Market Update - 1st June 2024

Written by William Cooper

Domestic:

This fortnight was yet again another one focused on interest rate predictions. It seems to be a never-ending cycle of positive consumer sentiment towards interest rates that are followed by the release of negative inflationary data – and the April CPI figures released on Wednesday showed just this. Hopes of a late-year cash rate cut came off the back of strong unemployment data, however the CPI accelerated to 3.6% (3.5% in March), which is now the second consecutive month of increasing inflation. Stubborn categories including housing, fuel, electricity, health, and education are all proving difficult to get under control. There is a high probability that the 4.35% cash rate will be insufficient to combat this new CPI data and we are almost certain to see a rise in cash rates, if not multiple.

The ASX fell 2.38% this week with only one sector bucking the trend, that being the trusty IT stocks which were contrastingly up by 2.38%. Tech stocks continue to outperform and disregard the market trends, forging their own path. All other sectors are down for the fortnight, led by Consumer Discretionary which is down by 4.61%, and Communications which slid by 3.97%. Interest rates and inflation are still driving consumer spending patterns, and the less than positive news has decreased investors’ sentiment on discretionary goods and services. When the economy is expected to spend less and save more, the consumer discretionary sector is usually the first to slide as the products that these companies provide will be foregone first.

Gains across IT were attributable to the world’s leading AI hardware manufacturer, NVIDIA, who despite not having a direct tie to the ASX, is responsible for driving positive investor sentiment for all things IT. NVIDIA recorded 26 billion USD in March quarterly revenue, a 262% increase from last year, with earnings per share (EPS) beating the estimates as they shot up from $1.09 to $6.12. The stock for the manufacturer has also now smashed through the $1,000 share-price ceiling. The ASX IT market saw gains in Xero Ltd which rose by 10.76%, mainly due to the increase in customers over the year. Xero’s 419,000 new customers have led to a 22% rise in year-over-year operating revenue.

International:

The Hong Kong’ Hang Seng has corrected itself after a super month of gains. It rose 21% over the course of a month ending the 20th of May, before sliding this fortnight by 6.77%. The losses are attributable to rising U.S treasury yields and lingering scepticism about China’s property market. Companies listed in Hong Kong have experienced volatile price swings off the back of uncertain market conditions worldwide. Weakened demand for US treasury bonds on Wednesday’s auction led to increased yields, which reflects decreased consumer sentiment surrounding interest rates. The US has shown its authority in determining international economic conditions, and they will continue to do so when the US Federal Reserve meets in June.