Originally published by Rivkin Securities
Yesterday saw the S&P/ASX 200 post its largest single day gain in seven months closing almost 1.7% higher. The strong move was not led from overseas but appears to be a corrective rally following a month where the index lost almost 5%. The prior month had seen a significant divergence between the US and Australian markets and the rally may have resulted from that divergence becoming too large and causing traders to close the gap.
One day and three month return of each of the ASX GICS sectors is shown. The rank and rank2 columns rank the one day and three month returns respectively.
The chart above shows the return breakdown for each of the ASX sectors. The data shows that the rally was fairly broad based but financials, A-REITS and energy were standouts. The big four banks, therefore, were standout performers, finally showing some strength after several weeks of pessimism stemming from the new bank levy. Over the past three months, however, the strongest performing sectors have been heath care and consumer staples, both sectors posting gains over 10%.
The US markets overnight made new record highs based on closing prices. The strength is occurring despite the expectation of higher interest rates which would normally reduce stock valuations. The rally, therefore, appears to be supported by optimism around the strength of the economy as well as expected fiscal stimulus from the current administration.
The strength in the energy sector in Australia yesterday was followed by out-performance of the energy sector in the US overnight despite no real rally in oil prices. WTI oil has now stabilised following significant falls over the past month but prices are still around $46 per barrel, just $0.35 above the lows reached earlier this month. The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from US shale. Inventory data out last night showed another weekly build in crude inventories despite markets expecting a draw.
Data releases:
· Chinese Industrial Production (YoY) 12:00pm AEST
. Chinese Fixed Asset Investment 12:00pm AEST