now changed, with traders now scarred that the Fed have been too slow cutting rates and a tougher economic reality is a real possibility. The bond market is already telling us that Jerome Powell et al. may be behind the curve. Not all stocks felt the selling, with Meta Platforms (META US) closing up +4.8% on stronger-than-expected 2nd quarter results and upbeat guidance.
It took an almighty +1.75% surge on the 31st, but July has again delivered a stellar performance. For 2024, the seasonally strong month delivered an impressive +4.2% gain, eclipsing the average return over the last decade of +3%. We are excited about the market following yesterday’s CPI. Still, we will continue to focus on the stock and sector rotation, especially as August/September is historically the weakest seasonal period for stocks – the average decline over the last decade for these 2-months is -3.8%.
The ASX200 recovered strongly from an aggressive early morning sell-off on Tuesday to close down 0.5%, not a great result but far better than the earlier 1.2% drop. The index actually managed to end the session close to its intraday high as bargain hunters surfaced in most areas except for the resources—again! Following the placement of 100 million Fortescue (FMG) shares at $18.55, the iron ore miner fell over 10%, contributing almost a third of the ASX’s decline. When combined with BHP’s 53c drop, we had two major miners making up over 50% of the main board's 36-point drop.
US equities had a cautious overnight session ahead of this week's major tech reports. Microsoft, Meta Platforms, Apple, and Amazon are likely to determine whether tech stocks can bounce back from last week’s declines. So far, with just over 40% of S&P 500 having now reported, according to FactSet, Q2 blended earnings growth is running at +9.8%, up ~100 bp from end of June. Blended revenue growth rate is +5.0%. In addition, 78% have beaten consensus EPS expectations, in line with one-year average, while 60% have beaten on revenue, below the 63% average. Earnings beats are being rewarded less than average and misses being punished more than average, a theme we have flagged.
The last few weeks saw the S&P500 correct 4.9% and the tech-based NASDAQ 9.5%, including their worst day in almost a year on Wednesday following disappointing earnings from Tesla (TSLA US) while Alphabet (GOOGL US) broadly met expectations, yet shares still fell. The simple problem is expectations are high, plus of course we’ve gotten used to ‘beats’ rather than ‘meets’ from US tech, and if companies don’t deliver, hot/momentum money exits, often resulting in a dramatic unwind, which is amplified by passive ETF flows. The recent concerns around the AI and tech space will come further under the microscope this week when Amazon, Meta, Apple, and Microsoft report June quarter earnings.
MM has been adopting a more defensive stance over recent weeks, but it's never enough when the index registers a triple-digit decline. However, as the ASX200 threatens to break cleanly below 7900, the psychological 8000 area is rapidly becoming a distant memory, although while it doesn't feel like it, the ASX200 is still up +1.2% in July. While we are not index punters at MM, it is important to recognise the risks as/when they arise; as stocks enter the seasonally weak August and September, a pullback towards 7500 should not be discounted, i.e. another 4-5% lower. Hence, at this stage, we remain open minded about what comes next, in no hurry to migrate back up the “risk curve”, although we’re not as far down it as we’d like to be with our tilt towards commodities.
The market clearly doubts whether the RBA seriously considered another hike. We’ve been saying for months that the RBA doesn’t want to hike, although it's not totally off the table, and this view still feels on point. A few days of market volatility, largely driven by the unwind of the “Yen Carry Trade”, isn’t enough to make central banks cut interest rates; inflation is their primary focus, although they will remain vigilant to external circumstances, including ongoing market volatility. If we stand back and put things into context, the ASX200 is up +1.2% in 2024 and posted new all-time highs last week, numbers that shouldn’t unsettle the RBA.
