Traders’ Diary: Everything you need to know before the ASX opens
The US Federal Reserve turned equity pyromaniac last week, igniting a run on already sizzling stock markets.
Ebullient broad-based buying spread not unlike wildfire across the region and further afield after the Fed made its oh-so-long-awaited pivoted on rates, showing Santa really does rally, given the right conditions.
And conditions were ideal.
Aided and abetted by central banks in the Europe, England, Switzerland, the Philippines and Taiwan, share markets were up +2.5% in the US and European markets found +1.0%.
On the final Triple Witching Event of 2023, US stocks had a triple witch-inspired choppy session of volatility where the total eclipse of Derivatives Contracts tied to Index Options, Index Futures and single-stock options literally align and amplify trader bets and hedge risks – mature on the same day.
Investors stateside also weighed New York Federal Reserve President Williams’ comments that The Fed isn’t actually discussing rate cuts and the premature consideration of a March interest rate. That didn’t bother anyone.
Despite the New York Empire State Manufacturing Index’s decline, S&P Global PMIs highlighted a strong services sector, though manufacturing underperformed.
Here’s for the Dow, though which marked a 9th straight winning week.
Closer to home, Korean markets claimed a further +1.0% and Japanese shares +2.1%.
Chinese markets aren’t quite in freefall, but it’s not a good look when this kind of global equity euphoria can’t stop a further sell off – down -1.75% across mainland and HK markets – a real measure of how freaked out trading is while the massive property sector continues its slo-mo implosion.
Meanwhile, the US share market is now just 1.6% below its record January 2022 high which had been reached before the inflation and interest rate scare took off in earnest.
The local benchmark was also hot to trot, ending the week up +3.75%, with the rate-sensitive sectors leading the way as bond yields headed downstairs with Messrs Property (+5.3%), IT (+4.8%), and Healthcare (+4.2%) outperforming.
However, the Fed’s pivot has all but rewritten local market expectations around the Reserve Bank’s own rate cut schedule with the broader market partaking of the free hit. In fact all 11 ASX sectors closed the week higher more than +1.8% stronger – and only Utilities (+0.41%) missing out on the big runs.
And a last word on the RBA from AMP’s chief economist Dr Shane Oliver, who says the high risk of another rate hike early next year is likely to be headed off at the pass by ‘weaker inflation for December and the pivot towards rate cuts globally.’
“Our base case remains that the cash rate has peaked and that the RBA will start cutting rates mid next year taking the cash rate down to 3.6% by end 2024 (which is below market expectations for a fall in the cash rate to 3.8% by end 2024),” Dr Oliver says.
In the States, home builder conditions and housing starts drop while a read on US consumer confidence is due before Christmas.
On Friday the Americans have a PCE inflation to chew on – although as discussed they’ve pretty much swallowed any doubts on that front.
The Bank of Japan is likely to leave rates where they are on Monday, and then see what Japanese inflation is doing on Friday.
At home we’ve got the minutes from the last RBA meeting on Tuesday.
Further out on the economic front we’ve got credit growth on the 29th Dec, CoreLogic data for December in the New Year, retail sales retail sales the week after that and then November CPI and job vacancies hit on the 11th of January.
The broad-based S&P500 was flat on Friday, the Dow Jones Industrial Average, a little lower while the US technology-led Nasdaq Composite didn’t bother pausing, instead adding +0.5% on Friday.
So the signs in Sydney on Monday at the open are for some pre-Xmas consolidation – certainly, the SPI Futures are a full per cent (-1%) down on Sunday morning.
Without any of Wall St’s incendiary IT names to keep the home fires burning, the ASX is facing an early Father Christmas test, with the SPI Futures -1% down on Sunday morning.
The ASX200 is already up +5% for December, so we’re statistically stretched… but one never knows after all… in the words of Hans Gruber:
All sources: Commsec, Westpac, Trading Economics, S&P Global Intelligence and IG Markets
RBA Board meeting Minutes, December
US home builder conditions weaker , a rise in consumer confidence (20 Dec)
Bank of Japan policy decision
US Housing starts
UK CPI, Nov
Canada CPI, Nov
US Consumer Confidence
US PCE core inflation, Nov