Morning Wrap: ASX 200 to fall, US markets closed + RBA set to pause rates

The US markets were closed overnight in observance of Labour Day, European benchmarks finished relatively flat, China stocks rallied on Monday as the government takes further action to boost its ailing economy, the RBA is set to leave rates unchanged at 4.1% for a third consecutive month and a few charts of interest.

Let's dive in.

ASX 200 DAILY CHART

ASX 200 daily chart (Source: TradingView) 

MARKETS

• US markets were closed in observance of Labour Day (The above US Index values refer to Friday, 1 September 2023)

• Pre-market futures: S&P 500 (-0.03%), Dow (-0.13%) and Nasdaq (+0.05%)

• European benchmarks closed relatively flat on Monday, notably the Stoxx 600 (-0.04%), FTSE (-0.16%) and Dax (-0.1%) 

• European resource sector rallied 0.6% after China announced a set of stimulus measures and support for its struggling property sector 

• US stock market rally weathers higher bond yields as investors bet on soft landing (Bloomberg)

• Property stocks lead China rally as stimulus measures lift mood (Bloomberg)

• Oil holds near highest since November as OPEC+ tightens market (Bloomberg)

• JPMorgan says US stock investors' overconfidence is concerning strategists, could lead to a correction (Bloomberg)

• Hedge funds drop short trades on US regional banks, says Goldman (Reuters)

CENTRAL BANKS

• Lagarde keeps ECB rate suspense, avoids providing any indication on whether a raise or hold next week (Bloomberg)

• ECB's Wunsch says "bit more" probably needed on rate hikes (Bloomberg)

• RBA expected to keep interest rates unchanged at Governor Lowe's last meeting, slowing inflation suggests RBA may have reached terminal rate (Bloomberg)

CHINA

• China's economic slowdown reverberates across Asia (FT)

• China to take more action to revive property sector (Bloomberg)

• China's mortgage relaxation spurs weekend sales in mega cities (Bloomberg)

• China launching a campaign to revive its lagging stock market, and boost investor confidence in an ailing economy (Reuters)

• Chinese developer Country Garden boosted after debt repayment deal (FT)

ECONOMY

• Economists grow gloomier on 2024 as central banks delay rate cuts (FT)

• German exports fell a less-than-expected 0.9% in July (Reuters)

• Eurozone Sentix economic survey misses expectations as mood darkens, German economic weakness remained a major drag on the region (Reuters)

Note: No ETFs table since the US market was closed last night

The RBA's Interest Rate Decision

The market is almost certain that Governor Lowe will leave rates unchanged as he concludes his seven-year tenure as RBA governor.

As for how the ASX 200 performs on rate decision days (vs. consensus expectations):

• 7 Feb -0.46% (in-line)

• 7 March: +0.49%(in-line)

• 8 April: +0.18% (in-line)

• 2 May: -0.92% (unexpected hike)

• 6 June: -1.2% (unexpected hike)

• 4 July: +0.45% (unexpected pause)

• 1 August: +0.54% (unexpected pause)

The focus today will be on the statement/outlook as any subtle tweaks to the RBA's commentary – Whether that be the reluctance to keep hiking or hawkish bias – Could generate a reaction.

Charts of Interest: Breaking Winning Streaks, Treasury Returns and Real Assets

The US equity market has just come off a five-month winning streak. While we could go into the issues around breadth and earnings expectations, I figure we'd look at it from a different tack – What happens when there is a breather in a cyclical rally?

Historically, when the S&P 500 breaks a 5-month winning streak, it's up an average 7.3% in the next six months.

Source: LPL Research

Will it be the same this time? Earnings expectations continue to rise from a consensus perspective and there has been an argument that some fund managers who didn't buy into the first-half rally will be buying to play catch up. And most importantly, the stateside labour market is showing some preliminary signs of loosening - which markets interpret as good enough reason for the Federal Reserve to stop hiking.

The same can't be said for the bond market. 2023's anaemic performance for government bonds is putting it dangerously close to a statistic that has never been recorded. The US bond market has never had three negative return years in a row. Will this year be the year that record gets broken? There's an argument that soft economic data is not having as much impact (particularly in long-dated bonds) as it once did. Plus, the Fed not cutting interest rates is not exactly good news for bond investors.

Source: Bank of America

Or maybe, it's time for real assets to make a comeback. Commodities, real estate, and infrastructure have not had a great period since COVID but recent returns data from an amalgamation of sources seems to suggest that's also turning. What housing crash!

Source: Bank of America

Tesla: Price Cuts vs. Record Sales

Tesla sold 84,159 China-made EVs in August, up 31% month-on-month and up 9.3% year-on-year, according to data from the China Passenger Car Association.

Rivals BYD delivered a record 274,086 passenger vehicles (EVs and petrol-electric hybrid models), up 57.5% on the year.

But Tesla is in the midst of an aggressive price war to defend its market share, which has come under pressure from a broad-range of players. Below are the price tweaks (US dollars) that have taken place t o the company's high-end models.

Source: Tesla Website

ASX corporate actions occurring today:

• Trading ex-div: Yancoal (YAL) – $0.37, Pilbara Minerals (PLS) – $0.14, Northern Star (NST) – $0.155, Corporate Travel Management (CTD) – $0.22, VEA Energy (VEA) – $0.085, Origin Energy (ORG) – $0.20

  • See full list of ASX stocks and ETFs trading ex-dividend here

• Dividends paid: GWA Group (GWA) – $0.07, National Storage REIT (NSR) – $0.055, JCurve Solutions (JCS) – $0.001

• Listing: None

Economic calendar (AEST):

• 11:45 am: China Caixin Services PMI

• 2:30 pm: RBA Interest Rate Decision