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.
Whenever we see triple-digit losses by the ASX investors become nervous and they question if things will get significantly worse before they improve – understandable in today’s environment considering the negativity in the press. One of the macro-economic factors being cited as the reason why stocks are vulnerable at current levels is rising interest rates but at MM we would counter this with a quick look at the correlation between the ASX and the closely watched Australian 3-year bond yield.
The markets love to roll out a saying, almost as much as an acronym, with “sell in May & go away” a definite favourite which is actually supported by solid statistics going back decades. However, this year while the press had a field day with stories on banking failures, looming recessions and a US debt crisis the underlying index has been quiet e.g. this month the ASX200 has traded in a noticeably tight 3.2% trading range, one of the smallest post-COVID. In other words, it may not feel like it to many subscribers but the markets are relatively quiet at the moment.
In April we looked at the Australian Property Sector concluding that we felt that value was returning to the sector following its more than 30% correction since January 2022. We are all aware that whether it be residential, or commercial, that property has struggled for over a year as a result of surging interest rates i.e. not that long ago you could fix a 4-year home loan at 2%, today the same loan is well over 5%.
Markets are expected to open strongly this morning following the welcome news that a US debt default has been averted with yet another last-minute deal, these politicians have the timing of a Hollywood thriller! The announcement wasn’t serenaded with any celebratory fireworks as the tentative agreement to raise the debt ceiling over the next 2-years was clearly an uncomfortable compromise by both parties to get it before Congress for the final tick of approval.
On a day when the ASX fell over -1% the building stocks stood out to us as the main 4 winners in an otherwise especially tough session for the Materials Sector. The Australian building products names haven’t fared as well as some of their US peers but they’ve certainly managed to bounce strongly in 2023 after being smashed more than 50% in some cases, the question we ask today is should we be taking some profit after their strong moves?
US stocks fell again overnight as the debt ceiling debate drags on plus minutes from the recent Fed meeting showed members were split on whether to hike interest rates in June. The dust is settling after the Banking Crisis only to be replaced by the debt impasse, considering what’s been thrown at equities recently they’re holding reasonably well but the upside feels limited whenever the S&P500 tests the 4200 area.
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.
Whenever we see triple-digit losses by the ASX investors become nervous and they question if things will get significantly worse before they improve – understandable in today’s environment considering the negativity in the press. One of the macro-economic factors being cited as the reason why stocks are vulnerable at current levels is rising interest rates but at MM we would counter this with a quick look at the correlation between the ASX and the closely watched Australian 3-year bond yield.
The markets love to roll out a saying, almost as much as an acronym, with “sell in May & go away” a definite favourite which is actually supported by solid statistics going back decades. However, this year while the press had a field day with stories on banking failures, looming recessions and a US debt crisis the underlying index has been quiet e.g. this month the ASX200 has traded in a noticeably tight 3.2% trading range, one of the smallest post-COVID. In other words, it may not feel like it to many subscribers but the markets are relatively quiet at the moment.
In April we looked at the Australian Property Sector concluding that we felt that value was returning to the sector following its more than 30% correction since January 2022. We are all aware that whether it be residential, or commercial, that property has struggled for over a year as a result of surging interest rates i.e. not that long ago you could fix a 4-year home loan at 2%, today the same loan is well over 5%.
Markets are expected to open strongly this morning following the welcome news that a US debt default has been averted with yet another last-minute deal, these politicians have the timing of a Hollywood thriller! The announcement wasn’t serenaded with any celebratory fireworks as the tentative agreement to raise the debt ceiling over the next 2-years was clearly an uncomfortable compromise by both parties to get it before Congress for the final tick of approval.
On a day when the ASX fell over -1% the building stocks stood out to us as the main 4 winners in an otherwise especially tough session for the Materials Sector. The Australian building products names haven’t fared as well as some of their US peers but they’ve certainly managed to bounce strongly in 2023 after being smashed more than 50% in some cases, the question we ask today is should we be taking some profit after their strong moves?
US stocks fell again overnight as the debt ceiling debate drags on plus minutes from the recent Fed meeting showed members were split on whether to hike interest rates in June. The dust is settling after the Banking Crisis only to be replaced by the debt impasse, considering what’s been thrown at equities recently they’re holding reasonably well but the upside feels limited whenever the S&P500 tests the 4200 area.
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