ASX Weekly Wrap 24/09 - 28/09

The XJO’s movement this week reflected the lack of direction it received both from a macro standpoint and by the way of market moving corporate news. The XJO gained a mere 13 points last week as we saw a high of 6,234.40 on Friday and a low of 6,166.80 on Tuesday. This is a very tight range of just 67.6 points or 1.10%. This is a clear sign of a market lacking any real conviction for the week either way. Such is the case that this may be the shortest weekly wrap ever.

The only economic or macro news to come out of last week was from the Fed meeting in the US, which held no surprises. As expected the Fed raising the official cash rate by 25bps to 2.25% in a move that was largely factored into the market already. Commentary from the Fed was still largely hawkish with perhaps another rate increase this year in December being factored in with three more expected in 2019. The US 10yr Treasury yield is currently around 3.08%, which is basically where it was before the announcement. There is no doubt in my mind the Fed is close to pausing its rate hike button this cycle. Their aim was to normalize rates, which I believe around 3% would be their job done for now. It would be then a matter of letting it all filter through the economy and seeing how it reacts before making its next move. If after a period of it being on hold, and the US economy is still running hot, they can then start increases again. I believe the Fed do not want to stifle the economy too much and hence will be cautious moving forward. Just a hint of some soft data over the next six months will see these questions being raised.

The biggest news to come locally was the interim report from the banking royal commission released on Friday afternoon. In a nutshell it basically said the financial institutions pushed the boundaries too far in order to drum up new business and some laws and regulations were broken. However the report was more scathing on the regulators, in ASIC/APRA, and the fact they did not do their jobs in enforcing these laws and regulations and punishing the financial institutions where appropriate. The banks all rallied 2%+ off the back of this as it seems they will get off fairly lightly from it all. Moving forward though, there will be a focus on increased compliance and regulation which will make getting a home loan etc. slightly harder and a longer draw out process. The full report is due mid next year, I think, which will then allow for fines and changes to be passed on.

Looking at the market for September, and what sectors were its main driver’s, we saw our first monthly loss on the XJO of -1.77% after five consecutive months of gains previously. Energy and resources were the main outperformers as we saw oil prices climb and a rebound in most commodity prices after savage sell offs in previous months. The health care sector was worst hit after the AUD was able to rally after also being sold off savagely. It could have also been a case of funds locking in profits within the sector to end the quarter and pretty up those quarterly returns. The Health Care sector has been our best performer to date in 2018. We also saw the discretionary retail sector take a hit after we saw some poor reporting numbers and guidance for FY19.

The XJO continues to moves along in a longer term bullish channel but does look like it’s susceptible to some short term downside. I have highlighted that 5,900-6,000 range before and this still holds true. If we can’t hold onto the current trend (green tram lines) then this is where I see us ending up. Mind you this is only a mere 150 points away now or less than 3%. This would see us test the 200dma again for the first time since April. If we do drop to around the 6,000 level again I am keen buyer here. I still believe our end of year target of 6,400-6,600 is intact.

This is where I leave this week’s wrap, I told you it would be short. I do apologise there is nothing else to report on, but sometimes the markets don’t have much to give. Public holidays either side of the weekend for most of the nation didn’t make it any easier as well. Looking ahead, China markets are closed all week due to public holidays so that may keep things quiet again. Australian manufacturing and services PMI’s are out this week along with our trade balance. The US has its monthly dump of jobs figures out on Friday night which I am sure will be solid once again.

Like most I spent most of the day on Saturday watching the AFL grand final. It truly was a remarkable game and as a neutral I thoroughly enjoyed it. The right team won in the end and West Coast must be applauded for defying a lot of odds to win the flag this year. The rest of my long weekend was spent relaxing at home with the family, which was very enjoyable. Although yesterday I had to stay close to the screens as the market was officially open but volumes were well down. Hope you all have a wonderful and safe week. I will speak to you all soon. Go Crows!

heath@hlminvestments.com.au

0413 799 315

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Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.