Evening Wrap: ASX 200 higher, iron ore back above US$100, lithium stocks catch a bid

The Resource sector found some good buying on Monday thanks to higher iron ore, copper and oil prices, Australia's business confidence comes in flat and suggests an equal share of optimists and pessimists, iron ore prices bounce back to US$100 a tonne, lithium stocks are trying to find a bottom and keep an eye out for US inflation data on Wednesday.

Let's dive in.

ASX 200 Session Chart

ASX 200 rallies in early trade and closes towards session highs (Source: Market Index)

Markets

The ASX 200 finished higher on Monday and near best levels. Energy and materials were among the best performers and rose for a third-consecutive session. Today's upside was driven by a solid session on Wall Street last Friday and higher commodity prices, most notably copper, oil and iron ore.

Economy

Australian business confidence rose 1 point to 0 index points in April, according to NAB Economics.

• “A zero reading for confidence in the survey indicates that an equal share of firms are optimistic as pessimistic, which highlights how the outlook is finely balanced.” – NAB Chief Economist Alan Oster

• Business conditions subindex eased, “continuing a trend of gradual easing but remaining at above-average levels”

• “Confidence, by contrast, is now mired below average (albeit it has also stabilised in recent months) suggesting firms expect the recent period of resilience to fade.”

• “Cost growth remained a challenge, with purchase cost growth picking back up after easing in recent months and labour cost growth still high.”

Australian building permits fell 0.1% month-on-month in March, following a 3.9% increase in February, according to the ABS.

• "Private sector dwellings excluding house approvals increased 5.6 per cent in March, following a 9.7 per cent decrease in February,” said Daniel Rossi, ABS Head of Construction Statistics

• "This is the sixth consecutive month where the trend result has fallen for total dwellings approved.”

Latest news

Market Insights

Iron ore: Stabilising at US$100 a tonne

Iron ore prices are stabilising around the US$100 a tonne mark after a rather quick 25% pullback from April highs.

Prices of construction steel products across China may see signs of stabilizing or even achieve a rebound this month, in anticipation of domestic steelmakers' output cuts which may last for several weeks in a row, Mysteel predicted in its latest monthly report.

As steel prices in China rise, it generally indicates that there is rising demand for steel, which can lead to higher iron ore prices.

Singapore iron ore futures (Source: TradingView)

Lithium: Finding a bottom

Lithium stocks rallied in-line with the recent bounce in Chinese spot prices. Earlier today, I covered some of the notes from Morgan Stanley and Macquarie about the "turning point in lithium markets."

A few lithium names experienced a little bit of selling towards close:

• Pilbara Minerals up 4.55% from session highs of 7.3%

• Allkem up 0.3% from session highs of 3.5%

The mid cap space was a lot stronger, with many names pushing to levels not seen since February and some trying to push key trendlines.

Leo Lithium chart (Source: TradingView)

Big inflation week: US and China

We'll see some market-moving pieces of economic data later this week from the US and China as well as the Bank of England's interest rate decision.

Source: TradingEconomics

Interesting news and movers

Trading higher

• +12.7% Melbana Energy (MAY)

• +12.0% Lynas (LYC) – Malaysian license extension

• +9.8% Lindian Resources (LIN)

• +6.3% Probiotec (PBP) – Takeover approach

• +5.1% Iluka Resources (ILU) – Upgraded by Macquarie

• +1.8% Westpac (WBC) – Earnings

• Lithium sector move:

Trading lower

• -6.5% Mindax (MDX)

• -5.4% Syrah Resources (SYR)

• -5.2% Block (SQ2)

• -4.9% Estia Health (EHE) – Bain may not proceed with takeover

• -1.3% 4DMedical (4DX) – Capital Raising

Broker notes

Goldman Sachs notes:

ANZ (ANZ): Neutral with $26.17 target price

• “ANZ’s 1H23 cash earnings were up 23% on pcp and 4% below GSe, with the miss driven by higher expenses.”

• “Today’s result provided further evidence of success for ANZ in improving the profitability of its Institutional business.”

• “Risks appear evenly balanced and with our revised TP offering only 14% upside.”

Macquarie Group (MQG): Neutral with $192.01 target price

• “MQG’s FY23 NPAT was up +10% on pcp, broadly in line with GSe, but 4% ahead of Visible Alpha consensus.”

• “Macquarie’s FY23 result was driven by its CGM division, and pleasingly, the division continues to exhibit positive asymmetry in its performance.”

• “While management has historically been conservative in setting guidance, conditions remain uncertain in MQG’s market-facing businesses, which we think limits the near-term upside risk to earnings.”

Macquarie Australia 2023 Conference Wrap:

• The 25th Macquarie Conference hosted presentations from over 100 ASX-listed companies

• “We believe the results of the 25th Australian conference are consistent with our cautious view on the cycle.”

• “Australia may avoid recession thanks to high immigration, but a US recession is still likely to impact Australian equities.”

• “We raised Health to our top overweight with an increase in CSL, but reduced exposure to Energy and some expensive defensives."

Scans