Market Wraps

Evening Wrap: ASX 200 falls, Defensive sectors shine + Why did lithium stocks sell off?

Fri 21 Jul 23, 5:18pm (AEST)

The S&P/ASX 200 closed 11 points lower, down -0.15%. 

The ASX 200 finished a volatile week up 0.15%, defensive sectors like Healthcare, Staples and Utilities led to the upside on Friday, lithium stocks tank as Chinese future prices hit limit down of more than 10%, Newcrest shares sink 5% after disappointing earnings from Newmont and a few Macquarie notes of interest.

Let's dive in.


Today in Review

Fri 21 Jul 23, 5:00pm (AEDT)

Name Value % Chg
Major Indices
ASX 200 7,313.9 -0.15%
All Ords 7,526.8 -0.20%
Small Ords 2,874.6 -0.67%
All Tech 2,486.7 -2.07%
Emerging Companies 2,163.5 -0.82%
Currency
AUD/USD 0.6785 +0.09%
Name Value % Chg
Sector
Energy 11,395.0 +1.27%
Consumer Staples 13,167.7 +1.16%
Health Care 40,190.5 +0.59%
Utilities 9,052.2 +0.39%
Industrials 6,835.9 +0.12%
Real Estate 3,119.9 -0.01%
Consumer Discretionary 2,981.2 -0.22%
Materials 18,108.9 -0.46%
Financials 6,463.7 -0.47%
Communication Services 1,533.9 -0.48%
Information Technology 1,861.9 -2.73%

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ASX 200 Session Chart

S&P ASX 200 (LIVE DATA) Share Prices & Charts - Market Index
ASX 200 lower but off worst levels (Source: Market Index)

Markets

The ASX 200 finished lower but well above session lows of 0.5%. We're entering a bit of a weird stage for markets. The so far weaker-than-expected earnings from high-profile tech companies like Tesla and TSMC is driving a pullback for the Nasdaq while the Dow kicks on. This places sector rotation dynamics at play and a potential tailwind for Defensive like Staples, Healthcare and Utilities, which is what happened in today's session. At the Index level, it's driving a lot of volatility as sectors offset each other.

That said, all the dynamics above could change in an instant as US earnings season continues to pick up. There's also quite a bit on the agenda next week including Australian inflation (Wed), Fed interest rate decision (Thurs) and US GDP (Thurs).

Economy

Japan’s inflation rose 3.3% in June from 3.2% in May.

  • Below market expectations of a jump to 3.5%

  • Core inflation was 3.3% in June fro, 3.2% in May

  • This was in-line with consensus expectations

UK retail sales jumped 0.7% month-on-month in June from 0.3% in May.

  • Beat market expectations of a 0.2% increase

  • Retail sales are down 1.0% year-on-year in June, an improvement from the 2.3% drop in the previous month


Latest news


What happened today?

Lithium futures tank big time: I was watching Pilbara Minerals (ASX: PLS) tumble intraday and finish 4.5% lower. Why is it getting smashed? As it turns out, lithium carbonate futures in Guangzhou hit limit-downs, slumping 14% to 211,600 yuan a tonne. The lithium sector is now on the backfoot again as Chinese prices turn.

Don't underestimate the power of announcements: I want to recap the price action of two recent announcements from Flight Centre (ASX: FLT) and Syrah Resources (ASX: SYR). There's quite a bit we can learn about what has taken place.

Flight Centre shares rose 2.3% today, finishing at levels not seen since May 2022. This follows a 4.0% rally on Thursday (its chart is basically vertical) after announcing an FY23 EBITDA upgrade to $295-305m vs. consensus expectations of $280m. The upgrade was a sizeable beat against consensus expectations and there quite a few follow through in terms of positive broker updates on Friday. Across 16 ratings, 50% are Buy rated, 44% Hold and 6% Sell. The average price target rose 0.2% to $22.26 after the trading update.

Syrah is the complete opposite. The stock tumbled 16.3% on Tuesday to a two-and-a-half year low after pausing production at its Balama operation. The graphite market is struggling and June quarter sales fell 43% quarter-on-quarter. A investor might look at Syrah and think "it looks very oversold, is the largest pure play graphite stock on the ASX and will soon be strategically a major vertically integrated graphite producer." But catching a falling knife is easier said than done. Macquarie warned investors that the company faces a US$100 million funding gap for its Vidalia anode facility. It says the gap will be funded via a capital raising in the March quarter 2024. Yes, a US$100 million capital raising from a ~$500m market cap company. Now that's what you'd call overhang.


