Evening Wrap: ASX 200 extends decline, Defensive sectors outperform

The Index finished the week down 1.7% and extends its losing streak to three on Friday, iron ore stocks eased after China's top economic planner meeting on recent prices, Morgan Stanley expects rate cuts to take place in August 2024 and Macquarie's take on gold.

Let's dive in.

ASX 200 Session Chart

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

Markets

The ASX 200 finished lower but off worst levels of -0.50%. The Index is venturing into oversold territory but buyers might not necessarily step up amid a broad wave of macro and market-related headwinds. Let' see if we can catch a bid next week as we approach August lows.

Friday's sector performance was relatively in-line with Wall Street, where Defensives led to the upside. While materials, tech and retail stocks underperformed.

Iron ore stocks eased as China's NDRC warns market participants to analyse the iron ore market accurately and will continue to monitor for illegal activities.

Economy

No major economic announcements but here's some interesting stuff from the ABS:

• "Seven of the 13 selected industries reported falls in business turnover in July," with electricity, gas, water and waste services industry reporting the largest fall.

• "Arts and recreation recorded the second largest fall in turnover (-6.1 per cent). Manufacturing businesses also saw a drop (-5.0 per cent) with lower turnover seen across precious metal manufacturing and alumina production."

• "Administrative and support services (+3.8 per cent) and Construction industries (+2.0 per cent) recorded the largest rises in turnover."

Latest news

Interesting news and movers

Trading higher

• +8.2% Qualitas (QAL)

• +740% Winsome Resources (WR1)

• +5.7% Chrysos Corp (C79)

• +4.5% Westgold Resources (WGX) – Takeover rumours

• +4.2% Tietto Minerals (TIE) – Bounce

Trading lower

• -50.0% AMA Group (AMA) – Placement

• -20.0% Base Resources (BSE) – Ex-dividend

• -12.5% 88 Energy (88E) – Earnings

• -9.7% Audinate Group (AD8) – Placement

• -6.7% MetalsX (MLX)

• -5.7% Duratec (DUR) – Board and senior management selldown

• -4.4%  Platinum Asset Management (PTM) – Reports FUM

• -3.8% Mineral Resources (MIN)

• -3.4% Pact Group (PGH)

• -3.2% Iress (IRE) 

• Iron ore sector move: Fenix Resources (-4.1%), Fortescue (-2.4%), Rio Tinto (-1.7%), BHP (-1.2%)

Broker notes

Morgan Stanley’s take on Australian interest rates:

• “After hiking rates 400 bps, the RBA has now stayed on hold for the past three meetings – entering a "calibration mode" that balances a tightening bias with month-to-month reaction to the data.”

• “We see higher inflation outcomes over the next few months, but a gradual path downwards over 2024 to an above-target 3.1% by year-end.”

• “We think these factors (acceleration in headline inflation, broadening of wages and resilient labor demand) still support a final rate hike from the RBA in November.”

• “We think these (headline inflation towards target, confidence that unemployment is heading to ~4.5%) will be met around the August 2024 meeting, where we pencil in the first rate cut. Earlier easing would be driven by sharper spending and labour market adjustments.”

Macquarie’s take on gold:

• “The Macquarie Commodities Strategy team has made broad upgrades to US$ gold price outlook, including long-term price lifting 10% to US $1,650/oz.”

• “We continue to prefer NST from the larger-cap gold names driven by our expectation of a more sizeable production growth outlook coupled with a meaningfully stronger balance sheet compared to EVN.”

• “From the smaller-cap producers, our top pick is RMS with momentum from the high-grade Penny mine set to see cash flows improve into FY24 …”

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