The ASX200 rallied +0.6% on Monday following a positive lead from Wall Street, the gains were broad-based with over 70% of the main board advancing which was made even more impressive by several stocks trading ex-dividend e.g. Bendigo Bank (BEN), Ramsay Healthcare (RHC) QBE Insurance (QBE) and Iluka (ILU). Ironically the day before the RBA’s set to hike rates for a 10th consecutive time the best-performing sectors were the interest-sensitive names, i.e. Consumer Discretionary +1.95%, Tech +1.8%, and Real Estate +1.7%.
The RBA is expected to raise interest rates from 3.35% to 3.6% on Tuesday while in the process making it 10 consecutive hikes without any reprieve for those getting increasingly strapped for cash. If the bond market is correct we have 2 more on the menu this year taking the Official Cash Rate back above 4% for the first time in well over a decade.
Fund managers appear to be very comfortable switching between stocks and sectors but there’s not a great deal of appetite towards increasing/decreasing overall market exposure – the latest Bank of America Fund Managers Survey showed cash levels remained at 5.2%, down from 5.3% in January. Although we suspect these levels might have again edged higher following the latest strong US economic data which sent bond yields higher.
February saw short-dated bond yields test multi-month/year highs but their longer dated peers have been fairly subdued remaining well below levels reached in 2022. We have a bearish bias towards these longer dated yields due to our view that the domestic economy is weaker than the RBA believe – yesterdays data implies we may be proved correct sooner rather than later.
January saw investors become overly optimistic that central bank pivots were close at hand and rate cuts would add some cheer for mortgage holders into Christmas, the net result was the ASX200 roared +9.6% in less than 6 weeks i.e. more than the market average annual gain over the last 20-years. However, as we all know following some surprisingly strong economic data the RBA & Fed have stamped aggressively on any dovish outlook and suddenly markets are looking for official interest rates to peak at 4.4% in Australia and 5.4% in the US.
The correlation between the US S&P500 and its Telco Sector doesn’t reveal any standout information even though the telcos are often described as defensive investments i.e. a “top-down” approach to the telcos in today’s uncertain times would have many investors allocating funds to the defensives but as the chart below illustrates at this stage its all about stock selection as opposed playing the sector per se – we used the US because the ASX Telco Sector is dominated by Telstra (TLS).
The anticipated path of central banks continues to dominate the swings by stocks as they react to the continual flow of volatile economic data and accompanying rhetoric from the likes of the Fed & RBA. The correlation is very clear with the ASX rallying strongly when bond yields fell in early 2023 only to reverse when yields reversed higher earlier this month.
The ASX200 continues to face headwinds around the 7300 area but when we take into account what was thrown at the index yesterday the minor -0.4% pullback felt like a solid performance, the broad market actually rallied with nearly 60% of the main board finishing up on the day but when heavyweight BHP Group (BHP) tumbles -3.4% the result is almost inevitable – more on this and related names later.
The ASX200 put in a brave performance yesterday closing down just -0.3% in the process shrugging off a -2% drop by the US S&P500 plus Commonwealth Bank (CBA) trading ex-dividend $2.10 fully franked. The catalyst for the market’s impressive intra-day recovery was the wage data released at 11.30 am which showed wages are rising far less than expected and importantly well below the current rate of inflation i.e. everyone’s already getting worse off without the help of the RBA!
A peak Cash Rate close to 4% had been MM’s target for 2023 but after reading the minutes from this month’s RBA Meeting it now feels highly likely that Philip Lowe et al will push the local economy over the proverbial cliff in an attempt to crush inflation – shame it wasn’t more forward-thinking post-COVID as it ignored clear signs that inflation was on the loose i.e. one shop at Woolies would have told the tale!
The RBA is expected to raise interest rates from 3.35% to 3.6% on Tuesday while in the process making it 10 consecutive hikes without any reprieve for those getting increasingly strapped for cash. If the bond market is correct we have 2 more on the menu this year taking the Official Cash Rate back above 4% for the first time in well over a decade.
Fund managers appear to be very comfortable switching between stocks and sectors but there’s not a great deal of appetite towards increasing/decreasing overall market exposure – the latest Bank of America Fund Managers Survey showed cash levels remained at 5.2%, down from 5.3% in January. Although we suspect these levels might have again edged higher following the latest strong US economic data which sent bond yields higher.
February saw short-dated bond yields test multi-month/year highs but their longer dated peers have been fairly subdued remaining well below levels reached in 2022. We have a bearish bias towards these longer dated yields due to our view that the domestic economy is weaker than the RBA believe – yesterdays data implies we may be proved correct sooner rather than later.
January saw investors become overly optimistic that central bank pivots were close at hand and rate cuts would add some cheer for mortgage holders into Christmas, the net result was the ASX200 roared +9.6% in less than 6 weeks i.e. more than the market average annual gain over the last 20-years. However, as we all know following some surprisingly strong economic data the RBA & Fed have stamped aggressively on any dovish outlook and suddenly markets are looking for official interest rates to peak at 4.4% in Australia and 5.4% in the US.
The correlation between the US S&P500 and its Telco Sector doesn’t reveal any standout information even though the telcos are often described as defensive investments i.e. a “top-down” approach to the telcos in today’s uncertain times would have many investors allocating funds to the defensives but as the chart below illustrates at this stage its all about stock selection as opposed playing the sector per se – we used the US because the ASX Telco Sector is dominated by Telstra (TLS).
The anticipated path of central banks continues to dominate the swings by stocks as they react to the continual flow of volatile economic data and accompanying rhetoric from the likes of the Fed & RBA. The correlation is very clear with the ASX rallying strongly when bond yields fell in early 2023 only to reverse when yields reversed higher earlier this month.
The ASX200 continues to face headwinds around the 7300 area but when we take into account what was thrown at the index yesterday the minor -0.4% pullback felt like a solid performance, the broad market actually rallied with nearly 60% of the main board finishing up on the day but when heavyweight BHP Group (BHP) tumbles -3.4% the result is almost inevitable – more on this and related names later.
The ASX200 put in a brave performance yesterday closing down just -0.3% in the process shrugging off a -2% drop by the US S&P500 plus Commonwealth Bank (CBA) trading ex-dividend $2.10 fully franked. The catalyst for the market’s impressive intra-day recovery was the wage data released at 11.30 am which showed wages are rising far less than expected and importantly well below the current rate of inflation i.e. everyone’s already getting worse off without the help of the RBA!
A peak Cash Rate close to 4% had been MM’s target for 2023 but after reading the minutes from this month’s RBA Meeting it now feels highly likely that Philip Lowe et al will push the local economy over the proverbial cliff in an attempt to crush inflation – shame it wasn’t more forward-thinking post-COVID as it ignored clear signs that inflation was on the loose i.e. one shop at Woolies would have told the tale!
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