Australia’s ASX 200 index rallies as big banks and miners diverge

The ASX 200 index staged a strong comeback in August after crashing to a low of A$7,525. It rallied for five consecutive weeks and neared its all-time high of A$8,163. It has jumped by 6.50% this year, underperforming other global indices like the S&P 500 and the Dow Jones indices.

Hawkish Reserve Bank of Australia

The ASX 200 index underperformed its global peers as investors focused on the hawkish Reserve Bank of Australia (RBA).

Unlike other global central banks, the RBA has left the door for interest rate hikes wide open because of the substantially high inflation.

The most recent data showed that the headline CPI rose from 3.6% in the first quarter to 3.8% in the second one. While the trimmed and weighted mean inflation figures retreated, they remained substantially higher than the RBA target of 2.0%.

Therefore, minutes released last month showed that RBA officials deliberated on hiking interest rates. Michele Bullock, the bank’s governor, has insisted that the bank may consider increasing rates later this year.

Most analysts believe that odds of cutting rates are low but agree that the RBA will be one of the final central banks to start cutting interest rates.

The stock market tends to underperform when the central bank is relatively hawkish. Indeed, one of the top reasons why US indices like the S&P 500 and Nasdaq 100 have soared to a record high is that the Fed has hinted that it will cut rates.

China’s economic growth and commodity prices

The ASX 200 index has also lagged its global peers because of the ongoing softening of the Chinese economy, which has affected top commodities.

A report released earlier this month showed that the country’s manufacturing PMI remained below 50 in August, signaling that the sector was in a contraction zone. 

More recent data showed that China’s retail sales and industrial production numbers have been relatively weak this year. The country’s GDP expanded by 4.7% in the second quarter, missing the estimated 5.1%.

China’s weakness has led to a sharp decline in commodity prices. Data shows that iron ore was trading at $96, down by over 32% from its highest point in 2023. Analysts believe that the era of the iron ore boom has ended since China is no longer investing huge sums of money on housing and large infrastructure projects. 

Other commodities like coal, copper, lithium, and nickel have also retreated sharply in the past few months.

The ASX 200 index has a big exposure in the commodity industry since it is one of the biggest miner in the world. It is also highly exposed to China, the biggest buyer of its commodities.

As a result, big mining stocks have retreated in the past few months. BHP Group, the biggest mining company in the world, dropped to A$40 on Tueday, down by over 18% this year. Similarly, Fortescue Mining stock has fallen by 35% this year. 

On the positive side, many Australia’s gold mining companies like Newcrest, Northern Star Resources, Evolution Mining, and Gold Fields continued doing well as the metal’s price surged to a record high. 

Australia banks doing well

A notable thing in the ASX 200 index is that the biggest banks are doing well, helped by higher interest rates. 

Commonwealth Bank of Australia (CBA) stock has gone parabolic and was trading at a record high of A$142.43. It has risen in the last five consecutive days and by over 32% this year.

Its most recent results showed that CBA’s net profit after tax retreated by 8% in the first half of the year to over A$4.8 billion because of higher expenses. And flat operating income. Net interest margin (NIM) fell slightly to 1.99% during the month.

The National Australia Bank (NAB) stock price has also done well, rising by over 30% this year and nearing its all-time high of A$38. 

ANZ Bank Group has also soared to $30.73, its highest level on record. Other smaller Australian banks have been some of the top-performers in the ASX 200 index. 

ASX 200 index analysis

The daily chart shows that the S&P/ASX 200 index has been in a strong bull run in the past few years. It bottomed at $6,728 in 2023 and has rebounded to $8,100. 

The index is now approaching the important resistance point at $8,163, its all-time high. It has also moved above the 50-day and 100-day Exponential Moving Averages (EMA) while top oscillators show that it has the momentum.

The Relative Strength Index (RSI) has moved above the neutral point of 50. Therefore, the ASX 200 index will need to move above the key resistance point at A$8,163 to invalidate the double-top pattern that has been forming. If this happens, it will next rise to the resistance point at A$8,200.