Evening Wrap: ASX 200 falls on scorching hot inflation report, US futures lower

The S&P/ASX 200 closed 22 points lower, down -0.3%.

A hotter-than-expected inflation print snaps a five-day winning streak, tech and energy stocks underperform, Mineral Resources Q2 results miss expectations and a new look for our broker notes section.

Let's dive in.

Markets

ASX 200 (Source: TradingView)

It was 11:30 am AEDT and investors were keen to see the disinflation narrative continue to play out. Bam – a scorching hot inflation print comes out – causing the ASX 200 to fall from 0.15% to -0.50% around 12:00 pm.

• The Australian Government 10-year yield surged 11 bps to 3.51%

• The Australian dollar spiked 0.8% to 70.9 US cents

• Economists including AMP's Shane Oliver and ANZ's Catherine Birch both expect another 25 bp hike in March, taking the cash rate to 3.35%

Economy

Australia’s inflation came in much hotter-than-expected, up 1.9% in the December quarter and 7.8% year-on-year.

• Consensus expected inflation to rise 1.6% for the quarter and 7.5% year-on-year

• The most significant contributors to the rise were Domestic holiday travel and accommodation (+13.3%), Electricity (+8.6%) and International holiday travel and accommodation (+7.6%)

• "Strong demand, particularly over the Christmas holiday period, contributed to price rises for domestic holiday travel and international airfares.” - Michelle Marquardt, ABS head of price statistics

• "Labour and material costs are driving price growth in this area, with signs of material cost pressures easing.” 

Latest news

Post market review

The market finally experienced a pullback but from the left-field inflation report. We've seen this disinflation narrative build up a lot of momentum in the face of things like Fed officials sticking to their higher-for-longer messaging. So what happens when reality doesn't quite align with expectations?

Still, the ASX 200 has been on a relentless rally and this pullback provides an opportunity to show us the underlying health of the market.

Tech: Growth and tech names have been trying to bottom out but now this hotter-than-expected inflation print has pulled back those 'long duration' stocks. Heavyweight Wisetech (WTC) held up relatively well, up 0.1%. But most other large cap names were down between 0.5% to 3.0%.

Interesting news and movers

Trading higher

• Accent Group (AX1) +10.2% – 1H trading update

• Myer (MYR) +5.6% – 5 month trading update (yesterday)

• Monadelphous (MND) +5.4% – Upgraded to Overweight by JP Morgan

• Magnis Energy (MNS) +4.7%

• Mader (MAD) +4.3% – Continuation rally, up more than 10% in last three days

• Neometals (NMT) +2.3% – Signs critical collab with Australian vanadium 

Trading lower 

• St Barbara (SBM) -21.4% – Q2 gold production report

• West African Resources (WAF) -7.5% – Q4 activities report

• OFX Group (OFX) -6.7% – Q3 trading update (yesterday)

• Weebit Nano (WBT) -5.6% – Q2 net cash from/(used in) operating activities report

• Mincor (MCR) -5.1% – Downgraded to Neutral by Macquarie (yesterday)

• Mineral Resources (MIN) -2.2% – Q2 production and guidance report

Broker updates 

Telstra – “Roaming towards an upgrade"

• Macquarie: Outperform rated with a $4.50 target price

• Notes: “However, we believe the monetisation of Telstra’s FibreCo will be a catalyst for the stock in the next 6-12 months. In addition, we expect a positive result in February 2023 as subscriber numbers are likely to be a positive surprise to consensus.”

Evolution Mining – Q2 production results miss expectations

• CSLA: Target raised to $3.45 but downgrades rating to Underperform from Outperform

• Notes: Raises valuation on gold price appreciation but downgrades rating due to strong price rally

29Metals – “A difficult year ahead” 

• Macquarie: Target price was $1.40 with an Underperform rating

• Notes: 4Q22 produced 8,000 tonnes of copper which missed analyst estimates by 2%. CY23 production was in-line with expectations but costs were higher than expected. Operational issues continue to exist at both Golden Grove and Capricorn

Lunnon Metals – “Catalyst rich going into 3Q23”

• Macquarie: Outperform rated with a $1.30 target price

• Notes: Upcoming catalysts include Warren Mineral Resources estimate and Barker maiden reserve in Q3 FY23. The company also had $25.1m cash at the end of December 2022

Zip Co – “Finding ice for the burn”

• Macquarie: Underperform rated with a $0.55 target price

• Notes: Cash burn is moderating but Zip is close to finishing its cost cutting efforts. The $330m of remaining convertible notes due on Apr-25 were a ‘material overhang’

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