Interesting news and movers

Trading higher

  • +15.0% Doctor Care Anywhere (DOC) – Earnings

  • +14.9% Starpharma (SPL) – Product demonstrates imaging benefits

  • +9.3% Pact Group (PGH)

  • +7.3% Service Stream (SSM) – Contract awards

  • +4.4% Mach7 Technologies (M7T) – Secures contract

  • +3.7% IPD Group (IPG) – Acquisition

  • +2.8% Coronado Global (CRN) – Q2 production

  • +2.3% Flight Centre (FLT) – Upgraded by several brokers 

Trading lower

  • -15.6% Noumi (NOU)

  • -9.4% Cettire (CTT)

  • -6.1% Bigtincan (BTH) – Business update

  • -6.1% 29Metals (29M)

  • -5.3% Newcrest Mining (NCM) – NEM earnings

  • -5.0% Grange Resources (GRR)

  • -4.6% DGL Group (DGL) 

  • -4.4% Perseus Mining (PRU)

  • -3.0% Premier Investments (PMV) – Downgraded by Macquarie 

  • -2.4% Charter Hall (CLW) – Downgraded by Macquarie

  • Tech sector move: Weebit Nano (-4.7%), Xero (-3.9%), Technology One (-2.9%), Life360 (-2.9%), Wisetech Global (-2.4%)

  • Lithium sector move: Lake Resources (-7.3%), Core Lithium (-4.9%), Pilbara Minerals (-4.5%), Allkem (-3.3%), Sayona (-2.9%)


Broker notes

A few Macquarie notes of interest:

BHP (BHP) – Outperform with $47.00 target ($44.62 at 20 July)

  • “BHP’s 4QFY23 result was weak with record iron-ore shipments below our estimates while realised iron-ore prices were in line.”

  • “Realised prices were also mixed with lower coal and copper prices offset by in-line iron-ore prices. Guidance for FY24 was below our estimates for copper and coal but in line for iron-ore.”

Deterra Royalties (DRR) – Outperform with $4.80 target ($4.69 at 20 July)

  • “Production from Mining Area C in 4QFY23 of 33.9mt was in line with our expectations and was 14% higher QoQ.”

  • “The capacity payment and full-year dividend is a key near-term catalyst for DRR. Free cash flow yield in a spot price scenario is 8% from FY24 onward.”

Evolution Mining (EVN) – Underperform with $3.10 target ($3.72 at 20 July) 

  • “EVN's end to FY23 was softer than we expected; performance slipped below the production and AISC guidance that was updated in April 2023.”

  • “The softer implied cash performance was primarily driven by weather impacts at Ernest Henry. Importantly, there was no change to FY24 guidance.”

Premier Investments (PMV) – Neutral with $21.00 target ($21.64 at 20 July)

  • “We downgrade to Neutral. Margin normalisation post-Covid amid a weak macro driving downside risk and remains an overhang.”

  • “PMV is not immune to vulnerable consumption and macro pressures. This will remain an overhang in the next ~6-9 mths as PMV cycles tough comps.”

QBE Insurance (QBE) – Outperform with $16.90 target ($15.24 at 20 July)

  • “QBE have provided a 1H23 result update, including higher catastrophes and reserve strengthening but reiterated FY23 CoR outlook.”

  • “QBE is trading at a significant premium to weighted international peers, which compares to a three-year average discount of ~2.1%, but this reflects peers being more affected by global economic challenges.”


Scans 

Top Gainers

Code Company Last % Chg
PEC Perpetual Resourc... $0.021 +40.00%
BPH BPH Energy Ltd $0.023 +27.78%
CHW Chilwa Minerals Ltd $0.19 +26.67%
AMM Armada Metals Ltd $0.045 +25.00%
FGL Frugl Group Ltd $0.015 +25.00%
View all top gainers

Top Fallers

Code Company Last % Chg
OCT Octava Minerals Ltd $0.088 -23.48%
TOY Toys'R'US ANZ Ltd $0.011 -21.43%
BVR Bellavista Resour... $0.16 -20.00%
ODY Odyssey Gold Ltd $0.024 -17.24%
BYH Bryah Resources Ltd $0.016 -15.79%
View all top fallers

52 Week Highs

Code Company Last % Chg
CHW Chilwa Minerals Ltd $0.19 +26.67%
NHE Noble Helium Ltd $0.275 +10.00%
IXU Ixup Ltd $0.06 +9.09%
MGU Magnum Mining and... $0.052 +8.33%
CAT Catapult Group In... $1.10 +7.84%
View all 52 week highs

52 Week Lows

Code Company Last % Chg
OCT Octava Minerals Ltd $0.088 -23.48%
OLI Oliver's Real Foo... $0.013 -13.33%
BBC BNK Banking Corpo... $0.35 -12.50%
MNS Magnis Energy Tec... $0.105 -12.50%
AXI Axiom Properties Ltd $0.04 -11.11%
View all 52 week lows

Near Highs

Code Company Last % Chg
PCI Perpetual Credit ... $1.00 +1.01%
WVOL Ishares Edge MSCI... $35.97 +1.07%
GCI Gryphon Capital I... $1.955 0.00%
VVLU Vanguard Global V... $63.38 +0.56%
IHD Ishares S&P/ASX D... $13.26 -0.08%
View all near highs

Relative Strength Index (RSI) Oversold

Code Company Last % Chg
LNK Link Administrati... $1.55 -1.90%
PEN Peninsula Energy Ltd $0.11 -8.33%
LKE Lake Resources N.L. $0.255 -7.27%
MOV Move Logistics Gr... $0.785 -4.27%
MNS Magnis Energy Tec... $0.105 -12.50%
View all RSI oversold

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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