Yesterday saw strength return to the banking sector with ANZ and CBA leading gains, though the broad sector was up an average of 1%. That was offset by weakness in Healthcare and a muted session for the miners, keeping the index in a tight range to start the week. We’re starting to see a more eclectic mix of performers, while some of the recent winners are buckling under high expectations.
Stocks that have been under earnings pressure are starting to show signs of life. Packaging company Orora (ORA) rallied 19% on an informal takeover approach that could prompt other bidders from the sidelines, with ORA bringing forward their results announcement and strategy update to today. Metal recycler Sims Group (SGM) announced further rationalisation of their business, selling non-core assets – the market likes that pushing shares 10% higher, while Challenger Group (CGF) provided a strong outlook for annuity sales in FY25.
The ASX200 recovered a further +0.5% on Monday, although it wasn’t an overly impressive day for the Australian market. The local index surrendered ~40% of its early morning gains, closing near the day's low. The resources sector continued to weigh on the broader market, e.g. Beach Energy (BPT) -12.6%, Mineral Resources (MIN) -3.8%, Fortescue (FMG) -1.4%, and BHP group (BHP) -0.5%. The banks again boosted the index from a points perspective, although the retailers provided some of the best performances after JB Hi-Fi’s (JBH) solid result, plus a surprise 80c fully franked special dividend and a positive trading update for July helped send the household name up over 8%.
A quick look at the US VIX (volatility) Index, largely renamed “Fear Gauge,” puts the last few weeks' panic selling into perspective. The BOJ's rate hike, combined with fears that the Fed was going to push the US into a recession by cutting interest rates too slowly, sent shockwaves through global equities, although ultimately, the ASX200 and S&P 500 only fell 6.4% and 9.7%, respectively. However, it was the manner of sharp declines which caught a relatively complacent market, which had been revelling in new all-time highs through much of July, napping:
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 a further +0.5% on Monday, although it wasn’t an overly impressive day for the Australian market. The local index surrendered ~40% of its early morning gains, closing near the day's low. The resources sector continued to weigh on the broader market, e.g. Beach Energy (BPT) -12.6%, Mineral Resources (MIN) -3.8%, Fortescue (FMG) -1.4%, and BHP group (BHP) -0.5%. The banks again boosted the index from a points perspective, although the retailers provided some of the best performances after JB Hi-Fi’s (JBH) solid result, plus a surprise 80c fully franked special dividend and a positive trading update for July helped send the household name up over 8%.
A quick look at the US VIX (volatility) Index, largely renamed “Fear Gauge,” puts the last few weeks' panic selling into perspective. The BOJ's rate hike, combined with fears that the Fed was going to push the US into a recession by cutting interest rates too slowly, sent shockwaves through global equities, although ultimately, the ASX200 and S&P 500 only fell 6.4% and 9.7%, respectively. However, it was the manner of sharp declines which caught a relatively complacent market, which had been revelling in new all-time highs through much of July, napping:
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%.
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