Evening Wrap: ASX 200 eases from session highs, Flight Centre surges, all eyes on the Fed

The local sharemarket struggled to hold onto session highs, tech and energy stocks underperform, lithium stocks fade from session highs and a few comments from experts about the all-important Fed interest rate hike.

Let's dive in.

Markets

It was another session characterised by fatigue. The ASX 200 finished the session 0.33% higher but down from session highs of 0.82%. This was similar to Tuesday's session where the market closed around breakeven compared to session highs of 0.47%.

• Energy led to the downside thanks after Woodside fell -1.4%

• Tech stocks were mostly lower, notably Wisetech (-1.7%), Altium (-1.2%) and NextDC (-1.0%). Although names like Xero (+0.1%) and Block (+0.9%) managed to buck the trend

• Defensive and yield sensitive sectors like Industrials and Real Estate outperformed

Economy

China's Caixin manufacturing PMI contracted at a slower pace in January, up to 49.2 from 49.0.

• The 50 point mark separates expansion from contraction

• This marks the sixth consecutive month of contraction

• The Caixin index focuses more on smaller firms, while Tuesday's NBS index tracks larger companies

• The NBS manufacturing PMI jumped to 50.1 from 47.0 in December

Latest news

Post market brief

A quick one about the ASX before a few notes about the elephant in the room: The Fed.

On Tuesday, we talked about how a lot of sectors were starting to stall or sell off rather heavily. We continue to see this choppy weakness, especially from resource sectors that have managed to bounce in recent weeks, notably:

• Lithium: Pilbara Minerals +0.4% from highs of 3.2%, Allkem +1.1% higher from highs of 4.6%

• Uranium: Paladin Energy -4.1%

Anyway, onto the Fed.

There's so much hype around this interest rate hike and presser. Some comments from experts (and the internet):

• Mizuho: The bottom-line is that moderating wage pressures revealed in US Q4 employment cost index data is validation for the Fed to dial-back the pace of rate hikes to 25bp in Feb, not a vindication of premature (and misguided) Fed pivot bets

• Bespoke Premium: "The labor market is adjusting, and if the Fed reads the ECI data reported this morning correctly and behaves less aggressively in its tightening campaign, the odds of a soft landing are improving"

• Goldman Sachs: "The Fed is approaching a critical inflection point and whether they finish with 25bp tomorrow (at 4.75%) or 25bp on 3/22 (at 5%), the end is very much in sight (but what really matters is how long they hold this level)"

The S&P 500 rallied 4.6% in January, which begs the question, did the market get too euphoric about a pivot and the disinflation narrative. And if so, what does a repricing of 'higher for longer' look like?

Brace yourself for some fireworks overnight. I'll see you guys in the Morning Wrap.

Interesting news and movers

Trading higher

• Mesoblast (MSB) +9.5% – Resubmitted licence for FDA

• Jervois Global (JRV) +8.2% – Bounce, up more than 2% in last three days

• Flight Centre (FLT) +8.1% – Completed $180m capital raise for acquisition

• Aeris Resources (AIS) +6.3% – Q2 copper production (Tuesday)

• Argosy Minerals (AGY) +4.7% – Operational update for Rincon Lithium Project

• PointsBet (PBH) +4.6% – Bounce after selloff on Tuesday

• Warrego Energy (WGO) +4.3% – Hancock extends offer period

• Nickel Industries (NIC) +3.2% – Q4 report (Tuesday)

Trading lower 

• Panoramic Resources (PAN) -5.6% – Q2 production (Tuesday)

Broker updates 

Flight Centre – "Positive Trading Update"

• Goldman Sachs: $16.40 target price; Retains Neutral

• Notes: "We view the proposed Scott Dunn acquisition as offering an entry point into the resilient luxury leisure market and as strategically positive for FLT’s longer term outlook."

Megaport – "Operating trends disappoint"

• Goldman Sachs: $8.10 target price; Retains Buy

• Notes: Operational trends was the main disappointment. "All in we revise FY23-25 revenues -1% to -15%."

PointsBet – "First take: Net win and cash balance largely in-line"

• Goldman Sachs: $2.00 target price; Retains Neutral

• Notes: "US trading is progressing in line with GSe albeit with gross win margins being slightly below our expectations. We note an increased profit focus from the narrative including the revision of the NBC agreement."

IGO – "Lithium: It's all about the timing"

• Citi: $17.10 target price; Retains Buy

• Notes: "Greenbushes has now moved to quarterly pricing. Since lithium prices have probably peaked, this has trimmed our revenues. While we welcome the closer alignment with ‘spot’, the timing isn’t ideal."

Boss Energy – December quarter 2023 production

• Macquarie: $3.20 target price; Retains Outperform

• Notes: The Honeymoon project is on time and on budget, set to hit production status in the December 2023 quarter. The note describes it as a "tier-one jurisdiction and has a near-term path to market buoyed by rallying uranium prices."

Scans