July 2024 Market Report
The ASX surpassed 8,000 points for the first time in June. A potentially volatile 24 hours was avoided as inflation data here and overseas came in lower than expected with risk assets subsequently rallying on the final trading day.
EQUITIES - The S&P/ASX 200 Index (+4.41%) surpassed 8,000 points and hit an all-time high of 8,092.3 on the final trading day of the month. Gains in the Finance (+6.82%) and Healthcare (+6.36%) sectors led the index benchmark higher despite ongoing commodity weakness Woodside (-2.30%) BHP (-2.31%). Fortescue (-13.28%) sunk after long-time shareholder Capital Group sold a $2 billion position. Airline Rex entered administration. Domestic equity valuations remain elevated, with the ASX trading around P/E of 20 compared to a historical average of 17.
S&P 500 (+0.24%) sea-sawed as large caps retreated and small-caps outperformed. MSCI World (+0.96%) rallied on strength in Canada (+5.27%) and the UK (+3.04). Expectations remain high, with companies who miss, even marginally, experiencing materials price swings. Big tech cooled. NVIDIA (-5.86%), Microsoft (-8.40%) and Alphabet (-6.15%) retraced as investors began to questions the viability and returns on artificial intelligence investment. Luxury goods sales slowed owing to a pullback in Chinese demand. LVMH (-8.29%) fell as revenue growth retreated to 1% in the June quarter.
CHINA - The People’s Bank of China cut the key short-term policy rate by 10 basis points to 1.70% to stimulate a slowing economy. Weaker than expected GDP (+4.7%) missed market expectations (+5.1%) for the June quarter. China’s economy is facing a confluence of headwinds: volatile financial markets; deflation concerns deferring consumption; an ongoing property downturn; and unwinding overleveraged enterprises - all of which is which is weighing on sentiment. Moreover, additional European tariffs of upto 37.6% on Chinese electric vehicles and President-elect Trump’s 60% tariffs on imported goods flag future economic vulnerability.
INTEREST RATES - Domestic traders turned dovish and reversed expectations the RBA would be forced to hike interest rates (4.35%) this year. Rates cuts are now expected in February. Headline inflation (+3.8%) printed in line with market and RBA. The RBA’s preferred measure trimmed mean (+4.0%) was below market but above RBA (+3.8%) projections. While goods (+3.2%) inflation is returning to the central bank’s 2-3% target band, services (+4.5%) remains sticky. Keep in mind inflation is still running hot with Insurance (+12.0%), Electricity (+6.0%) and Rent (+7.3%) all elevated. CPI has been above the RBA’s target band for 30 months now. Unemployment (4.0%) remained steady. 10-Year Australian Bonds (-0.31bp) finished the month at 4.128%. The US Federal Reserve indicated it would cut interest rates (currently 5.25%-5.50%) as soon as September pending economic conditions remain current glide path. Yields on 10-Year US Treasuries (-0.11bp) fell to 4.03%. “The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance.”
COMMODITIES - The Bloomberg Commodity Spot Index (-5.82%) erased largely all of its gains for 2024 after price peaked in May. Weakness in overseas Natural Gas (-13.84%), Steel (-12.12%) and food prices led the reversal. Brent Crude (-4.85%) fell to US$80.21 despite renewed conflict in the Middle East and sparse US Crude Inventories. Iron Ore (-1.62%) also remains weak as Chinese inventory rose sharply indicating ample supply. Economic conditions remain soft, indicated by the fall Copper (-6.54%).
CURRENCY - The AUD fell against major developed market currencies largely weighed down by bearish sentiment on the Chinese economy and the aforementioned commodity weakness. AUD/USD (-1.79%) fell to $0.653 while the AUD/JPY (-8.87%), AUD/EUR (-2.74%) and AUD/RMB (-2.48%) all incurred declines.
