The RBA left interest rates unchanged at 3.6% yesterday, it was their first pause after 10 consecutive hikes which has seen the Official Cash Rate soar from 0.1% to 3.6%. Much has been written about Tuesday’s meeting both before and after hence this morning we’ve focused on what MM believes are the salient points of the accompanying RBA minutes and our subsequent interpretation.
Ironically the RBA created this very same “mortgage cliff” by giving banks cheap 3-year money which was simply passed onto borrowers as fixed home loans, all very nice when the cash rate was at 0.1%. In our opinion, the RBA has not played the last few years like a proverbial Stradivarius having provided “free money” for too long after COVID only to compound the error by conveying the incorrect message to borrowers that rates would stay low into 2024 before finally hiking too late as we all saw inflation building across the Australian economy – hopefully, today they will start along the path to market redemption.
The inverse correlation between the ASX200 Tech Sector and 3-year Bond Yield is very clear i.e. when bond yields fall tech stocks rally and vice versa. The local tech stocks looked poised to follow their US peers to fresh 2023 highs although a few local names struggled in 2023 e.g. BrainChip Holdings (BRN) -36%, Megaport (MP1) -35%, and to a lesser extent Life360 (36) +1.7%.
We remain bullish on the Materials sector hence we’re always looking for the best opportunities to exploit gains across these value stocks. Today we have reviewed 2 of the best-performing stocks so far this year and one laggard as we consider the next likely tweaks in our portfolio construction, especially if we see further strength in growth names that is likely to see MM to profit from some overweight positions.
The market-friendly inflation print reversed earlier stock market losses to take the local index up +0.25% led by ongoing strength in the Resources Sector while selling in the banks courtesy of UBS’s downgrade was enough to restrain gains on a day when surprisingly there were more losers than winners. The growth stocks in Australia continue to underperform their US peers and even with the increasing likelihood of no further rate hikes the healthcare and IT stocks delivered mixed performance on Wednesday – we still see 6-8% upside from the US NASDAQ hence we are sticking with our overweight call on the sector locally.
Central banks are maintaining a degree of calm in financial markets which is demonstrated by the VIX trading back under the psychological 20 level. Interestingly while we have seen a washout of the bulls, we haven’t really seen a major spike in bearishness or signs of real panic which can be taken both ways when we consider what’s been happening in the banking system.
With the new higher interest rate environment likely to continue to influence investors’ risk appetite, as we’ve witnessed by the repricing of the growth sector, today we have revisited the defensive supermarkets which could be interesting if we do see a short-term rally in the ASX200 i.e. an area to switch to if MM wants to move down the risk curve.
At the end of last week, speculators started to “attack” Deutsche Bank, in our opinion, they are not comparing apples with apples but investors are concerned about the German bank’s exposure to US commercial real estate. We see no reason why DBK should see any contagion apart from the obvious psychological factors, we’ve avoided catching the falling knife around global banks but if the very profitable DBK breaks below its 2022 low it’s going to look tempting from a valuation perspective – a failed attempt by short sellers with DBK could ultimately restore confidence to the banking sector.
US stocks experienced another mixed session overnight after initially rallying strongly before indices then reversed before finally recovering as Yellen tried to undo her comments yesterday, the Dow closed up +0.2% while the tech-facing NASDAQ posted a gain of +1.3% - at about 6 am this morning Yellen said that “the US is prepared for additional deposit actions if required”, it appears that she’s been scolded by the powers that be but after watching the relative lack of impact it feels like the damage has already been inflicted on market confidence.
The market’s ongoing belief that the global economy is moving toward an inevitable recession combined with China’s fairly muted growth targets for 2023 has sent energy prices tumbling from their dizzy highs just one year ago e.g. Brent Crude is trading 45% below where it was this time last year. However, we are conscious that stocks often lead major tops/bottoms in their underlying commodity prices, which in turn generally run 6-12 months ahead of the economy hence we are starting to look for clues that “enough is enough” on the downside for the energy complex.
Ironically the RBA created this very same “mortgage cliff” by giving banks cheap 3-year money which was simply passed onto borrowers as fixed home loans, all very nice when the cash rate was at 0.1%. In our opinion, the RBA has not played the last few years like a proverbial Stradivarius having provided “free money” for too long after COVID only to compound the error by conveying the incorrect message to borrowers that rates would stay low into 2024 before finally hiking too late as we all saw inflation building across the Australian economy – hopefully, today they will start along the path to market redemption.
The inverse correlation between the ASX200 Tech Sector and 3-year Bond Yield is very clear i.e. when bond yields fall tech stocks rally and vice versa. The local tech stocks looked poised to follow their US peers to fresh 2023 highs although a few local names struggled in 2023 e.g. BrainChip Holdings (BRN) -36%, Megaport (MP1) -35%, and to a lesser extent Life360 (36) +1.7%.
We remain bullish on the Materials sector hence we’re always looking for the best opportunities to exploit gains across these value stocks. Today we have reviewed 2 of the best-performing stocks so far this year and one laggard as we consider the next likely tweaks in our portfolio construction, especially if we see further strength in growth names that is likely to see MM to profit from some overweight positions.
The market-friendly inflation print reversed earlier stock market losses to take the local index up +0.25% led by ongoing strength in the Resources Sector while selling in the banks courtesy of UBS’s downgrade was enough to restrain gains on a day when surprisingly there were more losers than winners. The growth stocks in Australia continue to underperform their US peers and even with the increasing likelihood of no further rate hikes the healthcare and IT stocks delivered mixed performance on Wednesday – we still see 6-8% upside from the US NASDAQ hence we are sticking with our overweight call on the sector locally.
Central banks are maintaining a degree of calm in financial markets which is demonstrated by the VIX trading back under the psychological 20 level. Interestingly while we have seen a washout of the bulls, we haven’t really seen a major spike in bearishness or signs of real panic which can be taken both ways when we consider what’s been happening in the banking system.
With the new higher interest rate environment likely to continue to influence investors’ risk appetite, as we’ve witnessed by the repricing of the growth sector, today we have revisited the defensive supermarkets which could be interesting if we do see a short-term rally in the ASX200 i.e. an area to switch to if MM wants to move down the risk curve.
At the end of last week, speculators started to “attack” Deutsche Bank, in our opinion, they are not comparing apples with apples but investors are concerned about the German bank’s exposure to US commercial real estate. We see no reason why DBK should see any contagion apart from the obvious psychological factors, we’ve avoided catching the falling knife around global banks but if the very profitable DBK breaks below its 2022 low it’s going to look tempting from a valuation perspective – a failed attempt by short sellers with DBK could ultimately restore confidence to the banking sector.
US stocks experienced another mixed session overnight after initially rallying strongly before indices then reversed before finally recovering as Yellen tried to undo her comments yesterday, the Dow closed up +0.2% while the tech-facing NASDAQ posted a gain of +1.3% - at about 6 am this morning Yellen said that “the US is prepared for additional deposit actions if required”, it appears that she’s been scolded by the powers that be but after watching the relative lack of impact it feels like the damage has already been inflicted on market confidence.
The market’s ongoing belief that the global economy is moving toward an inevitable recession combined with China’s fairly muted growth targets for 2023 has sent energy prices tumbling from their dizzy highs just one year ago e.g. Brent Crude is trading 45% below where it was this time last year. However, we are conscious that stocks often lead major tops/bottoms in their underlying commodity prices, which in turn generally run 6-12 months ahead of the economy hence we are starting to look for clues that “enough is enough” on the downside for the energy complex.
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