Evening Wrap: ASX 200 falls, Woodside hits 6-month low, RBA pause on the horizon

Woodside shares hit a six month low as oil prices tumble to levels not seen since December 2021, Australia's unemployment rate returns to a record low of 3.5% in February, the likelihood of an RBA rate hike vanishes and some more broker notes from Morgan Stanley.

Let's dive in.

ASX 200 Session Chart

ASX 200 dives as the market opens and drifts slightly higher towards close (Source: Market Index)

Markets

It was a similar day to Tuesday where the market hits the panic sell button at the open and slowly drifts higher towards close. It's such a 'nothing' investing environment right now, and as JPMorgan puts it "everyone is bearish, making shorts hesitant to press and contrarians bulls hesitant to buy." The ASX 200 is now down 8% from February highs and again, in this awkward deeply oversold but troubled place.

• Energy stocks tumbled as oil prices continued to skid overnight, down 4.5% to a 15-month low. OPEC added further insult to injury after guiding to a modest surplus next quarter amid a seasonal lull in demand

• Materials also sold off due to the global banking concerns, copper staged a notable 4.0% tumble overnight to a fresh three month low

• Technology stocks also weaker with notable declines from Computershare (-6.5%), Altium (-2.1%) and Dicker Data (-2.1%)

Economy

Japan posted a trade deficit of 897.7bn yen (US$6.76bn), above expectations of a 1,069bn yen deficit (US$8.1bn).

• Electronic equipment flagged a deficit of 81.2bn yen (US$605m) in the second half of 2022, marking the first time on record that imports have exceeded exports for a half-year period 

Australia’s unemployment rate fell to 3.5% in February from 3.7% in January, according to the ABS. 

• Beat consensus expectations of a fall to 3.6%

• “The February increase in employment follows consecutive falls in December and January. In January, this reflected a larger than usual number of people waiting to start a new job, the majority of whom returned to or commenced their jobs in February.” – Bjorn Jarvis, ABS Head of Labour Statistics

Australia’s population grew by 1.6% to 26.1m people in the 12 months to 30 September 2022, according to the ABS.

• The growth rate was similar to what we were experiencing pre-Covid

• Natural increase was 114,800 people, down 18.1% from the previous year

• "Migrant arrivals have returned to similar levels to those prior to the pandemic but departures remain lower - mainly because there are fewer recently arrived temporary migrants, like international students, who are due to leave." – Beidar Cho, Head of ABS Demography

Latest news

Market Insights

It's time for an RBA pause

The past few days has sent rate hike expectations haywire. Interest rate futures have gone from expecting rates to peak at 4.26% in October 2023 to flat for the next year or so and possibly a cut in early 2024.

ASX cash rate futures as at 21 February (Source: ASX)

ASX cash rate futures as at 15 March (Source: ASX)

What about the Fed

Interesting comment from JPMorgan: Inflation "really doesn't matter. What has happened over the last three days has done Powell's job for him. Credit creation at banks will collapse and the economy will slow even in a good scenario. Inflation is almost certain to taper off as a result."

Oil markets: Should you buy the dip

Oil prices are breaking out towards the downside, trading below the US$70 a barrel level for the first time December 2021. Citi believes this may present a buying opportunity.

"Despite the latest China data on industrial production and retail sales being deemed constructive, they failed to inspire much buying interest given the various dimensions of macro uncertainties over central banks’ next actions amid ongoing banking turmoil," Citi analysts said in a note on Thursday.

"However, the market appears to be a far cry from 2008 when financial flows led prices to rise toward $140 and fall toward $40 in the last five months of the year, before settling at ~$90 deferred for nearly a half decade."

"While recession risks, weak demand, little OPEC+ action expected put pressure on prices, inventories are also still on the lower side, particularly for products, pointing to less downside risk."

Interesting news and movers

Trading higher

• +14.2% Pushpay (PPH) – Increased scheme offer price to NZ$1.42

• +13.6% Atlantic Lithium (A11)

• +4.4% St Barbara (SBM) – GMD merger update (Wed)

Trading lower

• -10.6% IPH (IPH) – Cyber incident

• Financials sector move: QBE Insurance (-2.2%), GQG Partners (-2.8%), Challenger (-4.2%), GQG Partners

• Banking sector move: NAB (-1.7%), Westpac Bank (-2.1%), ANZ (-2.5%)

• Lithium sector move: Winsome Resources (-8.1%), Core Lithium (-4.1%), Pilbara Minerals (-3.0%), Lake Resources (-2.8%)

• Iron ore sector move: Fortescue (-3.2%), Rio Tinto (-4.0%), BHP (-4.8%)

Broker updates

A few standalone Morgan Stanley notes:

29Metals (29M): Underweight with $1.50 target price

• “We estimate 1HCY23 production of 9.3kt, meaning now a potential loss of ~4.1 to 6.0 kt production or 20-30% on asset guidance and 10-15% to group copper production guidance.”

• Potential EBITDA impact is $35-45m but 2023 free cashflow estimates are already negative at -$94m

Data#3 (DTL): Overweight with $8.00 target price

• “We appreciate DTL is not a non-consensus call, but earnings visibility is coveted and c.16% total return is attractive, where any share price falls on valuation concerns will be bid, in our view.”

• Key bullish takeaways include: Resiliency of IT spend, growing pipeline of large projects that provide medium term visibility, managed services wins and confidence in providing a full year guidance 

Northern Star (NST): Equal-weight with $11.35 target price

• Pogo production has been halted and expected to restart within 6 weeks

• NST has maintained FY23 production guidance of 1,560 to 1,680koz which means a catch-up is required in the second half. MS expects group production to come in towards the bottom end of guidance for the full year 

Xero (XRO): Overweight with $100.00 target price

• “We view the new CEO's decision to better balance profit/FCF vs. revenue growth as an incremental positive.”

• “We think the market underestimates subscriber, revenue and FCF growth attainable by XRO in its core ANZ markets. International is upside, but ANZ is key.”

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