Week 28 Wrap: ASX hits all time high; CBA shares' two realities; US inflation hits 3% ahead of China plenum

ASX News
12 Jul 2024 16:57 (AEST)

After half a year of watching Wall Street indexes hit more than two dozen all-time-highs week after week – if not day after day – Australian traders finally got a win to be proud of: the ASX200 hit a fresh all time high on Friday, notching 7,968pts intraday and closing at 7,959pts at close.

All in all, the local bourse is slowly but surely on track for a record-breaking 8,000pts – don’t forget UBS has tipped the ASX to hit 8,300pts by the end of 2024.

On Thursday, Australia’s largest stock by market cap, Commonwealth Bank, hit a fresh all-time-high of $130. Then on Friday, it closed at $131.61.

Commonwealth’s YTD performance is an interesting story in of itself given that it points towards a breakdown of consensus reality between what analysts and stock-pickers think about the stock, and a trading community that chooses to shrug off real pressures facing the company.

The term “breakdown of consensus reality” emerged in literary and academic circles around the first year of COVID when the world was locked down and everybody started wondering what the hell had just happened in America between 2016-2020.

It intends to nod at the emergence of “fake news” and political polarisation in the United States, but it’s also quite useful in market-watching – where anybody who tracks stocks probably identified the phenomenon from their chair decades ago.

After all, the company’s Net Interest Margins (NIMs) have been squashed compared to a few years ago, and NIMs are pretty important when it comes to bank revenues. That’s why analysts have been telling people to sell Commonwealth – but traders aren’t. A second reality is equally true: the stock is fine, fundamentally supported, and it has room to climb. Price targets have been consistently smashed.

If you want to see investment analyst consensus breaking down into two separate realities, there’s your case study.

Then again, it’s Commonwealth Bank – the name is uttered in households across the country daily (an often overlooked factor that determines stock price performance) and it’s also a favourite of foreign investors.

I’m left wondering, personally, whether or not being called “Commonwealth Bank” makes the stock more attractive to offshore investors, given it implies a connection to the government that those relying on desktop research may not give a second thought.

That wasn’t all that happened this week – depending on how badly you react with nausea to hearing the term yet again, US inflation came in at 3% flat headline (and 3.3% core) – bringing the USA to the top of its target band. Markets have since priced in, get this, a 100% chance we’ll see a Fed cut in September.

One cut from the Fed (after all, it’s the Fed) will surely be enough to trigger another wave of all-time-high record streaks. But it remains to be seen just how many cuts the Fed (or any other central bank) will need to make before the actual economy improves instead of trader sentiment. Only the first can improve companies’ earnings reports.

This finance journalist is aware of at least one tuned-in Canadian who has watched the Bank of Canada cut rates to, unfortunately, little fanfare. Given that the RBA will definitely cut rates after the Fed, perhaps it will be different for us.

So, US inflation is at the target band. That’s good news.

The next big one to watch will be next week’s China whole of government meeting called the “third plenum.” Investors will be eyeing closely to watch for market stimulus measures, and of course, what that could mean for iron ore.

Don’t get excited. The government has announced several stimulus package and policy measures this year; not a single one has really done anything.

Oh, and: also in Asia, India’s midcap companies are now worth US$1T. China might find itself with some competition should it bounce back to its pre-COVID pace anytime soon.


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