Evening Wrap: ASX 200 falls, sea of red for lithium stocks, US futures higher

The market's on the backfoot again after Powell's dovish hike, the Bank of England is expected to hike rates by another 25 bps tonight, the lithium sector experiences a broad-based selloff and broker notes on gold, insurance and China.

Let's dive in.

ASX 200 Session Chart

ASX 200 gaps down and closes near session lows (Source: Market Index)

Markets

Whelp. That was not a light at the end of the tunnel but yet another Powell freight train. As we noted in the Morning Wrap, the market continues to believe that a pause and cut is on the horizon. This is despite the Fed saying otherwise. Something has got to give. Markets remain in this volatile and vulnerable state where downward momentum continues to build. That said, some of the biggest rallies occur in bear markets. Difficult times indeed.

• Materials and Energy led to the downside as investors weighed Powell's comments and his messaging that "participants don't see rate cuts this year."

• Tech followed closely behind, in-line with the risk-off attitude on Wall St

• Defensive sectors such as Staples, Telcos, Industrials and Utilities outperformed on a relative basis

Economy

No major economic announcements. The Bank of England is expected to hike rates by another 25 bps to 4.0% tonight at 11:00 pm AEDT.

Latest news

Market Insights

Lithium's spectacular decline

The selloff is beginning to test the resolve of EV bulls. It's a little bit unfortunate because it's a sector that has a story you can really fall in love with. Here are a few things to note amid the selloff:

Seasonal NEV sales: The first three months of the calendar year tend to be the weakest for Chinese new energy vehicle sales. This seasonal factor has come into play every year since 2020 and generally tends to plateau lithium prices.

Source: Bloomberg, Asian Metal Inc

Seasonal share prices: At the same time, February and March have historically been the only negative months for a bellwether name like Pilbara Minerals. The stock on average falls 4.65% in February and 2.8% in March.

Source: Shortman

China EV sales: Chinese EV sales fell 20% in the first two months of the year as the government pulled the plug for tax breaks and subsidies. A few cities are beginning to offer cash subsidies but its failing to drive up sales. "Market sentiment appears to be weak and the incentives may not spark a sales boom," partner at private-equity firm Unity Asset Management says, according to SCMP.

Free falling spot prices: As of Wednesday, Chinese lithium carbonate prices tumbled below 300,000 yuan a tonne for the first time since January 2022. Prices have fallen for 37 straight days and down 50% from all-time highs.

Talking technicals: From a technical perspective, plenty of lithium names are breaking down: breaching key long-term trendlines, support levels and the key 200-day moving average. Breaking down in such spectacular fashion is quite damaging and a sign of an unhealthy market.

Interesting news and movers

Trading higher

• +18.5% Panoramic Resources (PAN)

• +6.5% Helloworld (HLO)

• +3.1% Brickworks (BKW) – Earnings

• Gold sector move: Evolution (+2.1%), Perseus (+2.2%), Ramelius (+1.4%)

Trading lower

• -12.3% Polynovo (PNV) – Chairman sells 4.75m shares

• -10.1% OFX (OFX) – Earnings

• Rare earths sector move: Lynas (-3.2%), Arafura (-7.9%)

• Lithium sector move: Argosy (-11.8%), Lake Resources (-8.1%), Liontown (-5.6%), Pilbara Minerals (-4.7%), Allkem (-4.3%)

• Graphite sector move: Syrah Resources (-8.1%)

Broker updates

Macquarie’s take on gold:

• “The risk that Fed is proved unwilling or unable to sustainably bring inflation back to target has increased after the recent SVB failure.”

• “Above Friday’s $1,989/oz high, the technical focus would naturally turn to $2,000/oz and the all-time nominal high of $2,075.47/oz.”

• “We prefer NST and RRL for organic growth outlook, while BGL and DEG remain our key exploration and development picks.”

Macquarie on insurers: 

• “Youi 1H23 GWP growth (+18.4%) compares with the market average of +13.0%, +11.0% for SUN and +6.6% for IAG (Personal Lines only).”

• “Growth was assisted by stronger pricing for both Home and Motor in the Direct channel and annualisation of SA CTP, as volume growth moderated.”

• “Accelerating pricing could impact affordability over the coming 12 months, increasing market churn and creating more opportunities for challengers.”

• Notes preference for Suncorp over IAG (both Outperform rated) 

Morgan Stanley on China/miners: 

• “The suite of Jan-Feb activity data confirmed that a strong growth rebound is on track,and we continue to see 1Q GDP reaching ~7.5% QoQ.”

• “China's Crude steel output was up 5.6% YoY in 2M23, while apparent steel consumption rose 3.3% YoY.”

• MS prefers South 32 and flags aluminium as its preferred base metal for 2023. Other Overweight picks include Evolution Mining, Whitehaven Coal. Underweight picks include IGO and Fortescue Metals

Scans