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Saturday, June 3, 2023

Market rallies above all to post a strong January

The ASX outperformed many larger markets in January, despite endless stories about the threat of a recession, falling jobs, spiraling wages and prices, high interest rates, a looming home loan crash, inflation , weak retail sales and more.

You name it, analysts, economists, media commentators found a lot of threats to local markets and yet all of that was pure talk as the ASX looked at 2023 strongly and continued on the first day of February.

The so-called “Fed rally” and China reopening story took hold in January and managed to survive (in Australia) the shock of a sharp rise in both headline and core inflation in the December quarter and a further rise greater in the same month of December.

The ASX 200 rose 6.2% in January (and added 0.33% on Wednesday); the Dow was up just 2.83% (due to value stocks lagging) and the S&P 500 was up 6.18%.

But the Nasdaq starred, shaking off the near-34% slump of 2022 and outperforming shares of the tech giants to post a 10.7% gain, the best in months. For that we can thank Apple, Amazon, Alphabet in particular.

Europe’s STOXX 600 rose 5.7% last month, China’s CSI 300 (with top shares on two Chinese exchanges) rose 6.7%, Hong Kong’s Hang Seng Index gained 8.1 % (both increases were a reaction to the China reopening story).

Japan’s Nikkei added 6.2%, but London’s Footsie 100 could only manage a 2.8% gain and was held back by political and economic fears in recent days.

Among commodities, only iron ore (up 10% on the SGX commodities exchange) and Comex copper, up 11%, showed a real positive reaction to the appeal of China’s end of its Covid restrictions and its reopening.

US crude futures fell 1.7% in January and Brent crude fell 1.6%. US gas futures fell 40% in January for a combination of reasons: warm weather (although much of the South is now frosty) and weak demand from the LNG sector because a key export plant is still closed .

Comex gold added more than 6% and held above $1,900 an ounce, while Comex silver only managed a 0.5% gain for the month.

Chicago wheat lost 3.6% last month, but sugar and coffee gained.

And for commodities, the losses will only increase in the coming months as we approach the first anniversary of Putin’s invasion of Ukraine on February 24.

That will make it harder for commodity bulls to make their case because oil, copper, gold, gas, coal, iron ore, and a host of other commodities (yes, wheat too) will be trading at prices this year that will be well below your expectations. levels a year ago.

In Australia, the sharp drop in December retail sales after a small but solid gain in November had investors cautiously wondering if December’s drop is the tipping point the Reserve Bank will note to curb its increases. of rates: there will be one of at least 0.25%. next Tuesday, after a rise in rates by the Fed and the European Central Bank and the Bank of England.

But US and EU inflation is falling, especially in the US, compared to Australia, and that’s still a concern, and yet that bothered local investors so little that they wiped out the drop in 5.5% from 2022 with a 6.2% increase on the ASX 200 in January.

That was partly due to contagion from the China reopening story in major commodity groups such as BHP and Rio Tinto, but also a rise in price from major banks, led by the Commonwealth. In fact, CBS shares hit an all-time high of A$110 per share on January 31 (and another small rise and record close on Wednesday), just as the Financial Review blared a story warning about how “stocks expensive banks face the shock of spending. .

The CBA is a fortnight away from its interim results and an expected dividend increase, but NAB, ANZ and Westpac are two months away from throwing out their interim results and three months from reporting and yet enjoyed a strong January.

CBA shares were up 8.9% in January, Westpac just 4.3%, ANZ up 9% and NAB an 8% gain. Woolies shares were also up 9%, and Wesfarmers shares were up 9.2%.

But BHP led the way with its shares rising 8.9% and its market value at $A250bn (CBA was at $A185bn and Rio Tinto was at $A184bn).

BHP alone was 10% of the ASX’s market value at the end of January, meaning it has the most influence on Australian market performance of any individual stock anywhere and dominates the ASX like no other stock anywhere. part of the developing world.

And, in the face of all the skeptics, the Australian dollar recaptured the 70 US cents level at the end of January and held there to rise 4.8% on the month, a strong gain and perhaps more related to sentiment from the US dollar. market on the need for more the rate goes up here and less in the US in 2023.

Glenn Dyer

Glenn Dyer has been a financial journalist and television producer for more than 40 years. He has worked for Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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