On Thursday, it looked like the ASX might have shaken off its week-long doldrums when we closed green. And that still looked to be the case this morning too, until about forty five minutes into the Friday session.
Listen to the HotCopper podcast for in-depth discussions and insights on all the biggest headlines from throughout the week. On Spotify, Apple, and more.
Thereafter, a great sell-off began, before investors started piling in to buy the dip with the XJO just above 8,600pts.
Spurred by recent all time highs for BHP Ltd and Rio Tinto, it looked like investors far and wide decided to take what gains they could from the Thursday session before the going got rough.
(After all, one needs play money for the weekend. Just ask Chris Ellison.)
We know BHP and Rio got hit because at the time of writing (around 3pm Sydney time) those stocks were down around -2.5% and -2.1% respectively. That comes even as the new best-friend-metal of the Australian giants, copper, remains firmly above US$6/lb on the LME and COMEX markets.
In other words, there’s no other real explanation as to why they’re down – and by now, BHP is well and truly the largest stock on the Australian market, thanks to this week’s shocker run for Commonwealth Bank of Australia.
For the last few years we’ve been hearing from just about everybody in the game that a great copper megatrend is upon us, and so far, that’s proving to be true. While the verdict on whether we’re in a bona fide “commodities supercycle” remains out to pasture, in the meantime, we’re definitely in a copper supercycle.
It’s a shame for CBA they don’t drill for copper on the side. Both for the company, and the entire Australian stock market, because Commonwealth’s -10% scalping brought down the entire ASX with it.
On Friday, the big yellow bank’s share price had recovered to A$160/sh, still well above where it was around two and a half years ago, so investors who’ve been holding on for that long shouldn’t stress too much. Until the CGT changes kick in, anyway.
Speaking of badly hit staple stocks recovering on Friday – the share price for Coles is less down, down than it was intraweek after getting stung by the ACCC for being dodgy about discounts. We don’t know how much they’ll need to cough up yet.
Anyway, let’s turn to the overall ASX with a view to macro.
The XJO has struggled through Week 20, as it’s struggled through much of the last seven weeks on the back of the Iran War crisis, where thanks to our lack of petrochemical refineries we are more heavily exposed to oil price fluctuations than our OECD peers.
And with Brent Crude still firmly above US$100/bbl, that’s bad news for our stock market. I imagine that maxim will remain true for the foreseeable future, and after the Trump-Xi meeting this week failed to lead to any kind of meaningful development there, it looks like the quo is to remain one of status.
That all means we’re missing out on the good mood in the Asia-ex-Australia market right now. Korea’s KOSPI, Japan’s NIKKEI, Taiwan’s TWSE and even China’s mainland stock indexes are all enjoying an AI rally right now – yes, again – in the shadow of Wall Street, which has divorced itself from economic macro and continues to break fresh record highs.
That’s not unusual for America, as the last few years have taught us. But it does mean that Australia, with no real AI-microchip stocks whatsoever – just a few boring data centre players – we have no reason to join the “divorced from reality” train at this point.
And unless AI remains a hot thematic for the next twenty years, which is unlikely at the current level of growth we’re seeing, we’ll probably miss out altogether.
And just a few months ago, one might have said: “no worries, I’ll just buy some gold.” Except gold is stagnant too, and while Wall Street might be divorced from economic reality (read: data), gold isn’t.
This week, we learned that wholesale US inflation was at +6% in the twelve months to April, driven by a higher than expected CPI and a much higher than expected PPI read – the latter dataset being the cost of what it takes to make stuff and provide services, basically.
A high PPI suggests a high CPI the following month, and in the PPI data for the US released this week we saw inflationary upside hit the cost of services, not just goods – altogether suggesting Trump’s tariff war with the entire world might be starting to trickle back into the US and hurting American consumers.
So with a rate hike from the Fed now more likely (unless Trump’s new Fed pick Kevin Warsh, who now runs the show, decides to do something crazy), investors are taking another look at the USD, given higher interest rates suggest good things there – but that’s coming at the expense of gold, which continues to travel sideways, taking a breather from its crypto-like volatility of recent memory.
All in all: not much has changed since the start of April, and when it comes to America, there’s more economic pain to come yet.
The only question that really matters, though, is whether Wall Street gives a shit. Until next week!
Join the discussion: See what’s trending right now on HotCopper, Australia’s largest stock forum, and be part of the conversations that move the markets.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.