Monday saw all 11 sectors close higher, with the “Big Four” banks, BHP Group (BHP) and CSL Ltd (CSL), all adding to the day's +0.7% advance. However, less than 70% of the main board closed higher, with buying solid rather than euphoric. The only pocket of the Materials index that struggled after the assassination attempt on Former-President Trump was the lithium/ESG names, with the Republican candidate surging ahead of Biden at the Bookies, e.g. Liontown Resources (LTR) -3%, Pilbara (PLS) -1.3% and IGO Ltd (IGO) -1.2%. A Trump victory is good news for oil & gas as opposed to EVs, etc., as he intends to reverse Biden's climate policies.
The 2nd week of July enjoyed a dovish testimony from Jerome Powell and a lower-than-expected US CPI print (inflation), both bullish for equities, but some sectors more than others. We are now looking for bond yields and interest rates to turn lower over the coming year, which should drive some reversion on the stock/sector front. At MM, we constantly evaluate our performance from a service (survey coming this week) and portfolio performance perspective, and the standout factor of the latter is that our outperformance has come from sector and stock tilts i.e. focussing on being in the right sectors & stocks at the right time, rather than picking market direction
Will it be 3rd time lucky for the local market to attempt to break out to fresh all-time highs? We believe the answer is yes, but it certainly feels like it’s now or never, as global equity markets position themselves for lower interest rates without pricing in any meaningful risk of a recession. As for politics, equities are saying who cares if France has an unworkable government and the US is on course for a second term of a Trump Presidency. Investors are focusing on the prospect of declining interest rates while ignoring rising valuations and macro uncertainties percolating beneath the surface. This will change at some time, but for now, it’s a dangerous game fighting the bullish tape, particularly if US earnings season delivers.
The ASX200 closed down 0.2% on Wednesday but felt like a positive day to MM, with the index rallying from its early morning low to close near its intra-day high – if it weren’t for ongoing weakness by the large-cap iron ore names, it would have been a bullish reversal, e.g. BHP -1.3% and RIO -1%. The market's internals were okay, with only 52% of the ASX200 closing lower on the day, while the index itself remained above 7800, within 1.2% of its all-time high. As we’ve said a few times of late, all things being equal, the path of least resistance for the index is up, but the resources need to hold at least steady for the ASX200 to test 8000. The underperformance of the influential iron ore names, considering we’re close to all-time highs, is eye-catching:
Fed Chair Jerome Powell delivered a dovish testimony overnight, warning of the dangers of keeping interest rates too high for too long: “Reducing policy restraint too late or too little could unduly weaken economic activity and employment” and “More good data would strengthen our confidence that inflation is moving sustainably toward 2 per cent.” With the US June CPI set for release on Thursday and PPI on Friday, the groundwork has been laid for rate cuts into Christmas.
The ASX200 started the week in poor fashion, following S&P500 futures lower throughout the day in anticipation of a weak opening by Europe following the surprise French election result. Last week, markets were concerned about Le Pen, but as the results rolled in on Sunday, concerns migrated towards potential reckless spending by the victorious Left, i.e. the market interpretation being that it’s good news the Far Right lost but bad news the Far Left won. Ultimately though, moves across financial markets have been relatively muted on the view that political gridlock may at least limit the ability of the Left to enact its big-spending plans.
Friday’s US jobs data showed further signs of an easing labour market, which adds additional support to the case for the FOMC to begin cutting interest rates over the next few months – the futures market is anticipating the first cut in September. The action under the surface of the US bond market is an interesting one, with the gap between the 2s and 10s steepening to almost 20bps as markets price in more issuance down the track to pay for the likely increased spending of whoever wins the November election
The UK election looks already done and dusted, a relatively clear affair with Labour poised to return to power after 14 years in the wilderness. However, the French election on Sunday is still a close call. Recent polls suggest Marine Le Pen will be short of the numbers to achieve a majority, in line with our thoughts over recent weeks, and European bourses rallied accordingly.
Overnight, European bourses improved ahead of Sunday's French election, with the French CAC 40 closing up +1.2%. At the same time, US indices posted fresh all-time highs in a shortened session ahead of Independence Day. US bond yields fell after weaker-than-expected economic data reinforced the case for the Fed to start cutting rates this year as “bad news remains good news“ for equities – the data showed the US services sector contracted at the fastest pace in four years. The S&P 500 has added more than $16 trillion in value from a closing low in October 2022, thanks to solid earnings, the spectacular surge in artificial intelligence and expectations that interest rates will drop.
