Evening Wrap: ASX 200 continues to stall, Megaport implodes, retail sales nosedive

The local sharemarket struggles to hold onto gains, retail sales unexpectedly fall and mark the fourth largest decline on record, Chinese manufacturing figures bounce, lithium stocks dip and Megaport cops an almost 25% haircut.

Let's dive in.

Markets

The ASX 200 is starting to fatigue around these levels. The market rallied 0.47% in early trade but finished the session down -0.07%. As the market begins to turn,

• Sector performance has now done a sudden U-turn with growth-y sectors and materials leading to the downside

• Defensive sectors like Staples and Healthcare led to the upside, in-line with how the blue-chip Dow outperformed overnight,

• Discretionary stocks held up relatively well, especially after the abrupt fall in Australian retail sales data

Economy

Australian retail sales unexpectedly fell -3.9% month-on-month in December, well-below analyst expectations of a -0.3% decline. This was the 4th largest decline in retail sales on record (2nd if you exclude Covid-related data).

• “This is the first monthly fall in retail turnover for 2022, following eleven consecutive monthly rises. Retail turnover remains elevated at its sixth highest level in the series and was up 7.5 per cent through the year." - ABS Head of Retail Statistics

• “The large fall in December suggests that retail spending is slowing due to high cost-of-living pressures. Retail businesses reported that many consumers had responded to these pressures by doing more Christmas shopping in November to take advantage of heavy promotional activity and discounting as part of the Black Friday sales event.”

Source: TradingEconomics

China's manufacturing PMI surprised, coming in at 50.1 in January, up from 47.0 in December and above analyst expectations of 49.8.

• Non-manufacturing PMI also surged from 41.6 in December to 54.4 after China abruptly abandoned its zero-Covid measures

Latest news

Post market brief

Upon closer inspection, a lot of sectors are starting to stall and/or sold off heavily today. Notably:

• Iron ore: BHP, Rio Tinto and Fortescue starting to move sideways after their massive move

• Gold: Most larger cap names were down 1-2% on Tuesday

• Lithium: Sold off sharply, especially the heavyweight names like Pilbara Minerals (-5.0%), Allkem (-7.5%) and Core Lithium (-5.7%). Are instos coming back from holidays and hitting the sell button?

• Uranium: Has enjoyed a pretty big bounce/rally in recent weeks. Now starting to turn. Paladin Energy and Boss down 1-2% but Deep Yellow -7.5%

Overall, it's a pretty difficult week to talk about stocks as the market faces a tsunami of central bank, macro data and company earnings.

On a side note, we saw Megaport implode today, down -24.7%.

I used this chart in a Morning Wrap maybe a week ago. It shows how unprofitable companies that remained unprofitable post Dot Com bubble struggled for upside. While ones that managed to transition into profitable were able to bottom and recover quite strongly.

Interesting news and movers

Trading higher

• Frontier Digital Venture (FDV) +6.6% – Reports FY EBITDA

• Hansen Technologies (HSN) +6.2% – Initiated Buy at UBS (Monday)

• PWR Holdings (PWH) +4.95% – Acquires Uk-based Bespoke Motorsport Radiators

• Woolworths (WOW) +3.8% – Upgraded to Outperform from Neutral at CS 

Trading lower 

• Megaport (MP1) -24.7% – Reports Q2 revenue

• PointsBet (PBH) -17.4% – Reports Q2 update

• Clinuvel Pharma (CUV) -11.0% – Reports Q2 report

• Jervois Global (JRV) -10.9% – Continuation selloff, down -11% in last three

• Audinate (AD8) -7.5%

• IGO (IGO) -7.1% – Reports 1H NPAT and FY23 guidance

• Novonix (NVX) -6.2% – Reports Q2 update

• Syrah Resources (SYR) -5.6% – Reports Q4 graphite production

• Resolute Mining (RSG) -5.2% – Reports CY22 gold production

Broker updates 

UBS' top picks for February reporting season:

• Positive stance:

  • APM Human Services (Buy, PT $3.85): "We expect 1H23 to be somewhat subdued given the ramp up of Workforce Australia, combined with the Equus acquisition and RSVAP contract contributing in 2H23."

  • NWR Holdings (Buy, PT $3.10): NWR has been awarded ~$600m worth of contracts since November 2022. UBS believes this "presents a significant earnings upgrade opportunity relative to company guidance."

  • Siteminder (Buy, PT $6.25): "1Q23 rev growth had returned to pre COVID levels and, given strong industry feedback, we see scope this has continued into the 2Q23."

• Cautious stance:

  • Bega Group (Neutral, PT $3.75): UBS expects Bega to deliver 1H22 $82m vs. consensus $86m amid growing weakness in Australian milk production.

  • Eagers Automotive (Neutral, PT $13.00): "Dealer channel checks are becoming increasingly mixed with signs of slowing written orders in new vehicles across Dec/Jan, increasing cancellation rates (noting off a very low base), used car margins coming under pressure as prices decline ..."

Scans