The ASX200 plunged almost 300 points on Monday as global equity markets continued to panic that a recession was imminent for the US and the rest of the world would follow suit. Nobody felt the pain more than Japan following the BOJ’s rate hike last week; the Nikkei was down a staggering 12.4%, its worst day since “Black Monday” in 1987, wiping out all of this year's gains in one fell swoop. We believe the unwinding of the “Carry Trade” has been the catalyst that has ignited the current volatility – more on this later. Market sentiment has turned on a sixpence as reduced liquidity collided with the perceived increased risk of an economic slowdown; cash has become the asset class of choice for many investors, i.e. if in doubt, get out! Everything from stocks, gold and Bitcoin, has sold as “risk off” ruled dominated over recent days.
The end of last week saw a significant change in the market’s perception of “bad economic news”. Instead of being embraced by equities in anticipation of future interest rate cuts, it led to aggressive selling as fears of a recession escalated exponentially.
US equities endured a tough session on Thursday night as a new chapter was turned with rate cuts fully built into markets but fears of a recession are gaining momentum. The concept of a ‘hard landing’ has felt like a dormant beast, with bad economic news being welcomed by stocks because it stoked optimism about rate cuts; this has now changed, with traders now scarred that the Fed have been too slow cutting rates and a tougher economic reality is a real possibility. The bond market is already telling us that Jerome Powell et al. may be behind the curve. Not all stocks felt the selling, with Meta Platforms (META US) closing up +4.8% on stronger-than-expected 2nd quarter results and upbeat guidance.
It took an almighty +1.75% surge on the 31st, but July has again delivered a stellar performance. For 2024, the seasonally strong month delivered an impressive +4.2% gain, eclipsing the average return over the last decade of +3%. We are excited about the market following yesterday’s CPI. Still, we will continue to focus on the stock and sector rotation, especially as August/September is historically the weakest seasonal period for stocks – the average decline over the last decade for these 2-months is -3.8%.
The ASX200 recovered strongly from an aggressive early morning sell-off on Tuesday to close down 0.5%, not a great result but far better than the earlier 1.2% drop. The index actually managed to end the session close to its intraday high as bargain hunters surfaced in most areas except for the resources—again! Following the placement of 100 million Fortescue (FMG) shares at $18.55, the iron ore miner fell over 10%, contributing almost a third of the ASX’s decline. When combined with BHP’s 53c drop, we had two major miners making up over 50% of the main board's 36-point drop.
US equities had a cautious overnight session ahead of this week's major tech reports. Microsoft, Meta Platforms, Apple, and Amazon are likely to determine whether tech stocks can bounce back from last week’s declines. So far, with just over 40% of S&P 500 having now reported, according to FactSet, Q2 blended earnings growth is running at +9.8%, up ~100 bp from end of June. Blended revenue growth rate is +5.0%. In addition, 78% have beaten consensus EPS expectations, in line with one-year average, while 60% have beaten on revenue, below the 63% average. Earnings beats are being rewarded less than average and misses being punished more than average, a theme we have flagged.
The last few weeks saw the S&P500 correct 4.9% and the tech-based NASDAQ 9.5%, including their worst day in almost a year on Wednesday following disappointing earnings from Tesla (TSLA US) while Alphabet (GOOGL US) broadly met expectations, yet shares still fell. The simple problem is expectations are high, plus of course we’ve gotten used to ‘beats’ rather than ‘meets’ from US tech, and if companies don’t deliver, hot/momentum money exits, often resulting in a dramatic unwind, which is amplified by passive ETF flows. The recent concerns around the AI and tech space will come further under the microscope this week when Amazon, Meta, Apple, and Microsoft report June quarter earnings.
MM has been adopting a more defensive stance over recent weeks, but it's never enough when the index registers a triple-digit decline. However, as the ASX200 threatens to break cleanly below 7900, the psychological 8000 area is rapidly becoming a distant memory, although while it doesn't feel like it, the ASX200 is still up +1.2% in July. While we are not index punters at MM, it is important to recognise the risks as/when they arise; as stocks enter the seasonally weak August and September, a pullback towards 7500 should not be discounted, i.e. another 4-5% lower. Hence, at this stage, we remain open minded about what comes next, in no hurry to migrate back up the “risk curve”, although we’re not as far down it as we’d like to be with our tilt towards commodities.
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