The ASX200 drifted lower on Tuesday, ending the session down -0.4%. Investors found the sidelines the most appealing option ahead of the US Jobs Report on Friday, after Independence Day on Thursday, and the troublesome French election looming on Sunday. Over 60% of the main board fell on the second day of the new FY, with only the Energy Sector offering some bullish resistance. However, losses were limited outside of the lithium (Li) stocks – we will look at these further later on.
The 2nd week of July enjoyed a dovish testimony from Jerome Powell and a lower-than-expected US CPI print (inflation), both bullish for equities, but some sectors more than others. We are now looking for bond yields and interest rates to turn lower over the coming year, which should drive some reversion on the stock/sector front. At MM, we constantly evaluate our performance from a service (survey coming this week) and portfolio performance perspective, and the standout factor of the latter is that our outperformance has come from sector and stock tilts i.e. focussing on being in the right sectors & stocks at the right time, rather than picking market direction
Will it be 3rd time lucky for the local market to attempt to break out to fresh all-time highs? We believe the answer is yes, but it certainly feels like it’s now or never, as global equity markets position themselves for lower interest rates without pricing in any meaningful risk of a recession. As for politics, equities are saying who cares if France has an unworkable government and the US is on course for a second term of a Trump Presidency. Investors are focusing on the prospect of declining interest rates while ignoring rising valuations and macro uncertainties percolating beneath the surface. This will change at some time, but for now, it’s a dangerous game fighting the bullish tape, particularly if US earnings season delivers.
The ASX200 closed down 0.2% on Wednesday but felt like a positive day to MM, with the index rallying from its early morning low to close near its intra-day high – if it weren’t for ongoing weakness by the large-cap iron ore names, it would have been a bullish reversal, e.g. BHP -1.3% and RIO -1%. The market's internals were okay, with only 52% of the ASX200 closing lower on the day, while the index itself remained above 7800, within 1.2% of its all-time high. As we’ve said a few times of late, all things being equal, the path of least resistance for the index is up, but the resources need to hold at least steady for the ASX200 to test 8000. The underperformance of the influential iron ore names, considering we’re close to all-time highs, is eye-catching:
Fed Chair Jerome Powell delivered a dovish testimony overnight, warning of the dangers of keeping interest rates too high for too long: “Reducing policy restraint too late or too little could unduly weaken economic activity and employment” and “More good data would strengthen our confidence that inflation is moving sustainably toward 2 per cent.” With the US June CPI set for release on Thursday and PPI on Friday, the groundwork has been laid for rate cuts into Christmas.
The ASX200 started the week in poor fashion, following S&P500 futures lower throughout the day in anticipation of a weak opening by Europe following the surprise French election result. Last week, markets were concerned about Le Pen, but as the results rolled in on Sunday, concerns migrated towards potential reckless spending by the victorious Left, i.e. the market interpretation being that it’s good news the Far Right lost but bad news the Far Left won. Ultimately though, moves across financial markets have been relatively muted on the view that political gridlock may at least limit the ability of the Left to enact its big-spending plans.
Friday’s US jobs data showed further signs of an easing labour market, which adds additional support to the case for the FOMC to begin cutting interest rates over the next few months – the futures market is anticipating the first cut in September. The action under the surface of the US bond market is an interesting one, with the gap between the 2s and 10s steepening to almost 20bps as markets price in more issuance down the track to pay for the likely increased spending of whoever wins the November election
The UK election looks already done and dusted, a relatively clear affair with Labour poised to return to power after 14 years in the wilderness. However, the French election on Sunday is still a close call. Recent polls suggest Marine Le Pen will be short of the numbers to achieve a majority, in line with our thoughts over recent weeks, and European bourses rallied accordingly.
Overnight, European bourses improved ahead of Sunday's French election, with the French CAC 40 closing up +1.2%. At the same time, US indices posted fresh all-time highs in a shortened session ahead of Independence Day. US bond yields fell after weaker-than-expected economic data reinforced the case for the Fed to start cutting rates this year as “bad news remains good news“ for equities – the data showed the US services sector contracted at the fastest pace in four years. The S&P 500 has added more than $16 trillion in value from a closing low in October 2022, thanks to solid earnings, the spectacular surge in artificial intelligence and expectations that interest rates will drop.
The ASX200 drifted lower on Tuesday, ending the session down -0.4%. Investors found the sidelines the most appealing option ahead of the US Jobs Report on Friday, after Independence Day on Thursday, and the troublesome French election looming on Sunday. Over 60% of the main board fell on the second day of the new FY, with only the Energy Sector offering some bullish resistance. However, losses were limited outside of the lithium (Li) stocks – we will look at these further later on.
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