As I’m sure everybody knows by now that on Tuesday the RBA hiked local interest rates by 0.5% for the 3rd consecutive month, taking the Official Cash Rate to 1.85%. However there was a noticeable change in their rhetoric with Philip Lowe stating that the path ahead “is a narrow one clouded in uncertainty” and “that the board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it’s not on a pre-set path” – overall it sounded like he was echoing recent comments from the Fed as central banks clearly start...
The ASX200 rallied another +0.7% on Monday taking the index within a whisker of the psychological 7000 level although it was interesting to see the defensive stocks dominating the winner’s enclosure as opposed to the high beta growth names i.e. Utilities +2%, Healthcare +1.6% and Telcos +1.4% whereas the Consumer Discretionary -0.2% & Tech Sectors -0.4% slipped marginally lower. However at this stage MM is not reading anything into this minor sector rotation, it simply felt like some book squaring ahead of the RBA’s much-anticipated rate hike at 2.30 pm this afternoon:
The Fed raised interest rates another 0.75% last week but just a few words were enough to change the crowd’s hawkish mindset which not surprisingly sent major ripples through financial markets i.e. bond yields slipped, equities rallied and the $US fell which helped kick start the commodities back into gear:
US tech stocks surged over 4% on Wednesday night following the almost dovish comments from Jerome Powell after the Fed hiked rates by 0.75% taking the US official interest rates to their highest level since mid-2019. The moves on the sector level in the US made sense after the Fed chair eased investors’ fears that the Fed was set on an unwavering path of aggressive rate hikes i.e. although US 2-year bond yields remain around 3% they look & feel unlikely to surge above the 3.5% area which was being tested in mid-June. Hence rate sensitive stocks largely outperformed on Wednesday in the US:
The ASX200 rallied yesterday following the Australian CPI data which showed inflation had jumped to 6.1%, although this was still a fresh 20-year high it was encouragingly below the consensus 6.3% expected by the market – as we wrote on Wednesday “bond traders have been a touch too hawkish since May”. However on every level where we looked prices were higher with the only question being how much!
Equities have slipped into a holding pattern ahead of today’s Australian inflation data and the FOMC’s decision on US interest rates which will be delivered when most of us will be sound asleep tonight. The high likelihood is volatility will kick in after both releases but we are becoming increasingly mindful that over the last few months markets have been pricing in the worst-case scenario for both inflation & bond yields, especially in some pockets of the share market.
The ASX200 had a very quiet start to the week on the index level as local stocks largely ignored Friday’s weakness on Wall Street, most of the action on the ASX unfolded on the stock level as the quarterly updates gathered momentum. Overall the broad market largely struggled on Monday with less than 40% of stocks advancing but a rally by the influential large cap miners was enough to offset softness elsewhere. Aside from confession season this week looks set to be all about inflation & interest rates, yet again!
Both US and local stocks are bouncing on cue helped by a market that found itself positioned with a record bearish bias resulting in a dearth of fresh sellers without supporting bad news but as the chart below illustrates this is slowly moving back to more sustainable levels as global indices grind higher. In our opinion sentiment still remains a touch too bearish across major indicators and as we’ve discussed over the last few months it’s this very same ingrained negative outlook towards risks assets that’s been the catalyst to allow equities to recover from their mid-June lows even if most investors continue to worry around the economic risks of soaring inflation/rate rises and a looming recession.
