Monday saw cement business ABC receive a takeover bid from the largest shareholder, Victorias Barro family (~43%) and NY-listed Irish building giant CRH. The $2.1mn buyout proposal offered more hope to the long-suffering shareholders in one fell swoop than the board achieved over the last five years. The proposal at $3.20 saw the stock pop over 30%, although it still closed ~7% below the bid due to the ongoing risks associated with the approach.
Equities accelerated higher last week after the US Fed left interest rates unchanged and, more importantly, they pivoted towards rate cuts in 2024—the sharp U-turn by Jerome Powell et al. changed the investment landscape moving forward from a matter of when not if the Fed would cut rates next year. The dramatic dovish change after the 3rd FOMC meeting, which left rates unchanged, saw Bank of America pencil in a 90% chance of a cut by March while the Fed members clearly expect to be active next year.
This week’s recent dovish tilt by the Fed has made us tweak our already bullish outlook higher; now, we wouldn’t be surprised to see the ASX200 make new all-time highs in 1Q of 2024 - Never say never! Ever since the GFC over 15 years ago, the ASX200 has been trending upwards with a few 15-20% corrections along the journey. Interest rates have been the main driver of valuations and sentiment during this time. We see no reason for this to change, i.e. stocks are in a sweet spot after the Fed's comments on Wednesday night, but as the previous German Bund chart illustrated, we are already well into the pullback in yields MM has been flagging over the last few months.
The strength across iron ore names has been garnering plenty of air-time over recent days, with Fortescue (FMG) making new all-time highs yesterday as the bulk commodity hovers around the $US135/mt level – to put things in perspective, the Australian government’s budget forecast assumed iron ore would be trading around $US60/mt, at least this wrong call was beneficial with the budget improving daily. We believe BHP’s chief economist, Huw McKay, was on the money this week when he said, “This is an incredibly sweet spot for the industry”, as the printing presses keep rolling at the likes of BHP and RIO.
The ASX200 added to December's gains on Tuesday, taking it up more than 2%, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area. The broad market was again firm on Tuesday, with no sectors falling and over 70% of the main board ending the session higher. Apart from the strong performance of the tech names, the influential banks and major miners have remained firm over recent weeks.
We already believe stocks are pricing in a best-case scenario of lower rates without a recession, i.e. the Goldilocks scenario; hence, any bumps in the road through 2024 could see setbacks for stocks and, in particular, the “risk-on” trade, e.g. gold is a high Beta example having retraced ~$US100/oz of its recent gains after bond yields bounced over the last few days. As we mentioned earlier, US credit markets are attributing a 40% chance that rates will be cut by March 2024, but at MM, we believe it won't be until the next FY and, more than likely, the 4th quarter, which suggests some market disappointment at times next year.
Global equities have driven higher over the last 7-weeks, fuelled by dovish optimism that international central banks will start cutting interest rates in 2024 as they appear to be winning the battle against inflation. Since late October, the US 2-year yield has fallen from 5.26% to 4.54%, while the local 3s reversed from 4.47% to 3.84%, as credit markets have decided it’s a case of “when not if” rate cuts will commence, very different sentiment to that which prevailed through September & October. Not surprisingly, the winner's enclosure over the last month has been dominated by the rate-sensitive stocks/sectors such as the Real Estate and Healthcare Sectors.
Yesterday, we heard that Woodside (WDS) and Santos (STO) are considering a $80bn oil & gas merger following the global trend as their operating landscape changes with decarbonisation pressures increasing rapidly. Discussions are at an early stage, with no certainty a deal will be forthcoming; they might be testing the market's response following the overnight announcement. Over recent months, major shareholders have been touting ideas on how STO could unlock shareholder value, including a break-up of the business.
We remain bullish equities through December with the ASX200 Accumulation index poised to make fresh all-time highs, i.e. the ASX200, including dividends. Hopes of lower interest rates are driving the recent rally through 2024. However, investors are largely ignoring the risks of an economic contraction as the hiking cycle bites consumers and borrowers – the “Goldilocks scenario” is the market's current preferred scenario.
The ASX200 reversed lower for the week on Tuesday as the Resources Sector led the declines, e.g. Pilbara (PLS) -8.5%, IGO Ltd (IGO) -6.7%, Northern Star (NST) -4%, and Sandfire Resources (SFR) -3%. However, with well over 80% of the main board closing lower, there were few bright pockets, with the exception of the Healthcare Sector, which enjoyed a defensive bid, ultimately closing up 0.03%, not conclusive but at least positive.
