The Monday Report – 19 June 2023

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            [3] => ((ANZ))
            [4] => ((SUN))
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            [4] => SUN
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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

One Direction

The only way was up for the ASX200 on Friday. Having opened just above the 7200 level on Wall Street strength, the index thought about it for a bit before quietly gaining upside momentum, which built as the day progressed.

Every sector closed in the green bar one – healthcare succumbed to further selling in CSL ((CSL)), albeit only -0.6%. Otherwise it was green on screen, with cyclicals outpacing defensives, but all having a solid session.

Energy (+3.5%) led the charge on a combination of stronger oil and thermal coal prices. Utilities gained 1.2% on a 9.7% jump for AGL Energy ((AGL)) following upwardly revised profit guidance.

Whitehaven Coal ((WHC)) rose 8.3%.

The banks provided plenty of support (+1.1%) along with materials (+1.1%), while discretionary had a rebirth (+1.2%) and technology chimed in (+1.5%).

Defensives still came along for the ride, with staples up 0.6%, industrials 0.8% and real estate 0.9%. Bond yields were little changed.

ANZ Bank ((ANZ)) has agreed to a deal with the Queensland government to allow it to acquire Suncorp Group’s ((SUN)) bank division. Both stocks rose 0.6%.

In economic news, Westpac economists have downgraded their Australian GDP growth forecasts to 0.6% in 2023 and 1.0% in 2024, after having upgraded their peak RBA cash rate forecast to 4.60%, or two more hikes, meeting consensus.

The Bank of Japan left its cash rate unchanged at -0.1%. Funny place, Japan.

UBS has downgraded its 2023 GDP growth forecast for China to 5.2% from 5.7% as the property rebound weakens and the consumption recovery loses momentum.

Still waiting for more stimulus.

Wall Street saw a little bit of selling on Friday night but there were extenuating circumstances. Either way, our futures were down only -3 points on Saturday morning.

Pause

Wall Street saw just a little bit of selling on Friday night, which is not unusual ahead of a long weekend, and after the solid run-up of past weeks.

The S&P500 posted its fifth consecutive up-week – the longest streak since November 2021 – while the Nasdaq notched up eight straight weeks – its best run since March 2019.

It was also quadruple witching on Friday night, being the expiration of quarterly options. This can often bring non-fundamental volatility but with so many shorter term options now available, not as much as it used to.

It was also the quarterly rebalance of S&P500 constituents which again can bring some volatility. The Russell 2000 small cap index will rebalance tomorrow night. Did you know the combined market cap of those 2000 stocks is still less than that of Apple?

Which is what still worries a lot of investors. The newly dubbed Magnificent Seven – Apple, Microsoft, Google, Meta, Amazon, Nvidia and Tesla – have driven the rally this year and only now are other sectors starting to catch up. If they run too far and fall over, it won’t be pretty.

Yet, while some assume there will be a pullback eventually, few are prepared to take a bet against the Mega Techs. Certainly not while AI mania continues to play out.

Citi noted on Friday: “Ultimately, bad breadth alone is not a reason to sell the market. In fact, stocks are usually higher 12 months after leadership narrows.”

Michigan Uni’s first consumer sentiment survey for June showed an increase in the index to a four-month high 63.9, up from 59.2 at the end of May. Consumer resilience is a big part of why Wall Street is more confident any upcoming recession could only be mild.

What if 2023 sees the most anticipated recession in history that never happens?

The Fed pause, while also anticipated, has provided a sigh of relief for investors, and there may yet be more pausing to come. The FOMC expects two more hikes but is a bit lonely in that forecast.

The Richmond Fed President said on Friday night that inflation is still too high and he needs to be convinced it’s slowing more quickly before he would back an end to rate increases. But Fed Governor Christopher Waller said on the same day the fallout from several bank failures a few months ago is likely to continue to play a role in the central bank’s decision on how much to raise rates.

There is concern in the market that if the Fed keeps pushing it, there could be another SVB.

In the meantime, investors will enjoy a summer long weekend.

Commodities

All quiet on the metals front.

The oils followed through after Thursday night’s pop.

The Aussie finally took a breather, down a whole -0.1% to US$0.6877.

The SPI Overnight closed down -3 points.

The Week Ahead

Wall Street is closed tonight.

China’s markets are closed on Thursday and Friday.

The run of central bank policy meetings continues with the Bank of England on Thursday.

After a busy week on the economic front last week, US data are thin on the ground this week. There’ll be numbers for housing starts and existing home sales.

The UK and Japan will see May CPI numbers.

Flash estimates of June PMIs are due on Friday from across the globe.

Locally, the highlight is the release of the minutes of the June RBA meeting, now possibly redundant following last week’s strong jobs data.

The Australian share market over the past thirty days…

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