Evening Wrap: ASX 200 claws back some losses, CSL bounces + China's deflation relapse

The S&P/ASX 200 closed 40 points lower, down -0.56%. 

The Index finished the week up 1.4%, most sectors finish in red led by Tech and Real Estate stocks, CSL bounces after dipping to levels not seen since October 2019, China's inflation comes in flat, Macquarie warns of headwinds to upstream lithium players and a few UBS notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower but off worst levels (Source: Market Index)

Markets

The ASX 200 finished lower on Friday after a weak lead from Wall Street. Markets are pulling back after US inflation rose 3.7% year-on-year in September, above market expectations of 3.6%. Most yields pushed up 5-10 bps overnight on the news.

Yield sensitive and risk sectors led to the downside, notably Tech, Real Estate, Discretionary and Telcos. It's worth noting that the Russell tumbled 2.2% overnight, so there was also some follow through with the ASX Small Ords down 1.2%.

Healthcare stocks outperformed as CSL bounced after Thursday's selloff in response to weight loss drug developments. The stock finished 1.3% higher from a session low of -3.1% on more than double its 20-day average volume.

Economy

China’s inflation was flat year-on-year in September from a 0.1% rise in August.

• Below market expectations of a 0.2% increase

• “One month does not constitute a trend, however, and the base effect story, which we believe will slowly lift Chinese inflation over the coming months is still in play.” – ING Economics

• “And it's not just CPI inflation where we see weakness. The PPI inflation data released today also undershot expectations, though at -2.5% YoY, they did at least improve on the -3.0% PPI inflation recorded in August.”

Latest news

Interesting news and movers

Trading higher

• +13.3% Sky Network Television (SKT) – Non-binding indicative takeover

• +1.7% Latin Resources (LRS) – Agreement to sell subsidiary

Trading lower

• -30.0% AV Jennings (AVJ) – Completes institutional offer

• -5.5% Ingenia Communities (INA) – 41.8m share block trade at $3.90

Broker notes

Macquarie on lithium and rare earths:

• “Inventory management by miners will be key to watch in 3QY23 as some downstream processors have reduced operating rates.”

• “We have forecast realised spodumene price of US$1,915/t at Mt Marion, while PLS's realised prices could average at US$2,936/dmt at SC5.3%.”

• “The recent weakness in lithium prices have pushed some lithium refineries into loss-making, presenting headwinds to upstream miners' pricing power, in our view.”

Macquarie on the consumer sector:

• “ABS retail trade data for August 2023 rose 0.2% MoM, and 1.5% YoY.”

• “Household goods categories continue to be soft. Furniture and Electronics in particular are key weak points. Eating out remains strong.”

• “Utilising ABS data from July/Aug, it appears that 1Q24 is broadly tracking in-line with our forecasts for Bunnings, while in JBH Aus, TGG, and HVN Aus, sales growth is holding up better than expected which may lead to a positive surprise.”

• “We are cautious on the outlook for discretionary consumer spending over the second half of calendar 2023. Household budgets, particularly those of renters and mortgagees, are being squeezed by rising housing costs. We continue to prefer Staples over Discretionary with COL our top pick.”

A few UBS notes of interest:

Tabcorp (TAH) – Neutral with $1.02 target ($0.92 on 12 Oct)

• “Group revenue in the September quarter was down 6.1%, driven by Wagering & Media revenue down 5.4% and Gaming Services revenue down 12.7%.”

• “We believe the SepQ weakness was driven by both (1) softer consumer demand, and (2) elevated industry promotions making share gains more difficult.”

• “It turns out we were too optimistic about 1H24 trading even though we saw early signs of softness in our recent wagering survey.”

• “We think there is a lot to like about the narrative and Tabcorp's strategy - particularly streamlining the corporate structure, investing in the digital product, recruiting critical modern capabilities, and adopting Agile ways of working.”

Lynas (LYC) – Buy with $8.00 target ($6.74 on 12 Oct)

• “We upgrade our rating on LYC from Neutral to BUY with the NdPr price up ~22% since late July on improved fundamentals and a seasonal demand uptick vs. the share price which is down 10% over the same period.”

• “Feedback from our China team has us incrementally positive (link) predicated on 1) producers stepping in to buy physical at $50-55/kg, 2) supply disruptions out of Myanmar, and 3) a marginally improved demand outlook.”

Scans