Equities accelerated higher last week after the US Fed left interest rates unchanged and, more importantly, they pivoted towards rate cuts in 2024—the sharp U-turn by Jerome Powell et al. changed the investment landscape moving forward from a matter of when not if the Fed would cut rates next year. The dramatic dovish change after the 3rd FOMC meeting, which left rates unchanged, saw Bank of America pencil in a 90% chance of a cut by March while the Fed members clearly expect to be active next year.
This week’s recent dovish tilt by the Fed has made us tweak our already bullish outlook higher; now, we wouldn’t be surprised to see the ASX200 make new all-time highs in 1Q of 2024 - Never say never! Ever since the GFC over 15 years ago, the ASX200 has been trending upwards with a few 15-20% corrections along the journey. Interest rates have been the main driver of valuations and sentiment during this time. We see no reason for this to change, i.e. stocks are in a sweet spot after the Fed's comments on Wednesday night, but as the previous German Bund chart illustrated, we are already well into the pullback in yields MM has been flagging over the last few months.
The strength across iron ore names has been garnering plenty of air-time over recent days, with Fortescue (FMG) making new all-time highs yesterday as the bulk commodity hovers around the $US135/mt level – to put things in perspective, the Australian government’s budget forecast assumed iron ore would be trading around $US60/mt, at least this wrong call was beneficial with the budget improving daily. We believe BHP’s chief economist, Huw McKay, was on the money this week when he said, “This is an incredibly sweet spot for the industry”, as the printing presses keep rolling at the likes of BHP and RIO.
The ASX200 added to December's gains on Tuesday, taking it up more than 2%, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area. The broad market was again firm on Tuesday, with no sectors falling and over 70% of the main board ending the session higher. Apart from the strong performance of the tech names, the influential banks and major miners have remained firm over recent weeks.
We already believe stocks are pricing in a best-case scenario of lower rates without a recession, i.e. the Goldilocks scenario; hence, any bumps in the road through 2024 could see setbacks for stocks and, in particular, the “risk-on” trade, e.g. gold is a high Beta example having retraced ~$US100/oz of its recent gains after bond yields bounced over the last few days. As we mentioned earlier, US credit markets are attributing a 40% chance that rates will be cut by March 2024, but at MM, we believe it won't be until the next FY and, more than likely, the 4th quarter, which suggests some market disappointment at times next year.
Global equities have driven higher over the last 7-weeks, fuelled by dovish optimism that international central banks will start cutting interest rates in 2024 as they appear to be winning the battle against inflation. Since late October, the US 2-year yield has fallen from 5.26% to 4.54%, while the local 3s reversed from 4.47% to 3.84%, as credit markets have decided it’s a case of “when not if” rate cuts will commence, very different sentiment to that which prevailed through September & October. Not surprisingly, the winner's enclosure over the last month has been dominated by the rate-sensitive stocks/sectors such as the Real Estate and Healthcare Sectors.
Yesterday, we heard that Woodside (WDS) and Santos (STO) are considering a $80bn oil & gas merger following the global trend as their operating landscape changes with decarbonisation pressures increasing rapidly. Discussions are at an early stage, with no certainty a deal will be forthcoming; they might be testing the market's response following the overnight announcement. Over recent months, major shareholders have been touting ideas on how STO could unlock shareholder value, including a break-up of the business.
We remain bullish equities through December with the ASX200 Accumulation index poised to make fresh all-time highs, i.e. the ASX200, including dividends. Hopes of lower interest rates are driving the recent rally through 2024. However, investors are largely ignoring the risks of an economic contraction as the hiking cycle bites consumers and borrowers – the “Goldilocks scenario” is the market's current preferred scenario.
The ASX200 reversed lower for the week on Tuesday as the Resources Sector led the declines, e.g. Pilbara (PLS) -8.5%, IGO Ltd (IGO) -6.7%, Northern Star (NST) -4%, and Sandfire Resources (SFR) -3%. However, with well over 80% of the main board closing lower, there were few bright pockets, with the exception of the Healthcare Sector, which enjoyed a defensive bid, ultimately closing up 0.03%, not conclusive but at least positive.
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