ASX200 Afternoon Report September 14th 2022

The ASX200 trades 175 points (-2.5%) lower at 6835 at 2pm Sydney time

In yesterday's report, we noted that the ASX200 had displayed a "devil may care" type attitude as it rallied for a fourth session ahead of last night's U.S inflation data. A move that it is no doubt regretting after a devastating sell-off hit Wall Street like the post-Jackson Hole dive bloodbath just two weeks ago.

Like Jackson Hole, in the lead-up to last night's CPI data, equity markets had displayed optimism that cooling inflation and economic data meant the tightening phases for policy were peaking. 

Only to have hopes brutally crushed as both headline (8.3% vs 8.1% exp) and core (6.3% vs 6.1% exp) CPI surprised to the upside.

CPIs are based on the prices of food, clothing, shelter, fuels, transportation, doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. While the fast-moving energy component fell sharply as expected (-5.02% m/m) and signs supply constraints eased, the laggard components, including Apparel and Shelter, drove the upside surprise.

Shelter, which comprises about 33% of the CPI basket, saw the pace of sequential rent and owners' equivalent rent inflation make a new high, above the 25-year highs in May and June. Further strength in the Shelter component is likely in the months ahead as would-be homeowners become renters due to poor housing affordability.

Before the inflation print, the interest rate market was priced for 75/50/25bp rate hikes in September, December and November that would have seen the Feds Fund rate end the year in a range of 3.75-4%.  Post the inflation release, the rates market has moved towards a 75/75/50bp sequence of rate rises that would take the Fed Funds rate to a 4.25-4.50% range into year-end.

The Fed is in the blackout period in the lead-up to next week's FOMC meeting, unable to channel its thoughts on last night's CPI print. This means it is unable to quash speculation of a possible shock 100bp rate hike next week, leaving equities with nowhere to go other than into sheer panic mode. 

Leading the falls on the ASX200, the interest rate-sensitive real estate sector that has been at the epicentre of the carnage. Goodman fell 5% to $18.68, Charter Hall Group fell 4.75% to $12.66, and Stockland fell 4.28% to $3.47.

IT Stocks abandoned quicker than the Russian soldiers who fled their posts on the weekend. Megaport fell 9.8% to $7.84, Life 360 fell 7.25% to $5.25, Zip fell 7.5% to $0.86c, and Novonix fell 7% to $2.27.

A sea of red in the financial sector as Macquarie fell 3.6% to $175.15, NAB fell 3.3% to $29.28, CBA fell 3% to $94.99, Westpac fell 2.15% to $21.13, and ANZ fell 2% to $23.00.

Fear that more aggressive rate hikes will lower demand for crude oil, behind a fall in energy stocks. Woodside fell 2.3% to $32.40, Santos fell 1.5% to %$7.71, and Beach Energy fell 1.35% to $1.65.

A fall in metal prices on the Chinese futures exchange has weighed on Material stocks. Bluescope Steel fell 2.5% to $16.59, Oz Minerals fell 2% to $26.07 FMG fell 1.2% to $18.01, Rio Tinto fell 1.1% to %95.69 and BHP fell 1.07% to $38.88.

The overnight rejection from above 7000 fits our view that the ASX200 has entered a period of choppy sideways range trading between 6700 and 7100, in line with our view of U.S equity markets.

Source Tradingview. The figures stated are as of September 14th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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