Evening Wrap: ASX 200 extends gains, resources rally, risk sectors showing extreme strength

The Index extends its win streak to four and finishes the week up 3.7% led by Resources and Tech, Morgan Stanley gives its take on Australian Utilities companies like AGL and Origin Energy, a few standalone Macquarie notes and buckle up for US earnings season.

Let's dive in.

ASX 200 Session Chart

ASX 200 rallies and finishes near session highs (Source: Market Index)

Markets

The ASX 200 rose for a fourth consecutive session and only ~1.2% away from fresh six month highs. Growth and resources continue to catch a bid while defensive sectors like Healthcare and Staples lag. For the week, Energy, Materials and Tech sectors all rose more than 3.5% while Staples and Healthcare finished -0.4% and -2.1% respectively.

This V-shaped move have investors pondering whether or not the market is getting a little overbought and due for a pullback. At the same time, this was a rather step change week with upbeat factors such as:

• US dollar breaking down (generally a positive for resources)

• Growth and risk sectors such as Russell 2000, Ark Innovation ETF and Betashares ATEC demonstrating extreme strength

• US market showing the highest amount of net new highs since 2020

• US inflation hitting 3.0% from peaks of 9.1% in June 2022

• Bond yields also breaking down

There's also increasing calls for more fiscal stimulus in China (another tailwind for resources) as well as upcoming US earnings season, which features a rather low-bar dynamic where S&P 500 EPS are expected to fall 7.2% year-on-year. Let's see how US banks report tonight and whether or not the 'easy' market conditions can continue next week.

Economy

No major economic announcements.

Latest news

Interesting news and movers

Trading higher

• +19.2% Cobalt Blue (COB)

• +16.8% Neuren Pharma (NEU) – Acadia Pharma acquisition

• +11.1% Magnetic Resources (MAU) – Drill results

• +7.3% Latin Resources (LRS)

• +4.6% PointsBet (PBH)

• +2.6% Sandfire Resources (SFR) – Upgraded by JPMorgan

• Uranium sector move: Alligator Energy (+8.6%), Deep Yellow (+7.5%), Peninsula Energy (+5.9%), Elevate Uranium (+5.0%), Paladin Energy (+4.0%), Boss Energy (+2.6%)

• Iron ore sector move: Mount Gibson Iron (+5.8%), BHP (+1.8%), Champion Iron (+1.7%), Rio Tinto (+1.6%), Fortescue (+1.4%)

• Tech sector move: Wisetech Global (+2.4%), Altium (+1.8%), Life360 (+1.8%), Xero (+1.6%), Technology One (+1.6%), NextDC( +1.4%)

Trading lower

• -9.5% Melbana Energy (MAY) – Drilling update

• -5.4% Netwealth (NWL) – Downgraded by several brokers

• -2.7% Delta Lithium (DLI)

• -1.6% Tyro Payments (TYR) – Major shareholder selldown

Broker notes

Morgan Stanley’s take on Australian Utilities:

• “Our AlphaWise Retail Electricity Bill series shows average incumbent bill increases of 18-25% YoY including policy support.”

• Equal-weight rated on AGL after its 39% rise so far this year. 

  • “We are seeing increased inbound investor queries on the stock after several years of very low interest.”

  • “We see upside risk skew to FY24 earnings in view of retail market conditions.”

  • “As before, we'd likely become more constructive on the stock if we could gain conviction on AGL's renewables investment.”

• Overweight rated on Origin Energy, the stock is up 11% so far this year thanks to its Scheme Implementation Deed with Brookfield

Plus a few standalone Macquarie notes: 

St Barbara (SBM)

• Rating: Outperform

• Target price: $0.35 ($0.28 as at 13 July)

• “We resume coverage of SBM with an Outperform recommendation and a A$0.35/sh target price following the sale of the Leonora assets on June 30, 2023.”

• “While the outlook remains unclear we see value in the development of Fifteen Mile Stream at Atlantic while any development scenario for Simberi Sulphides would present upside to our base case.”

Viva Energy (VEA)

• Rating: Outperform

• Target price: $3.40 ($2.92 as at 13 July)

• “VEA's 2Q-23 EBITDA (RC) of $67m was 43% below MRE, reflecting larger-than-expected losses from the extended Geelong refinery outage.”

• “Refinery issues are one-off in 2023, and therefore present a buying opportunity for longer term investors.”

• “The outage also serves as a reminder of the merits of VEA's strategic shift to a diversified business model (with more non-fuel income from company controlled convenience sites).”

Scans