Evening Wrap: ASX 200 fades + Australia's unemployment rate falls to 3.6%

 The S&P/ASX 200 closed 14 points higher, up 0.19%. 

The Index gave back early gains but managed to rise for a fourth consecutive session, Australia unexpectedly added 76,000 jobs in May while Chinese retail sales and industrial production data missed expectations, Morgan Stanley notes a recovery in Chinese EV sales and a few Macquarie notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 higher but closed off session highs (Source: Market Index)

Markets

The ASX 200 faded from session highs of 0.5%. The Index still managed to eke out a small gain thanks to iron ore miners and banks. But the general vibe was that things were rather heavy. Is it tax loss selling? Or is this the product of selling the fact (aka the Fed pause). Things were particularly weak towards the small and speculative end of town, where the Small Ordinaries (XAO) and Emerging Companies (XEC) Indexes closed 0.23% and 0.67% lower.

Economy

Australia’s unemployment rate fell 0.1% percentage point to 3.6% in May, according to the ABS.

• Beat market expectations of unch at 3.7%

• Bjorn Jarvis, ABS head of labour statistics, said: "with employment increasing by around 76,000 people and the number of unemployed decreasing by 17,000 people, the unemployment rate fell to 3.6 per cent

• “The strong growth in employment in May followed a small decrease in April, around Easter, when employment fell by more than it usually would over the holiday period.”

• “In addition to there being around a million more employed people than before the pandemic, a much higher share of the population is employed. In May 2023, 64.5 percent of people 15 years or older were employed, an increase of more than two percentage points (2.1) since March 2020.”

China released a series of disappointing economic data points including:

• Industrial production rose 3.5% year-on-year in May vs. 3.6% expected

• Retail sales rose 12.7% year-on-year in May vs. 13.6% expected

• Unemployment was unchanged at 5.2% in May

• This reinforces the case for more stimulus as China faces rising deflationary risks, weakening economic growth and record youth unemployment

Latest news

Interesting news and movers

Trading higher

• +11.8% Australian Ethical (AEF) – FUM update

• +4.6% Emeco (EHL) – Guidance

• +4.5% Aurizon (AZJ) – Upgraded by multiple brokers

• +4.0% Retail Food Group (RFG) – Trading update

• +3.9% Macquarie Tech (MAQ) – Placement (Wed)

• +3.0% MA Financial (MAF) – Fund inflows

• +2.9% SRG Global (SRG) – Contract award

• Iron ore sector move: Hawsons (+8.5%), Fortescue (+3.6%), Champion Iron (+1.8%)

Trading lower

• -17.5% DGL Group (DGL) – Trading update

• -7.4% Appen (APX) – Continuation selloff, down 19% in previous three

• -6.3% Lynas Rare Earths (LYC) – Downgraded by UBS

• -2.5% CSL (CSL) – Price target cut by multiple brokers

• -1.4% Adriatic Metals (ADT) – Drilling results

• Lithium sector move: Argosy (-5.5%), Pilbara Minerals (-4.5%), Patriot Battery Metals (-4.5%), Global Lithium (-3.6%), Core Lithium (-2.9%), Allkem (-2.9%)

Broker notes

Morgan Stanley provides an update on China’s EV data:

• “The recovery in China BEV volumes has continued with May-23 YoY up by +52% (YTD +36% YoY).”

• “YTD BEV sale run rates are now 4.85m units vs. MSe base case of 5.29m units. BEV sales only need to be maintained at ~0.47m units per month for our base case to be met.”

• “Although battery production continues to outpace installations, the recent pickup is likely signalling an expectation of improving demand into 2HCY23.”

• “While we see YoY growth of ~5% for China EV sales, there could be upside risk if the Jan-Apr 36% YoY growth rates are sustained for the rest of CY23.”’

Plus a few Macquarie notes of interest:

Insurance Australia (IAG): Outperform with $5.70 target price

•  “IAG downgraded medium-term guidance to ~15% (from 15-17%), while ROE guidance of 13-14% was upgraded due to stronger investment income (from 12-13%).”

• “We believe the stock is cheap, but remain mindful of the multiple short-term risks (perils, reinsurance, claims inflation)”

Mount Gibson Iron (MGX): Outperform with $0.60 target price

• “MGX's shipment rate has increased, with the company on track to achieve and potentially surpass FY23 guidance of 2.9Mwmt.”

• “In FY24, the company is targeting 5-6 shipments per month in the dry season and 4 shipments per month in the wet, for annual sales of ~4Mwmt.”

• “We upgrade to Outperform given the strong cash flow outlook, as MGX generates A$0.7b in cash over the remaining LOM on our forecasts (A$1.0b at spot prices).”

Panoramic Resource (PAN): Outperform with $0.18 target price

• “A crack in the filter press pressure plate, a component within the mill, has resulted in PAN suspending concentrate production for two weeks.”

• “PAN has also lifted C1 cash cost guidance from A$11.00-11.50/lb to A $13.00-13.50/lb vs our previous base case of A$11.56/lb.”

• “PAN is expected to recommence concentrate production in approximately two weeks time and hopefully impact on FY24 production should be minimal.”

Scans