Evening Wrap: ASX 200 falls to 12-month low, Aussie yields rally as retail sales accelerate

It was another bruising day for local investors as negative leads from Wall St and growing concerns about the conflict in the Middle-East continued to weigh on sentiment. The S&P ASX200 closed at its lowest level in over a year, breaking below the 6,800 mark. Gold producers managed to dodge the sell off as gold prices firmed. Energy, property, and consumer stocks were hardest hit.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower, finished near worst levels (Source: Market Index)

Markets

The ASX 200 finished lower and near worst levels on Monday, marking its lowest close since 24 October 2022. The market continues to trend lower as risk appetite fails to pick up despite positive factors such as higher iron ore prices and a handful of solid US earnings last Friday.

The Australian Government 10-year yield rose 7 bps to 4.88%, the highest level since August 2011. While the US 10-year is stabilising below 5.0%, the Aussie is now pushing out on growing interest rate expectations and still-solid retail sales data. That's clearly taking a toll on several sectors including Staples, Financials and Real Estate on Monday.

Markets continue to delve deeper into oversold levels, leaving us in an all too familiar situation where things are due for an oversold bounce but momentum clearly favours the other direction.

Economy

More bad news for those hoping the RBA won't deliver a Cup Day interest rate hike. The Australian Bureau of Statistics reported today that Aussies continued to spend up in September. Retail sales rose 0.9% for the month, well ahead of economists' expectations for a 0.3% increase and also ahead of an upwardly revised 0.3% in August (from 0.2%). The ABS blamed the strong rise on a warm start to spring which drove higher spending on hardware, gardening, and clothing, and on the launch of the new iPhone 15. September's result was the best performance since the start of the year, but retail sales have been relatively subdued over the last 12 months, up only 1.5% on an annualised basis.

Latest news

IGO profits slump on "softer" lithium prices

IGO (ASX: IGO) announced its September quarter activities today which EBITDA down 42% compared to the June quarter. Driving the decline was a 37% fall in IGO's share of its 49% owned Tianqi Lithium Energy Australia Pty Ltd (TLEA) JV with Tianqi Lithium Corporation. TLEA owns the globally-significant Greenbushes lithium mine in Western Australia. IGO blamed the poorer profit performance on "softer" lithium prices which have declined roughly two-thirds over the last 12-months. Base metals operations also experienced lower profitability compared to the June quarter with nickel production down 27%, copper production down 22%, and cobalt production 25% lower. EBITDA from these operations was 26% on a quarterly basis.

Sayona Mining: First shipment represents "significant" progress

Sayona Mining (ASX: SYA) also reported its September quarter activities today. The company noted it had completed its maiden shipment of spodumene concentrate from its North American Lithium (NAL) project in Quebec, Canada. Sayona shipped 48,211 dry metric tonnes of spodumene concentrate to joint venture partner Piedmont Lithium (ASX: PLL) generating $96 million in revenue. The company said it was a "significant" quarter, as it had generated its first revenue, and advanced the NAL production ramp-up, as well as progressed exploration activities across its North American and Australian projects.

Endeavour's sales increase as consumers seek value

Endeavour Group (ASX: EDV) today released its first quarter trading update. Sales rose 2.1% to $3.091 billion on the back of 2.6% growth at the company's BWS and Dan Murphy's operations. Endeavour noted consumers were growing increasingly value conscious, opting for cheaper beer and wine brands. Hotels' sales were 2.8% higher in the quarter, boosted by interest in the Matilda's football World Cup pursuits which saw 1.2 kegs of beer consumed each minute of the finals at Endeavour's venues.

Interesting news and movers

Trading higher

• +32.9% Tietto Minerals (TIE) – Takeover offer at 58 cents per share

• +18.2 Invictus Energy (IVZ) – Mukuyu-2 reaches total depth

• +5.3% 4D Medical (4DX) – Signs distribution agreement

• +1.2% Spartan Resources (SPR) – Gascoyne Project Update

Trading lower

• -27.0% Neometals (NMT) – To not proceed with vanadium recovery facility

• -13.3% St Barbara (SBM) – Full-year guidance

• -11.7% Calix (CXL) – Signs global licence agreement

• -9.0% IGO (IGO) – Reports Q1 results, reaffirms FY guidance

• -4.5% Cromwell Property (CMW) – Unlisted fund merger no longer preceding

• -3.2% Dreadnought Resources (DRE) – Completes SPP 

Broker notes

A few UBS notes of interest:

Gold Road (GOR) – By with $2.15 target ($1.83 at Oct 27)

• “GOR reported Sep-Q 44koz (50% share) at A$1,675/oz AISC in-line with UBSe. CY23 guidance of 160- 170koz at A$1,540-1,660/oz AISC is on track.”

• Gruyere mine viewed as a good cash generator

• “We continue to like GOR for its FCF generation relative to peers. From 2024E we expect AIC <US $1,200/oz which means ~US$730/oz AIC margins on our gold price deck.”

Harvey Norman (HVN) – Neutral with $3.75 target ($3.72 at Oct 27)

• “1Q24 sales indicate HVN is exposed to a slowing consumer which is cutting back on big ticket items. HVN is also underperforming & losing market share to peers.”

• “We adjust EPS by -10%/-3% in FY24E/25E due to lower Franchising Operations and New Zealand margins.”

• “Yet the capital management announcement is new and indicates a desire for HVN to utilise its significant property asset base to support higher borrowing which funds the on-market buyback.”

Medibank Private (MPL) – Buy with $4.30 target ($3.49 at Oct 27)

• “We have reviewed our mid-term earnings forecasts after meeting with the company recently. We identify a number of efficiencies to maintain low claims inflation and thereby sustain margins above pre-COVID levels.”

• Analysts upgraded FY24-25 EPS forecasts by 0-7% and based on FY25 estimates, the stock is trading at a 16.3 PE vs. its long-run average of 19 

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