Markets are less volatile as traders anticipate easing of rates
But the path in Australia may not be that easy, says CIO at Martin Currie
Aussie CPI data to grab economics headlines this week
The ASX is set to have another crack at all time highs as the ASX 200 index futures point to a +0.1% higher opening this morning.
On Friday, Wall Street had a mixed session. The S&P 500 fell by -0.14%, the blue chips Dow Jones index was down by -0.77%, and tech-heavy Nasdaq lifted by +0.16% to yet a new record high.
Volatility has been easing across assets, and the stock market has shown no signs of pulling back as traders expect the Fed to cut possibly 50 basis points before the November election.
Biggest movers on Friday include FedEx, which jumped +7% after surprising the market with better-than-expected Q3 earnings.
Athletic apparel retailer Lululemon plunged -15% after the company issued guidance that came in below analysts’ expectations, citing “a shift in U.S. consumer behaviour”.
Nike also fell about 7% after warning of lower sales in the first half of FY25, which begins in June.
On the ASX this week, the headline will be the ABS release of the February CPI report on Wednesday. Economists are expecting inflation to rise to 3.6% YoY, from 3.4% last month.
Goldilocks landing won’t be a sure thing for the ASX
Although a consensus ‘Goldilocks’ view prevails for Australia’s economy, analysis of the latest reporting season reveals that a hard landing is still a very real possibility.
That’s the view according to Reece Birtles, chief investment officer at Martin Currie Australia.
Birtles says that after digesting the latest information from reporting season results, his analysis is that there is more pain ahead, and the path is edging closer to a hard landing.
“The deteriorating state of the consumer, flatlining retail sales and falling company cashflows are the biggest risks to the downside. And the relief that things were ‘not as bad as feared’ has masked the extent of this deterioration,” he says.
The biggest clue on the direction of consumer health and spending, and therefore the economy, is the savings rate.
“With these buffers almost gone, the real stress is now likely to show which will also reveal itself in falling cash flows for companies,” Birtle says.
He believes this environment will be favourable for Aussie stocks with defensive earnings, robust cash flows, strong balance sheets and cost control in sectors like Telcos, Healthcare, Insurance and Infrastructure.
“We think that defensive inflation protection or stagflation protection is going to be quite important in a hard or soft landing scenario,” said Birtle.
“Stocks like Telstra Group, an essential service, and Aurizon Holdings, excel in that protection with very resilient volumes and good pricing power, and in the case of Aurizon, inflation-linked returns.
“In all scenarios we also want to own names such as Worley, which we think has a compelling exposure to the energy transition, with 80% of their new business now in sustainability-type work in resources,” Birtles said.
In other markets …
Gold price fell by -0.7% to US$2,165.03 an ounce.
Oil prices fell by further -0.5%, with Brent now trading at US$85.58 a barrel.
The benchmark 10-year US Treasury yield jumped by around 7 basis points (bond prices lower) to 4.20%.
Iron ore futures slipped by -1.5 % to US$108.05 a tonne.
The Aussie dollar fell by -0.90% to US65.15c.
5 ASX small caps to watch today
Provaris Energy (ASX:PV1)
Provaris says the commencement of fabrication for the H2Neo prototype tank signifies a major step forward in PV1’s innovative hydrogen storage solutions. The company is on schedule for the completion of fabrication and testing by mid-2024, reaffirming its position as a pioneer in cost-effective hydrogen storage and bulk-scale transportation.
Patriot Battery Metals (ASX:PMT)
New spodumene pegmatite occurrence has been discovered, situated along geological trend of the CV9 and CV10 spodumene pegmatite clusters.
Highlights of the find include: Grab samples assays of 0.94% Li2O and 0.86% Li2O, and CV14 spodumene pegmatite outcrop ~33m x 9m in size.
Proteomics (ASX:PIQ)
Proteomics has signed a Material Transfer Agreement with the University of Oxford to acquire 600 clinical samples for its endometriosis study. Samples will be used for further clinical validation of Proteomics International’s PromarkerEndo blood test for the diagnosis of endometriosis. PromarkerEndo has previously been found to correctly identify up to 90% of patients with endometriosis.
Sheffield Resources (ASX:SFX)
SFX says that Kimberley Mineral Sands has completed its maiden bulk shipment of approximately 10,000 metric tonnes of non-magnetic (zircon) concentrate from its Thunderbird Mineral Sands Mine in WA. The shipment, which also included an additional 1,100 metric tonnes of bagged non-magnetic (zircon) concentrate, has departed the Port of Broome and will be delivered to an existing offtake customer.
Alto Metals (ASX:AME)
Results from regional infill soil sampling at Sandstone North have defined a 1km long gold anomaly of up to 100ppb, coincident with a major north-south structure. The zone defined by the strongest gold-in-soils response correlates well with anomalous arsenic values.
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