This time last week the market was abuzz with the previous day’s 10th consecutive interest rate hike by the RBA which in the process took the Australian Official Cash Rate to 3.6%. This morning that’s a distant memory as analysts apply stress tests to the embattled US & Global Banking Sector, the former has already fallen -39% from its January 2022 high – this week we have already seen well know Zurich based merchant bank Credit Suisse (CSGN SW) plumb a fresh all-time low showing it’s not just the vulnerable US regionals that are catching sellers attention.
Through 2023 MM has been pointing out how equities were ignoring rising bond yields i.e. the previous 4 times we saw local 3-year yields above 3.5% the ASX200 was under 7000. However, ironically this month has seen the local index plunge towards 7000 as yields finally turn lower following the collapse of SVB – a great example of what drives markets transitioning over time.
After numerous months of hanging on every word/innuendo from the Fed, RBA, BOE, et al we have a new gorilla in the room i.e. the collapse of Silicon Valley Bank (SIVB US), the 2nd largest bank to collapse in the US history. The wheels started to fall off last Wednesday when the company surprised the market by announcing it needed to raise $US2.2bn to shore up its balance sheet, the rest is already history as we witnessed a hysteria-induced run on the bank largely blamed on Venture Capitalists, customers withdrew a staggering $US42bn by the close of business on Thursday.
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.
Through 2023 MM has been pointing out how equities were ignoring rising bond yields i.e. the previous 4 times we saw local 3-year yields above 3.5% the ASX200 was under 7000. However, ironically this month has seen the local index plunge towards 7000 as yields finally turn lower following the collapse of SVB – a great example of what drives markets transitioning over time.
After numerous months of hanging on every word/innuendo from the Fed, RBA, BOE, et al we have a new gorilla in the room i.e. the collapse of Silicon Valley Bank (SIVB US), the 2nd largest bank to collapse in the US history. The wheels started to fall off last Wednesday when the company surprised the market by announcing it needed to raise $US2.2bn to shore up its balance sheet, the rest is already history as we witnessed a hysteria-induced run on the bank largely blamed on Venture Capitalists, customers withdrew a staggering $US42bn by the close of business on Thursday.
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.
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