Could the ASX be setting up nicely for a rebound rally?
It is an interesting question given that progress with the Iran war is difficult to predict but there are some intriguing factors that might support a rally.
Firstly, the Australian market has so far performed poorly compared to other markets such as the US – down as much as 9.1% off its March 2 record close at one point - and so may have more room for a rebound if there is any positive news on the war.
Secondly, the ASX 200 has finally snapped its three-week losing streak with a 1% rise in the past week - despite closing down 9.4 points or 0.1% to 8516.30 points on Friday.
And thirdly, Australian investors and institutions are in the midst of getting an amazing $23 billion hitting their bank accounts as some of the biggest names on the ASX pay out their dividends.
BHP and CBA paying some big dividends
BHP alone has just paid out $5.2 billion and Commonwealth Bank is paying out $3.9 billion in the coming week.
Add in a few more big dividend payments from giants such as Woodside, Telstra, Fortescue and Wesfarmers to name a few and that is a lot of dry powder sitting on the sidelines which investors will be sorely tempted to use to buy beaten down Australian shares.
Time for another TACO trade?
Obviously with the war now entering week five and with some tentative and guarded signs of compromise from both sides, anything can happen but investors will have strong memories of the winning TACO trade (Trump Always Chickens Out) after the tariff dramas last year as a reference point.
Much depends on whether the Strait of Hormuz shows any signs of opening for oil traffic or not, with oil prices now highly volatile and likely to stay that way for a while as the Strait remains effectively closed.
Brent crude fell 0.6% to $US107.39 on Friday Australian time and the ASX energy sector remains close to 20% higher since the conflict began.
Energy shares push still higher
On Friday, Santos shares (ASX: STO) rose 1.3% to $7.95 and Ampol shares (ASX: ALD) added 2% to $33.79. Even gas giant Woodside Energy (ASX: WDS) which shut North West Shelf production due to Tropical Cyclone Narelle managed to eke out a 0.3% rise to $34.47.
Coal remained a hot sector too with investors anticipating an energy switch from gas to coal, with Whitehaven Coal shares (ASX: WHC) up 4.9% to $9.23 on the back of broker upgrades.
Tech pulling market lower
It wasn’t all plain sailing with technology the worst sector, not helped by NextDC (ASX: NXT) shares being slashed by 7.9% to $11.44 after it abandoned its attempt to raise $500 million from bond markets. Codan shares (ASX: CDA) also shed a hefty 5.9% to $32.37.
Investors have also cooled on banks, worrying that fast rising costs living costs through fuel prices could be reflected in higher bad loan charges down the track a little.
National Australia Bank shares (ASX: NAB) fell 1.3% to $41.99 and Macquarie shares (ASX: MQG) fell 2.2% to $201.42 while ANZ shares (ASX: ANZ) fell 0.4% to $36.49 after it appointed Michael Peric and Trevor Vail as co-managing directors for its scandal hit markets division.
After a horror rout over the past month, the big mining shares rebounded in the past week and on Friday alone BHP shares (ASX: BHP) were up 0.3% to $50.37, Rio Tinto shares (ASX: RIO) were up 1.5% to $153.23, Fortescue Metals (ASX: FMG) shares added 1.7% to $20.19 and IGO shares (ASX: IGO) reacted well to broker upgrades, up 3.9% to $7.93.
The week ahead
The coming week should answer a few lingering questions, with the RBA minutes from its March policy decision to raise interest rates by 25 basis points keenly awaited.
With a 5-4 split decision to increase rates to 4.1%, it now seems obvious that the RBA made the right call with at least one more rate rise now on the cards due to ballooning oil prices and inflation.
As mentioned earlier, there are lots of dividend payments dropping into investor bank accounts in the coming week with around 70% of the $33 billion of dividends declared during the February reporting season to be paid out in the two weeks before Easter.
There is plenty of economic data to be released in the coming week in the US, including retail sales for February, non-farm payrolls and a few company earnings reports as well.
However, it will be progress or otherwise on future of the Iran war that will keep the market transfixed far beyond any other factors.
