The Match Out: ASX hits 2 month high, Materials bounce with BHP +5%

While the ASX ended higher, it was the second straight session where stocks finished well off the early highs, yesterday it was ~70pts, today was half that however it all came in the last hour of trade. The Material stocks bounced back fairly hard today, BHP +5.1% had a big influence on the broader market adding +35 points to the ASX 200 alone, while the IT names slipped lower.

• The ASX 200 finished up +62pts/ +0.86% at 7341
• The Material sector was best on ground (+3.34%) while Energy (+1.69%) & Financials(+0.56%) were also strong.
• IT (-1.25%) was the weakest link.
• The market closed on a new 2 month high today despite the raft of negative headlines crossing the ticker.
• Inflation, central banks and interest rates remain front and centre, today the Aussie 10 year yield hit its highest level since 2018, up 0.13% to 2.72%.
• The market is now pricing in Australian cash rates at 1.6% by the end of the year, which is 6 rate hikes of 25bps.
• As we suggested in this week’s Macro Monday Note, we still think the path of most pain for stocks is up.
• Allocations to global equities are at their lowest level since May 2020 while exposure to tech is at its lowest level in 16-years.
• At MM we hear it all the time, local investors are nervous and almost looking for excuses to sell, however we don’t think we’re there yet.
• We are still looking for a decent rally from global equities into mid / late April, the classic seasonally strong period for stocks and the Australian banking sector as dividends loom in May.
• At that point, we plan to de-risk and see what’s the next chapter in an already extraordinary year – cash never hurt anyone for a month or two and that’s almost a lifetime in the current market.
• Having said that, we caution investors against assuming that just because interest rates are heading higher that we should all runaway from stocks, we simply believe a little more careful stock / selection will be required to deliver solid gains.
• BHP (ASX: BHP) +5.1% was a standout today to close at $48.82, Mineral Resources (ASX: MIN) +4.85% as Lithium continues to sing.
• Boral (ASX: BLD) -3.48% fell on downgraded guidance.
• Macquarie (ASX: MQG) +1.32% should earn ~$400m more this year from commodities revenue according to Morgan Stanley – a good reminder that MQG does benefit from choppy markets.
• Iron Ore was down ~0.50% in Asia today after a solid run, still sitting ~$US150.
• Gold was flat in Asia trade today, settling around $US1936 at out close.
• Asian stocks were up, Hong Kong trading +1.13% higher at our close, Japan +0.94% while China was up +0.14%.
• US Futures are down between 0.13% for the Dow & 0.47% for the Nasdaq.

ASX 200 Chart

6 rate hikes priced in

We talk a lot about bond markets and include bond yield charts regularly. Here’s another look at what is priced into markets at what time frame. By year end, the market has priced 6 rate hikes of 25bps taking the cash rate to 1.6% by Christmas.

Implied Australian interest rates over time

Boral (BLD) $3.33

BLD -3.48%: provided FY22 guidance for the first time today which disappointed. EBIT is expected to come in between $145-155m for continuing operations for the full year, down from $181m last year. The severe weather events across Australia’s east coast is expected to have a ~$23m impact on earnings with lower volumes. Higher coal and diesel prices are also biting. They currently have no hedging in place for their coal exposure, and they are only covered through to the end of April for diesel. Higher fuel prices will also cause more havoc on already constrained supply chains, likely further impacting the FY22 result.

Boral (BLD)

Broker Moves

• HUB24 (ASX: HUB) Cut to Neutral at Jarden Securities; PT A$28.55

Major Movers Today

Have a great night

The Market Matters Team

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