The ASX200 closed up +0.2% yesterday helped by a firm Banking Sector, the “Big Four” gained an average of +0.6% in a relatively quiet session which saw stocks drift from their highs following strong employment data at 11.30 am – the unemployment rate fell to 3.6% increasing expectations of another rate hike by the RBA. The strong data probably helped support the banks with the 5th pillar Macquarie Group (MQG) leading the charge gaining +2.3%.
Arguably the weak link of the MM Flagship Growth Portfolio through 2023 has been our overweight healthcare exposure i.e. we have 13% in the Healthcare Sector which is above the 10% of the broad index. Hence, if we are overweight a sector that’s not delivering results we must reassess, especially after its largest member and the 3rd largest stock on the ASX suffered a rare negative rerating yesterday.
The elastic band continues to stretch between the top performing tech sector and the underwhelming value names such as banks & resources but as MM has been regularly trotting out the last 12 months has been about the strong getting stronger, and in our opinion, until the world regains confidence that the global economy can avoid a painful recession in today’s new high-interest rate environment, this trend could continue.
Investors and traders alike are going to be bombarded with a plethora of economic news this week, firstly the US CPI (inflation) data is released tonight followed by the latest US Federal Reserve interest rate announcement on Wednesday night while the European Central Bank (ECB) steps up on Thursday followed by the Bank of Japan (BOJ) on Friday, if all goes according to “expectations” the ECB will be the only central bank to hike, or move for that matter, but 2023 has already thrown up plenty of surprises.
The RBA surprise (kind of) rate hike and accompanying hawkish rhetoric have sent Australian 3-year bond yields to decade highs, an unlikely backdrop for a surging tech sector but we cannot argue with the tape – plus we should never forget the new world in which we live where advancing and evolving tech is reshaping business.
Yesterday saw the ASX200 slip another -0.2% having opened strongly with Tuesday’s RBA rate hike appearing to take the wind out of the sails of an already tired market – over the last 2 days we have spent hours reading both local and international equity/economic research and the bulls have definitely gone into hibernation, just like a grizzly in December. Losers only marginally edged the winners on Wednesday but a pullback in the banks was enough to drag the index lower in a fairly lacklustre but evidently weak session which was characterised by an absence of buyers as opposed to aggressive selling.
The ASX200 tumbled -1.2% on Tuesday with over half of the losses unfolding after the RBA’s hike – the move may have been a surprise to some but heavyweights UBS, Goldman Sachs & Deutsche Bank called it correctly with all looking for at least one more sooner rather than later. Only the Utilities Sector managed to advance yesterday while not surprisingly the Consumer Discretionary Sector was worst on the ground falling -2.2%. Our stance toward the ASX hasn’t deviated over recent months and considering the index continues to tread water we feel on point until further notice.
Year to date we have already witnessed the Tech Sector outperform the Resources by over 20% as the strong keep getting stronger and vice versa. Over the last 12 months, we’ve seen investors almost move on mass into and out of hot stocks and sectors with the heard like mentality at times leading to crowded trades which have a habit of unwinding in dramatic fashion at some stage of the cycle, the skill is identifying when the risk/reward has stretched too far and caution is warranted e.g. MM often starts trimming positions when we believe this is the case.
The RBA will be meeting tomorrow at 2.30 pm with a number of mixed opinions around the likely action from Philip Lowe et al. MM and most market participants were confident that the RBA would hold the Cash Rate at 3.85% for at least a few months and potentially right through until Christmas but following April’s CPI upside surprise to 6.8%, the chances of another rate hike have undoubtedly increased with rising house prices not helping the argument for a pause. Futures markets are now pricing a ~40% probability of a hike tomorrow, however, there is a large cross-section of views in the market making this a very ‘live’ decision.
The local energy sector has proven very resilient to a weak oil price which is a trigger MM often uses to enter a stock/sector i.e. we like to see markets shrugging off bad news, it’s often the sign of an inflexion point. We still believe that crude oil can dip below $US70/barrel but at this stage, we believe this is likely to provide a buying opportunity into stocks such as Woodside Energy (WDS) and Santos (STO). Medium to longer term we remain bullish on the traditional energy sector but for now, economic concerns are weighing on the likes of crude oil.
