By Greg Peel
Rotation
In a lacklustre start to the week, yesterday on the ASX saw little more than a rotation trade amidst little in the way of broad market direction.Investors moved out of the materials sector.It was then just a matter of where to move in to.
The sell-off in commodities and thus mining stocks continued yesterday as Beijing announced further plans to address a commodity price boom it’s not happy about.Avenues suggested by the Chinese premier include accelerating liquidity tightening, loosening production curtailments or introducing price ceilings.
Such measures are are not singularly communist – in the commodity “super-cycle” of the early to mid naughties US exchanges implemented similar measures to clamp down on speculation, such as increasing margins on futures trading.Shaking out leveraged speculation that destabilises an economy is not such a bad thing.
Price ceilings, however, are pure communist, suggesting Beijing’s communist/capitalist model still leans firmly to the left, if such a move is taken.
The iron ore price fell around ten dollars on Friday to find support at the US$200/t mark, after Beijing had posted its first warning.
On this subsequent warning, iron ore yesterday fell another twelve dollars.
Where to put the funds collected from selling out of miners?
Not staples, industrials, technology, property, telcos or utilities.Those sectors barely moved the dial yesterday.By contrast, the banks rose 0.5%, consumer discretionary 0.9%, energy 1.1% and healthcare 1.5%.
We can dismiss energy, as that’s running up and down on oil prices.
And we can dismiss discretionary, as that was driven yesterday by stock specific moves.
Following some big falls, Kogan (( KGN )) rebounded 14.6% yesterday on no new news.Domino’s Pizza (( DMP )) was upgraded by Citi and rose 4.6%.
ResMed (( RMD )) was upgraded by Ord Minnett (JP Morgan) but it’s clear the healthcare sector was a recipient of investor funds, and switching from materials into banks is an Australian trade as ancient as time itself.
Gold miners were nonetheless an offset as investors sold down iron ore and base metal miners, so it could have been worse for the sector.Three of the top five index winners were gold miners while four of the top five losers were metal/mineral miners or service providers.
The situation remains uncertain, with Beijing so far only firing shots over the bow and not actually taking any specific steps.Perhaps the government hopes threats will be enough by themselves.
But with iron ore now having plunged through US$200/t, volatility reigns.
A bit of a rebound on Wall Street has our futures up 20 points this morning, and for now the 7000-7100 range looks safe.
Passed the Test
Beijing has also clamped down further on crypto-currency, likely because it is developing its own digital currency, to the point China’s big crypto miners have basically shut down operations.On Sunday night, bitcoin again plunged to US$32,000.
America’s big crypto miners got together last night, with their one-time pal Elon Musk, and agreed to be fully transparent on their energy usage, specifically renewable usage.Bitcoin bounced back to US$39,000.
When bitcoin fell to near 30k last week, Wall Street wobbled.
This time it didn’t wobble.Indeed, the past two weeks saw a lot of wobbling and heightened fear, leading to falls in growth stocks one day and cyclicals the next, following a spike up in bond yields causing a spike up in the VIX.
But Wall Street got through it.The VIX has fallen back under 19.
The all clear signal was sounded last night and the rally was back on, with growth stocks leading the charge.
Investors rushed back in to FANG and Co, underpinning index gains.The S&P500 closed within 1% of its all-time high.
Bond yields have also drifted back, following their inflation-scare spike, with the US ten-year down another -2 points to 1.61%.
Volumes were to the lower side, and that’s before the northern summer begins in earnest.Unofficially, the US summer break is kicked off on the Memorial Day long weekend, which this year is May 31.Officially, the northern summer begins on the solstice, June 21.
Joe Biden hoped to have his infrastructure bill through Congress by Memorial Day, but given he has now dropped the figure to US$1.7trn from US$2.3trn in the hope of getting some Republicans on side, that target is looking unlikely.
Bit hard to negotiate with people who still insist Trump won the election, and that there was no “riot” at the Capitol.
Commodities.