US stocks had a tough session overnight ahead of US Jobs Data and ongoing concerns following Jerome Powell’s extremely hawkish Senate testimony earlier in the week, the S&P500 closed down -1.85%. The SPI Futures are pointing to a -1.1% fall early this morning with BHP off 50c in the US while the banks had a tough night dragging the Financial Sector down -4.1%, not a good read-through for the ASX today.
Last week saw approvals to build new homes in Australia fall by the most on record as permits for private houses tumbled which implies weak residential property investment will drag on the economy through 2023/4. Total dwelling approvals tumbled 27.6%, as the weak trend continues with permits to build new private sector houses slumping 13.8% - the 5th straight monthly decline and the lowest since June 2012 according to the Australian Bureau of Statistics (ABS).
Tuesday was all about the RBA with the local index basically unchanged at 2.30 pm before surging +0.5% in the minutes following a less hawkish narrative from Philip Lowe et al. The buying through the afternoon was however controlled with over 30% of the ASX200 still closing down on the day with selling most noticeable in the Materials Sector following the disappointing news out of Beijing regarding China’s economic growth over the weekend. With reporting season and the RBA in the rear-view mirror the market should show its hand over the coming week (s).
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.
Last week saw approvals to build new homes in Australia fall by the most on record as permits for private houses tumbled which implies weak residential property investment will drag on the economy through 2023/4. Total dwelling approvals tumbled 27.6%, as the weak trend continues with permits to build new private sector houses slumping 13.8% - the 5th straight monthly decline and the lowest since June 2012 according to the Australian Bureau of Statistics (ABS).
Tuesday was all about the RBA with the local index basically unchanged at 2.30 pm before surging +0.5% in the minutes following a less hawkish narrative from Philip Lowe et al. The buying through the afternoon was however controlled with over 30% of the ASX200 still closing down on the day with selling most noticeable in the Materials Sector following the disappointing news out of Beijing regarding China’s economic growth over the weekend. With reporting season and the RBA in the rear-view mirror the market should show its hand over the coming week (s).
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.
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