Evening Wrap: ASX 200 falls, Fortescue rallies to all-time high, copper stocks on the move

The S&P/ASX 200 closed 15 points lower, down -0.21%.

A better-than-feared session where the market rallied off session lows, surging iron ore prices pushes Fortescue shares to fresh all-time highs, RBA monetary policy meeting considers either a 25 bp or 50 bp increase, copper stocks are trying to break out and Citi's take on a few of today's results.

Let's dive in.

ASX 200 Session Chart

ASX 200 gaps down, stabilises and closes towards session highs (Source: TradingView)

Markets

The ASX 200 finished lower but well-above session lows of -0.74%. The early weakness was triggered by a sharp selloff for BHP, falling as much as -2.3% but closing around breakeven.

• Materials rallied thanks to higher iron ore prices (Dalian futures up 3.2%) and a bounce in beaten up lithium stocks

• Telcos led to the downside, with Telstra giving back all of its post-earnings gains

• Tech was heavy amid broad-based weakness among large cap names, led by Altium (-6.2%) due to weaker-than-expected half-year results

Economy

RBA monetary policy meeting highlights:

• "While global inflationary pressures had started to ease, this had yet to translate here. An easing in inflation was expected over the months ahead, although strong domestic demand in some areas was continuing to push up prices."

• "The recent inflation data had suggested more breadth and persistence in inflation than had been expected and that strong demand was leading to price increases in some parts of the economy."

• "The accelerated reopening of the economy had brought forward the expected recovery in consumption and supply capacity in China, removing some of the downside risk to the global outlook."

• "The Board considered two options for its policy decision: a 50 basis point increase; and a 25 basis point increase."

Australia's manufacturing PMI was largely unchanged at 50.1 in January, above expectations of 49.4, according to Judo Bank.

• "This signalled a renewed expansion of the manufacturing sector, albeit one that was only marginal."

• "Manufacturing output remained in contraction as demand fell for a third straight month."

Australia's services PMI improved to 49.2 in January from 48.6 in February, according to Judo Bank.

• "This indicated a fifth straight month of contraction in services activity, albeit the slowest since last October."

Latest news

Market Insights

Today's Market Insights will be quite technical, covering mostly resources.

Iron ore: Powering ahead

In the Morning Wrap, we noted how iron ore miners have "relatively reserved after the massive November to January resurgence."

Diversified names like BHP and Rio Tinto remain in their recent trading ranges, but Fortescue really started to catch a bid, closing 3.2% higher.

Fortescue share price chart (Source: TradingView)

Copper: Showing strength

Copper is another sector that's benefiting from the hype around China's reopening and stimulus. Although the ASX-listed copper space is rather barren without Oz Minerals.

A name like Sandfire Resources finished 3.3% higher and trying to push its recent trading range. A small cap name like Aeris Resources has a much stronger trend with only brief touches on the 20-day (red).

Sandfire price chart (Source: TradingView)

Aeris price chart (Source: TradingView)

Rally into cap raise

Maybe I'm being pedantic but there have been a few nice charts and breakouts that have quickly led to capital raisings. Some recent suspects include:

• Talga Group (ASX: TLG)

• SRG Global (ASX: SRG)

Aeris price chart (Source: TradingView)

Interesting news and movers

Trading higher

• +13.2% Johns Lyng Group (JLG) – 1H earnings

• +7.7% Hub24 (HUB) – 1H earnings

• +6.1% Calix (CXL) – 1H earnings

• +4.5% Judo Capital (JDO) – 1H earnings

• +4.4% BlueScope Steel (BSL) – 1H earnings (Monday)

• +4.2% Ramelius Resources (RMS) – 1H earnings

• +4.0% Tabcorp (TAH) – 1H earnings

• +3.7% Magnis Energy (MNS) – Offtake with Tesla

• +2.1% NIB Holdings (NHF) – Upgraded by multiple brokers

• +1.4% Monash IVF (MVF) – 1H earnings

• Note lithium sector move: Argosy (+8.8%), Pilbara Minerals (+4.5%), Liontown (+3.9%), Core Lithium (+3.8%)

Trading lower 

• -14.5% CogState (CGS)

• -8.8% Monadelphous (MND) – 1H earnings

• -7.1% Adairs (ADH)

• -5.9% Macmahon Holdings (MAH) – 1H earnings

• -5.9% Bellevue Gold (BGL) – Outgoing MD sells 17m of 34m stake

• -5.8% Altium (ALU) – 1H earnings (Monday close)

• -3.3% Stockland (SGP) – 1H earnings

• -3.0% Viva Energy (VEA) – 1H earnings

• -1.1% Costa Group (CGC) – 1H earnings

Broker updates 

Citi’s take on a few of today’s results:

Coles: Buy rating with $18.90 target price

• 1H23 EBIT of $1.06bn was well ahead of Citi estimates of $991m and consensus expectations of $987m

• Key positives include robust 2Q23 LFL sales growth of 7.4%, supermarket gross margins up by 43 bps in 1H23 and Coles Smarter Selling benefits of ~$100m

Hub24: Neutral rating with $29.00 target price

• 1H23 core net profit was up 88% to $27m, which was 5% ahead of consensus expectations

• “We see potential upside to consensus revenue forecasts on the back of market movement in 2H23e to date as well as FY24e FuA guidance and we expect focus on the call to be on the drivers of FuA guidance.”

Judo Capital: Buy rating with $1.90 target price

• 1H23 cash earnings of $36.1m was a sizeable $7m ahead of consensus estimates

• “Overall, this strong result reflects the 1H23 trading conditions, however, slowing credit demand, and shrinking spreads leaves the outlook much less certain.”

Iluka Resources: Sell rating with $10.40 target price

• Results were in-line with consensus and ahead of Citi expectations

• Balrnald capex of $480m was higher-than-expected but reflects the general move seen in capex for mining projects

Stockland: Neutral rating with $3.81 target price

• SGP 1H23 FFO of 14.8 cents was -8% below consensus and -10% below Citi expectations

• Residential volume guidance was revised down -8% to approximately 5,500 but operating profit margin guidance was upgraded to ~19% from ~18%

• “We expect the stock to react negatively to this result. Expect questions on the call around guidance, segment restatement, residential volume and margin assumptions, as well as the logistics development pipeline.”

Scans