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Well, what a week it’s been. The ASX200 is back down to the 8,640s as I write this (at 2.25pm AEDT) and that means 1Y returns for the index are down to +5%. Not that long ago, the XJO was looking at YTD returns of +10% when the US-Australia critical minerals deal was the flavour of the month.
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How quickly things change. Spare a thought for tech: with AI uncertainty from the States informing sentiment, as well as the latest ASIC raid on Wisetech offices regarding insider trading allegations, the XTX is truly having a Lemony Snickett style series of unfortunate events.
The big takeaway? The S&P ASX Technology Index is now boasting 1Y returns of negative -5%.
The reasons for the poor XJO performance this week? More unfortunate economic data. On Thursday, the ABS revealed Australia’s unemployment rate has gone from 4.5% to 4.3%. That’s good news for people wanting a job, but bad news for those hoping for rate cuts.
Given that the labour market remains tight, the RBA isn’t necessarily compelled to cut rates, now, given it’s meant to do so when the labour market starts to get so bad businesses need cheaper money to resume hiring. So far, there’s no need there.
And with CPI inflation hotter than expected (that’s kind of ancient history now, being three weeks ago,) the RBA pause of last week really brought home for investors the reality that it might be a while before we see a rate cut again from the RBA.
Especially if some analysts who see CPI hitting 3.7% this time next year are onto something; it’s likely the government will be thinking about further electricity price relief measures – further creating a ‘fake disinflation’ effect, if you will. (If that’s completely wrong, send me an email – I can only be better for it if I get torn to shreds occassionally. Help me help you!)
So what can we expect in Week 47? Well, that depends on how this lingering US government shutdown situation evolves over the next seven days; gold prices have hit US$4,200/oz overnight and silver has also hit US$53/oz as the latter tracks the former upward. So we could see some strength for materials there.
Another very big question that looms large for Australia’s future: the China-backed Rio Tinto Simandou iron ore mine in West Guinea basically got a positive FID decision this week, which means the WA-economy-killer is now here.
We haven’t heard much lately about negotiations between BHP and Chinese mills; the other week we learned that China had allegedly ‘banned’ BHP products, but both Chinese state reps and BHP itself hit the press to water down those fears. Still, the silence is a little eerie.
There could be more pain before it gets better, and I’m starting to think Santa isn’t going to rally this year, either – meaning that’ll be two years we’ve missed the good-ending to the year. Let’s hope I’m wrong.
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