Oversold conditions attracted dip buyers and investors searching for beaten down stocks after 5 brutal days, following the Fed’s decision the prior week. Deep dive of the YTD performance of the ASX and why amid a rising treasury yield environment. What to keep an eye out for the week. Macquarie (ASX:MQG) trades ex-div today.
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Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to extend its gains after an optimistic finish on Wall St.
Reprieve on Wall St as dip buyers emerge
Dip buyers emerged as investors snapped up beaten down stocks on Friday 13th. On a traditionally unlucky day, Wall St instead saw a relief-rally, following five brutal trading sessions after the Fed’s decision the prior week.
At the closing bell, the Dow Jones gained 1.5 per cent to 32,197, the S&P 500 added 2.4 per cent to 4,024 and the Nasdaq jumped 3.8 per cent to 11,805.
Even with Friday’s gains, all three major indexes closed lower. The S&P 500 dropped 2.4 per cent, the Nasdaq Composite fell 2.8 per cent, their sixth consecutive weekly declines. The Dow closed 2.1 per cent lower for its seventh straight week.
Across the S&P 500 sectors, the rally was across the board. Consumer discretionary jumped 4.1 per cent as the best performer, information tech and energy both added 3.4 per cent amid oil up over 4 per cent. Defensive sectors like healthcare and utilities added the least by 1.1 per cent each.
The yield on the 10-year treasury rose 11 basis points to 2.93 per cent, as prices fell. Weakness was seen in both gold and the greenback as money rotated out of defensive assets back into equities.
Why the relief-rally?
Sellers took-off early for the weekend, leaving buyers to pile into stocks, bucking the trend where the market usually loses steam by the end of the week. This is a time where investors would sell in May and go away, then re-enter the market later in the year.
However, what prompted the relief-rally in the oversold conditions was comfort from a bunch of Fed officials, pushing back against a 75 basis point hike at the next two meetings.
It meant that investors didn’t need to readjust their portfolios. Why? They have already priced in a 50 basis point hike for the next few months, however if there was any hint of a 75 basis point hike, we would have seen some action.
It comes after investors learned of hot and sticky inflation with hopes that it has peaked, and the crypto crash amid the war in Ukraine and extended Covid-19 lockdowns in China amid policy support. It was a chaotic week.
In precious metals, gold is dwindling away from the US$2,000 mark, weighed down by the rising dollar and rising bond yields.
ASX sector performance – year to date
Back home, energy is the best performing sector year to date on the ASX, up 25.2 per cent year to date, followed by utilities added 20 per cent. The rest of the sectors are in negative territory with information tech as the worst performer, down 33.5 per cent as you can see in the table. The ASX is down 5 per cent year to date but in comparison to the rest of the world, we are one of the best performers.
What has influenced this?
As investors price in rising interest rates, we have seen the bond market respond with treasury yields moving higher as bond prices fall.
The sectors that make up the ASX are different to Wall St in that materials and financials have the biggest market cap. Also, our tech sector is smaller too which means that the sell-off in that sector does not have the same weight as in the US.
In a rising interest rate environment, energy stocks are traditionally seen as an inflation hedge amid the rise in energy prices. Also, the war in Ukraine has seen this sector outperform. As utility stocks such as AGL Energy (ASX:AGL), Origin Energy (ASX:ORG) have exposure to energy prices, they have climbed the winner’s ladder too amid the rising yield environment.
It will be interesting to see how these sectors perform as financial conditions tighten, given we’ve had our first rate hike this month of 25 basis points, from 0.1 per cent to 0.35 per cent.
What’s ahead this week
Keep this in mind as the May RBA meeting minutes are due tomorrow. Market participants will comb through the statement to find any colour around a potential 40 basis point hike in lieu of 25 ahead of the April jobs data on Thursday. Since we have raised our interest rates, the importance of the March quarter wage price index on Wednesday won’t have the same weight since the central bank surprised us with the size and timing of its rate hike before the federal election.
Figures around the globe
European markets closed higher. Paris gained 2.5 per cent, Frankfurt rose 2.1 per cent while London’s FTSE added 2.6 per cent.
On the London Stock Exchange, Rio gained 2.3 per cent, BP jumped 3.6 per cent and Shell added 2.8 per cent.
Asian markets closed higher, Tokyo’s Nikkei added 2.6 per cent, Hong Kong’s Hang Seng advanced 2.7 per cent and China’s Shanghai Composite rose almost 1 per cent.
On Friday, the Australian sharemarket closed 1.9 per cent higher at 7,075.
Taking all of this into the equation, the SPI futures are pointing to a 0.8 per cent gain.
What to look out for today
Resources stocks could take the limelight amid its underlying commodity prices set to spike. Keep an eye out for BHP (ASX:BHP), Woodside Petroleum (ASX:WPL), and Santos (ASX:STO).
In earnings, Goodman Group (ASX:GMG) third quarter results are due while Perseus Mining (ASX:PRU) has its extraordinary general meeting.
In broker moves, JP Morgan initiated coverage of Endeavour Group (ASX:EDV) to overweight with a price target of $8.60.
Jarden has upgraded Corporate Travel Management (ASX:CTM) to a buy from overweight to $20.58, citing recent fall in share price.
Keep an eye out for Perpetual (ASX:PPT) on speculation of a potential buyout of Australian Equity Trustee business, according to The Australian.
Brambles (ASX:BXB) confirms media reports that around its preliminary dealings with CVC in regard to an unsolicited proposal.
Macquarie Group (ASX:MQG) is trading without the right to its dividend today, set to be a weight on the financials sector.
There is one company set to make its debut on the ASX today. Keep an eye out for Southern Cross Gold (ASX:SXG) after raising $10 million at 20 cents per share.
There are ten companies set to trade without the right to its dividend.
Autosports Group (ASX:ASG) is paying 7 cents fully franked
Dicker Data (ASX:DDR) is paying 13 cents fully franked
Future Generation Global Investment (ASX:FGG) is paying 3 cents fully franked
Macquarie Group (ASX:MQG) is paying 350 cents 40 per cent franked
Plato Income Maximiser (ASX:PL8) is paying 1.1 cents fully franked
QV Equities (ASX:QVE) is paying 1.2 cents fully franked
Red Hill Iron (ASX:RHI) is paying 20 cents fully franked
Sandon Capital (ASX:SNC) is paying 2.75 cents fully franked
WAM Active (ASX:WAA) is paying 3 cents fully franked
WAM Global (ASX:WGB) is paying 5.5 cents fully franked
There is one company set to pay eligible shareholders today.
Qualitas Real Estate Income Fund (ASX:QRI)
Iron ore has lost 0.2 per cent to US$127.35. Its futures point to a 2.7 per cent gain.
Gold has lost $16.40 or 0.9 per cent to US$1808 an ounce. Silver was up $0.23 or 1.1 per cent to US$21.00 an ounce.
Oil has gained $4.36 or 4.1 per cent to US$110.49 a barrel.
One Australian Dollar at 7:20 AM has strengthened since Friday, buying 69.31 US cents (Fri: 68.58 US cents), 56.58 Pence Sterling, 89.67 Yen and 66.64 Euro cents.
Source: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics