ASX stages late rally, but falls for fourth straight week, iron ore surge continues
The local market managed to finish the week on a positive note, gaining 0.4 per cent, but ultimately capping a fourth straight week of losses to finish 0.3 per cent lower. On Friday, it was all about the mining and energy sectors with Rio Tinto (ASX:RIO) gaining 1.6 per cent and BHP (ASX:BHP) 0.6 per cent as iron ore futures continued to rally on strong economic data coming from China. Contractor Downer EDI (ASX:DOW) finished slightly lower after the Chairman Mark Chellew unexpectedly resigned following the recent earnings downgrade and questions around the group’s financials. Qantas(ASX:QAN) was slightly lower after announcing intentions to hire as many as 8,500 more pilots, cabin crew and engineers in the next decade after cutting close to that figure during the pandemic. Defensive sectors including communications and healthcare outperformed, gaining 0.9 and 0.6 per cent, with property the only detractor on Friday, down 0.3 per cent. Across the week, materials companies continued to dominate, led by Liontown (ASX:LTR) which gained 19.4 per cent and Ramelius Resources (ASX:RRL) which added 18.9 per cent, while funeral bond seller Invocare (ASX:IVC) and Downer EDI were the biggest detractors, falling 19.6 and 17.2 per cent.
S&P500 breaks losing streak, tech performance divergence, Nasdaq jumps
US markets delivered a strong finish to the week, buoyed by comments from one of the Federal Reserve’s members that suggested rate hikes may end in the Northern summer. The result was a 1.2 per cent gain in the Dow Jones, 1.6 per cent in the S&P500 and 2 per cent in the Nasdaq, with the S&P500 breaking a three week losing streak, the best five days since January. Hopes of a narrowly avoided recession remain high with the services indicator remaining steady at 55.1 per cent, which is a signal of strong growth, and continued strong employment figures. Among the few companies reporting was ZScaler (NYSE:ZS) which fell more than 12 per cent after flagging a further 9 per cent reduction in forecast sales and more job cuts amid a renewed focus on profitability. The emergence of ChatGPT has supported C3.ai (NYSE:AI) which jumped by more than 30 per cent after the company flagged strong optimism from the business community and a renewed focus on investing in AI and machine learning capabilities. Over the week the Dow Jones gained 1.8 per cent, S&P500, 1.9 and the Nasdaq 2.6 per cent.
Don’t forget about China, dividends to come, what recession?
Long forgotten or avoided due to governance and intervention concerns, China has been the standout of 2022 as the economy continues to recover strongly following the end of COVID-19 lockdowns and return of stimulus. The economy is central to supporting global growth as the US continues to slow. This week saw the beginning of dividend payments by some of Australia’s biggest companies, with over $30 billion set to be paid. With interest rates now meaning term deposits offer as much as 4 per cent, the question hanging over the market is whether these funds will quickly be redeployed into the ASX or will be used in the pursuit of diversification. The 2023 recession was being seen as the most obvious and predicted recession in modern history, yet there is one big problem; it still hasn’t happened. Investors and economists alike predicted a significant recession ahead, sending markets down heavily to end 2022, but to this point earnings, unemployment and spending have remained resilient against higher interest rates.