Rudi’s View: Australia’s Sh*t Sandwich

Rudi's View | 5:14 PM

In today's edition:

• Australia's Sh*t Sandwich
• A Cautionary Tale
• Too Early To Burst
• What Is Happening With ResMed?
• Best Buys & Conviction Calls

By Rudi Filapek-Vandyck, Editor

In today's edition:

• Australia's Sh*t Sandwich
• A Cautionary Tale
• Too Early To Burst
• What Is Happening With ResMed?
• Best Buys & Conviction Calls

Australia's Sh*t Sandwich

What goes up must come down. It's usually the simple principles that work best in financial markets.

Judging from the flood of warnings about the share market correcting --if not crashing-- that has been flowing into FNArena's inbox this week, not to mention the general atmosphere on X, there are a whole lot of people positioned for equity market weakness.

Here's one such email subjectline: S&P 500 Faces Correction Pressure as U.S. Data Complicates Fed Expectations.

Yet again, investors in the Australian share market are subjected to another rough experience as the local index has hardly budged thus far in 2026, but that won't stop the selling orders from piling on, as also witnessed throughout Thursday's trading session.

Could this be the early beginnings of markets pressuring the US President to get on with it and seal a deal with Iran?

Might be a case of be careful what you wish for.

The dilemma of 2026 is that midterm election years are supposed to be a disappointing experience, but so far US indices have set fresh all-time record after record throughout the first five months.

Extremely strong earnings growth for a select group of AI buildout beneficiaries has been responsible for this year's upside surprise.

But make no mistake: underneath the daily headlines and commentary, US equities are as polarised as is the local bourse.

The one key difference: the US has more winners and beneficiaries than the ASX.

Meanwhile, in the background of it all, Bitcoin is increasingly coming under selling pressure with traders pointing at critical technical support that, this time around, coincides with today's estimated mining cost around US$60k-US$70k.

As one commentator put it: "Without earnings, cash flows or a production-cost floor to lean on, there is little standing between Bitcoin and a sentiment-driven meltdown."

The importance of more damage happening to the price of Bitcoin is the historical correlation with technology stocks in the US. Traditionally, Bitcoin falls first, technology follows with a delay.

The direction in Bitcoin often indicates where global liquidity is heading. Less liquidity is, in today's context, a negative for risk assets generally. Hence why now many eyes are staring at what is happening in the world of tokens and e-currencies.

A Cautionary Tale

Longview Economics has now also joined the ranks of worried market commentators with Chief Market Strategist Chris Watling urging clientele to stay "tactically Cautious" as inhouse proprietary market timing models are generating Sell signals.

Liquidity too plays a central role in Watling's caution: "(...) the market has been propelled in recent weeks by a liquidity tailwind. This has been driven by various factors including Fed policy and US tax collection seasonality, amongst others. That liquidity ‘tailwind’, though, looks set to change into a ‘headwind’ in coming months."

These headwinds are awaiting global markets that are in parts overbought and dominated by rampant speculation.

Longview's technical signals usually operate on a 1-4 months horizon. By then, of course, America's focus will be firmly on voter polls and likely outcomes in this year's midterm elections, scheduled for November 3rd.

In case we do see a resolution to the stand off in the Middle East --remember late July is universally considered the ultimate deadline if the world is still to avoid a real energy shock-- Morgan Stanley analysts in Australia have done the historical analysis into which sectors on the ASX stand to benefit most.

According to history, discretionary retailers, industrials and REITs have the strongest negative correlation with higher oil prices.

Under different circumstances, these would be the sectors poised for the strongest rallies if and when the current bottleneck in the Strait of Hormuz is resolved, but this time around Morgan Stanley's message is: don't bank on discretionary.

The local economy is too big a question mark, as things stack up right now.

As is becoming increasingly clear, the housing market in Australia is due for a sizeable correction and analysts at UBS, Macquarie, Morgan Stanley, et al are worrying about the possible implications for household spending and the domestic economy generally.

Indications in Sydney, including some conversations with real estate agents by myself and members of the FNArena team, are that property values already are down by -10%-15%.

Many (forced) sellers who bought in 2022-23 are today selling at a loss.

It doesn't take a genius to figure out this will have broader ramifications (including for the current government).

Other sectors with negative correlation to expensive oil are healthcare, financials, technology, and even materials.

Those with historically a positive relationship are energy (of course), utilities, and communication services.

The one silver lining is the RBA might well have already delivered its final rate hike. A solution to the Strait of Hormuz remains important though.