Evening Wrap: ASX 200 higher, iron ore stocks trying to bottom + Citi cuts its gold outlook

 The S&P/ASX 200 closed 23 points higher, up 0.32%. 

The market finishes the week down 0.32% thanks to the unexpected RBA hike, tech stocks bounced strongly after Thursday selloff, iron ore miners are trying to bottom, China's consumer and wholesale prices continue to deflate, Morgan Stanley's take on banks and Citi expects rangebound oil price and near-term headwinds for gold.

Let's dive in.

ASX 200 Session Chart

ASX 200 higher in a rather uneventful session (Source: Market Index)

Markets

The market is trying to pick up the pieces after the surprise RBA rate hike earlier this week. Despite the index edging higher, six out of eleven sectors finished lower. Tech stocks bounce after several large cap names sold off 3-5% on Thursday. The bounce was led by Xero (+2.7%), Wisetech (+2.6%) and Altium (+1.4%). Resources are also trying to bottom, with BHP (+1.3%) closing at a one-month high on hopes of more stimulus from China. Outside of that, the market remains selective and choppy at best. The ASX is closed on Monday, 12 June for the King's Birthday. Enjoy the long weekend and I'll catch see you guys on Tuesday.

Economy

China’s inflation was 0.2% year-on-year in May from 0.1% in the previous month.

• Below consensus expectations of a rise to 0.3%

• Inflation was -0.2% month-on-month, following a -0.1% decline the previous month

China’s producer price index decelerated to -4.6% year-on-year in May from -3.6% in the previous month.

• Below consensus expectations of a fall to 4.3%

• The fastest rate of price decline in seven years

Latest news

Interesting news and movers

Trading higher

• +305.0% Limeade (LME) – WebMD takeover offer

• +13.3% Nickel Industries (NIC) – Placement at premium

• +8.3% Latin Resources (LRS)

• +7.3% Aeris Resources (AIS)

• +5.5% Patriot Battery Metals (PMT)

• +4.1% Adairs (ADH) – Bounce after 16.1% fall in previous three

• Uranium sector move: 92Energy (+3.8%), Deep Yellow (+3.5%), Paladin Energy (+2.2%)

• Tech sector bounce: Wisetech (+2.6%), Xero (+2.7%), Codan (+3.2%)

Trading lower

• -6.8% Appen (APX) – Completes capital raise

• -6.4% EML Payments (EML)

• -5.7% MAAS Group (MGH) – Full year guidance

• -4.1% John Lyng Group (JLG)

• -4.5% MoneyMe (MME) – Completes share purchase plan

Broker notes

Citi’s take on oil:

• “Whilst we expect oil prices to be range-bound between US$72-90/bbl, we expect ~50% downside to spot LNG by 3Q.”

• “This is due to European storage forecast to reach capacity by late summer coupled with tepid industrial demand mainly in Europe and China; we fear there will be no sink for spot LNG cargoes, seeing prices fall to HH parity.”

• ‘We continue to prefer energy beta exposure in WOR (Buy), but within E&P prefer BPT (Buy, Waitsia guidance should be reinstated July), followed by STO (Neutral), then WDS (Neutral).”

Citi’s take on gold:

• “We cut our 0-3m gold point-price target to $1,915/oz from $2,100/oz.”

• “Equity vol compression, the recent back-up in Treasury yields and bounce in the US$, amid a resolution to an imminent US debt ceiling breach, provide a potential cap on near-term gold market cheer.”

• “We think the macro environment is skewed positively for gold investment over a 12m horizon, especially as the yellow metal is already starting from a historically high base. We think trading could hit $2,200/oz into year-end 2023 or 1H’24, and average north of $2,000/oz next year.”

Morgan Stanley’s take on banks and rate hikes:

• “We believe that the potential for an RBA cash rate above 4.5% increases the probability of a further P/E de-rating for the major banks, even though it provides some incremental support to net interest margins.”

• “Following a further 0.25% increase in the cash rate this week to 4.10%, the major bank P/E multiple de- rating in this tightening cycle has now reached an average of ~3.4x.”

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