Welcome back to Weekend Reading.
Celebrate, ye holders of tech, ye who disregard valuations, thou who spit upon value stocks, for the hawks have returned.
Overnight we saw a rotation favouring the growthiest of growth stocks, as nominal yields rose/break-even inflation slumped on the back of the Fed’s latest indication of two rate hikes coming in 2023 – sorry cyclicals, you were just becoming popular again. Cathie Wood’s investment team were probably chanting “transitory impacts” during market close yesterday.
But more on that in a moment.
Let’s look back on the week.
Fed, Fed, and more Fed
If anybody needed further evidence that the largest current influence on market volatility was interest rates, Janet Yellen and Jerome Powell were more than happy to oblige.
On the back of optimism about a strengthening labour market, and heighted concerns for inflation that *assuredly* are unfounded, the Fed has indicated a sped up timeline for policy tightening. This is an interesting platform for the Fed to operate off of, considering that employment is lagging behind pre-pandemic levels and there is a raft of anecdotal evidence that businesses are struggling to find work amidst stimulus benefits.
All of this wasn’t necessarily massive news, no changes were flagged for the Fed’s asset purchasing program, inflation was still deemed transitory (why am I suddenly thinking of the phrase “fake news”?) and Powell tried to re-iterate that the Fed dot plot is not actually an official forecast.
But the market impact certainly reflected at least a significant short-term sentiment shift, and the “value to growth” trade very much played out last night.
At time of writing this section (10:25am today), the ASX is very much split as a “tale of two sectors”:
Demand for Supply
China has recently played a new card in its attempts to taper commodity prices, in what has become an increasingly speculative spot market, by having local commodity players declare their overseas exposure and vowing to release state stockpile levels.
The stockpiles announced will cover;
No mention yet on their iron ore stockpiles. These metal stockpiles will be sold in batches to manufacturers and fabricators, but China has not yet disclosed the volumes which will be released to the market.
Metal prices fell on this news, as was the intended effect, with Bloomberg quoting “this will boost short-term supply, sending a bearish signal to the market”, “curbing excessive speculation as prices are overheated and could bring risks to SOEs”.
For those not abreast of high profile sports conferences, or in my case those who can’t learn it second hand from an overly enthusiastic soccer-fan mate, two football superstars have snubbed various beverage choices offered to them at the desk – and the market has noticed.
Cristiano Ronaldo, a forward for Juventus and one of the most famous footballers in the world, moved Coke’s share price this week after swapping a bottle of Coca-Cola near his microphone for water – turning to the camera to say “agua”, or water. Ronaldo famously despises sweet drinks and keeps himself in peak condition for what is considered on the older side of a professional football player.
Reportedly, in the immediate minutes after the gesture, Coke shed just over $5 billion USD of market value.
The scene went viral, and has been followed by / ”inspired by” a move from Paul Pogba, a French footballer who plays for Manchester United, who turned away a Heineken which was placed in front of him during a press conference.
Does this play into an ESG theme and the suitability of sponsors for high profile clubs?
Depends which side you take – if you’re Coke and Heineken, you may be seeing your sponsorship as more of a risk than reward right now, that’s for certain.
*All numbers in USD from BofA Securities
- Equities: $39 billion into equities
- Bonds: $16 billion into bonds
- Precious Metals: $0.08 billion to gold
- Cash: $54.9bn out of cash
Flows to Know
- Massive inflows into equities (largest since March 2021)
- Largest redemption from cash since December 2020
- 6th consecutive week of tech redemptions
- Largest inflow to European equities since Feb 2018
US nonfarm payrolls artificially low
Global Rate Cuts vs Global Rate Hikes
Weekly flows to European Equities
Weekly flows to Tech Equities
To Tiangong and Beyond
A less markets-related story to end-off on, but one that bodes well for the growing possibility of a large investible universe for space infrastructure and exploration.
China’s veteran astronauts have taken to space once more, with the Zhenhou-12 mission delivering the first human crew to the Tianhe module of the Tiangong Space Station.
This will be China’s longest space mission to date and forms part of the country’s growing ambition to be a leading player in the space domain – the crew of Zhenhou-12 have the most ambitious task yet, bringing the 22.5 tonne Tianhe module into operation as the base of what is intended to be one of the most complex space stations.
Our morning calls continue, please do tune in for a daily dose of market insights and access to some leading experts in the funds management field.
As a reminder, we will be changing the call schedule to be Tuesday and Thursday mornings, same time as usual, starting 1 July.
Have a safe and enjoyable weekend.
– Max and the Mason Stevens team.
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The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.