Arguably the weak link of the MM Flagship Growth Portfolio through 2023 has been our overweight healthcare exposure i.e. we have 13% in the Healthcare Sector which is above the 10% of the broad index. Hence, if we are overweight a sector that’s not delivering results we must reassess, especially after its largest member and the 3rd largest stock on the ASX suffered a rare negative rerating yesterday.
The elastic band continues to stretch between the top performing tech sector and the underwhelming value names such as banks & resources but as MM has been regularly trotting out the last 12 months has been about the strong getting stronger, and in our opinion, until the world regains confidence that the global economy can avoid a painful recession in today’s new high-interest rate environment, this trend could continue.
Investors and traders alike are going to be bombarded with a plethora of economic news this week, firstly the US CPI (inflation) data is released tonight followed by the latest US Federal Reserve interest rate announcement on Wednesday night while the European Central Bank (ECB) steps up on Thursday followed by the Bank of Japan (BOJ) on Friday, if all goes according to “expectations” the ECB will be the only central bank to hike, or move for that matter, but 2023 has already thrown up plenty of surprises.
The RBA surprise (kind of) rate hike and accompanying hawkish rhetoric have sent Australian 3-year bond yields to decade highs, an unlikely backdrop for a surging tech sector but we cannot argue with the tape – plus we should never forget the new world in which we live where advancing and evolving tech is reshaping business.
Yesterday saw the ASX200 slip another -0.2% having opened strongly with Tuesday’s RBA rate hike appearing to take the wind out of the sails of an already tired market – over the last 2 days we have spent hours reading both local and international equity/economic research and the bulls have definitely gone into hibernation, just like a grizzly in December. Losers only marginally edged the winners on Wednesday but a pullback in the banks was enough to drag the index lower in a fairly lacklustre but evidently weak session which was characterised by an absence of buyers as opposed to aggressive selling.
The ASX200 tumbled -1.2% on Tuesday with over half of the losses unfolding after the RBA’s hike – the move may have been a surprise to some but heavyweights UBS, Goldman Sachs & Deutsche Bank called it correctly with all looking for at least one more sooner rather than later. Only the Utilities Sector managed to advance yesterday while not surprisingly the Consumer Discretionary Sector was worst on the ground falling -2.2%. Our stance toward the ASX hasn’t deviated over recent months and considering the index continues to tread water we feel on point until further notice.
Year to date we have already witnessed the Tech Sector outperform the Resources by over 20% as the strong keep getting stronger and vice versa. Over the last 12 months, we’ve seen investors almost move on mass into and out of hot stocks and sectors with the heard like mentality at times leading to crowded trades which have a habit of unwinding in dramatic fashion at some stage of the cycle, the skill is identifying when the risk/reward has stretched too far and caution is warranted e.g. MM often starts trimming positions when we believe this is the case.
The RBA will be meeting tomorrow at 2.30 pm with a number of mixed opinions around the likely action from Philip Lowe et al. MM and most market participants were confident that the RBA would hold the Cash Rate at 3.85% for at least a few months and potentially right through until Christmas but following April’s CPI upside surprise to 6.8%, the chances of another rate hike have undoubtedly increased with rising house prices not helping the argument for a pause. Futures markets are now pricing a ~40% probability of a hike tomorrow, however, there is a large cross-section of views in the market making this a very ‘live’ decision.
The local energy sector has proven very resilient to a weak oil price which is a trigger MM often uses to enter a stock/sector i.e. we like to see markets shrugging off bad news, it’s often the sign of an inflexion point. We still believe that crude oil can dip below $US70/barrel but at this stage, we believe this is likely to provide a buying opportunity into stocks such as Woodside Energy (WDS) and Santos (STO). Medium to longer term we remain bullish on the traditional energy sector but for now, economic concerns are weighing on the likes of crude oil.
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