The ASX200 enjoyed a noticeably strong match-out yesterday in what had been a fairly lacklustre session, the market finally closed up +0.5% showing a current lack of appetite to go home short, it’s feeling like a classic “bear squeeze” i.e. just what MM has been looking for since mid-June. To back up our opinion the recent stock/sector rotation back into the underperformers of 2022 reaffirms our view that we’re seeing capitulation by bearish traders as opposed to a meaningful change in trend i.e. a quick glance at yesterday’s 5 best performers and their performance through 2022 paints a very clear “short squeeze” picture:
The ASX200 surged higher on Wednesday following a strong lead from Wall Street as traders appeared to bet that we’ve seen a meaningful bottom by equities i.e. the S&P500 has corrected -25% and the ASX200 -16%. There were a couple of catalysts for the strong rally by the broad market including good old fashion company earnings which are starting to paint a picture that businesses are coping far better with the macro headwinds than was previously feared i.e. investors are expecting boards to mention inflation, Covid and supply chain concerns leaving relatively little left to scare the market, at least for now:
The ASX200 rallied another +0.7% on Monday taking the index within a whisker of the psychological 7000 level although it was interesting to see the defensive stocks dominating the winner’s enclosure as opposed to the high beta growth names i.e. Utilities +2%, Healthcare +1.6% and Telcos +1.4% whereas the Consumer Discretionary -0.2% & Tech Sectors -0.4% slipped marginally lower. However at this stage MM is not reading anything into this minor sector rotation, it simply felt like some book squaring ahead of the RBA’s much-anticipated rate hike at 2.30 pm this afternoon:
The Fed raised interest rates another 0.75% last week but just a few words were enough to change the crowd’s hawkish mindset which not surprisingly sent major ripples through financial markets i.e. bond yields slipped, equities rallied and the $US fell which helped kick start the commodities back into gear:
US tech stocks surged over 4% on Wednesday night following the almost dovish comments from Jerome Powell after the Fed hiked rates by 0.75% taking the US official interest rates to their highest level since mid-2019. The moves on the sector level in the US made sense after the Fed chair eased investors’ fears that the Fed was set on an unwavering path of aggressive rate hikes i.e. although US 2-year bond yields remain around 3% they look & feel unlikely to surge above the 3.5% area which was being tested in mid-June. Hence rate sensitive stocks largely outperformed on Wednesday in the US:
The ASX200 rallied yesterday following the Australian CPI data which showed inflation had jumped to 6.1%, although this was still a fresh 20-year high it was encouragingly below the consensus 6.3% expected by the market – as we wrote on Wednesday “bond traders have been a touch too hawkish since May”. However on every level where we looked prices were higher with the only question being how much!
Equities have slipped into a holding pattern ahead of today’s Australian inflation data and the FOMC’s decision on US interest rates which will be delivered when most of us will be sound asleep tonight. The high likelihood is volatility will kick in after both releases but we are becoming increasingly mindful that over the last few months markets have been pricing in the worst-case scenario for both inflation & bond yields, especially in some pockets of the share market.
The ASX200 had a very quiet start to the week on the index level as local stocks largely ignored Friday’s weakness on Wall Street, most of the action on the ASX unfolded on the stock level as the quarterly updates gathered momentum. Overall the broad market largely struggled on Monday with less than 40% of stocks advancing but a rally by the influential large cap miners was enough to offset softness elsewhere. Aside from confession season this week looks set to be all about inflation & interest rates, yet again!
Both US and local stocks are bouncing on cue helped by a market that found itself positioned with a record bearish bias resulting in a dearth of fresh sellers without supporting bad news but as the chart below illustrates this is slowly moving back to more sustainable levels as global indices grind higher. In our opinion sentiment still remains a touch too bearish across major indicators and as we’ve discussed over the last few months it’s this very same ingrained negative outlook towards risks assets that’s been the catalyst to allow equities to recover from their mid-June lows even if most investors continue to worry around the economic risks of soaring inflation/rate rises and a looming recession.
The ASX200 enjoyed a noticeably strong match-out yesterday in what had been a fairly lacklustre session, the market finally closed up +0.5% showing a current lack of appetite to go home short, it’s feeling like a classic “bear squeeze” i.e. just what MM has been looking for since mid-June. To back up our opinion the recent stock/sector rotation back into the underperformers of 2022 reaffirms our view that we’re seeing capitulation by bearish traders as opposed to a meaningful change in trend i.e. a quick glance at yesterday’s 5 best performers and their performance through 2022 paints a very clear “short squeeze” picture:
The ASX200 surged higher on Wednesday following a strong lead from Wall Street as traders appeared to bet that we’ve seen a meaningful bottom by equities i.e. the S&P500 has corrected -25% and the ASX200 -16%. There were a couple of catalysts for the strong rally by the broad market including good old fashion company earnings which are starting to paint a picture that businesses are coping far better with the macro headwinds than was previously feared i.e. investors are expecting boards to mention inflation, Covid and supply chain concerns leaving relatively little left to scare the market, at least for now:
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