Evening Wrap: ASX 200 hits a four-month low, gold miners surge, Fed rate hike odds become a coin flip

The ASX 200 tumbles back to November lows led by energy and real estate, global central banks announce dollar liquidity measures to ease the banking crisis, the Fed's interest rate decision on Thursday remains a coinflip and gold marks its fourth highest weekly close of all time.

Let's dive in.

ASX 200 Session Chart

The market gaps down, catches a bid in the afternoon before tumbling into lower lows (Source: Market Index)

Markets

It feels like the market is just getting clobbered every day. The ASX 200 has undercut the January 3 low and closed at its lowest point since November 2022. As the market continues to break down, does this put the September low aka 6,400 back on the cards?

• Energy led to the downside after oil prices fell 2.9% last Friday and continued to decline in today's trading session

• Defensives were mixed with Staples and Real Estate drastically underperforming

• Telcos was the only pocket of strength led by Telstra (+0.5%)

Economy

No major economic announcements but a pretty stacked rest of the week:

• Tuesday: RBA minutes, Canada inflation

• Wednesday: UK inflation

• Thursday: Fed rate decision, economic projections and press conference as well as Bank of England rate decision 

Latest news

Market Insights

There's too much spicy stuff going with banks and central banks.

Global central bank capitulation

Earlier today, the Fed announced the following:

"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements."

"To improve the swap lines' effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April."

In laymans terms: Central banks are making it easier for financial institutions to access US dollars to help improve liquidity and stability in financial markets.

Fed rate hike: The most uncertain rate decision yet

This leads into the next point where Fed fund future futures are currently pricing in a 60% chance of 25 bps on Thursday. The probabilities have been bouncing between 60-82% for the past month.

This interest rate decision does feel a little bit like a coin toss. However, its worth noting that the above shores up the banking system so that the option to hike remains open.

Source: CME Group

Gold: Breakout mode

Gold is trying to crack US$2,000 amid growing expectations of a Fed pause, tumbling bond yields and a collapsing banking system.

The yellow metal marked its fourth highest weekly closing price. Is this just the beginning of its breakout?

Gold weekly (Source: TradingView)

Interesting news and movers

Trading higher

• +11.6% Tietto Minerals (TIE) – Completes gold production ramp up

• +8.3% Healius (HLS) – ACL off-market takeover

• +6.8% 29Metals (29M) – Bounce after -20% in previous three 

• +5.0% Renascor Resources (RNU)

• Gold sector move: Gold Road (+10.9%), Evolution Mining (+10.1%), Perseus Mining (+9.4%), Bellevue Gold (+8.6%), Northern Star (+8.5%), Newcrest Mining (+5.95%)

Trading lower

• -8.6% Adairs (ADH) – Ex-div

• -7.2% Cettire (CTT)

• -5.5% Neuren Pharma (NEU) – Pullback after +33% in previous three

• Insurance sector move: IAG (-4.3%), AUB (-4.7%), QBE Insurance (-4.7%)

• Financials sector move: Challenger (-5.6%), Judo Capital (-5.8%), GQG Partners (-3.9%)

Broker updates

Macquarie notes:

AGL Energy (AGL): Outperform with $8.3 target price

• “AGL is trading at a PE discount relative to the market, and well below its historical FY1/FY2 average.”

• “The impetus for a re-rating is investor day addressing confidence that AGL (June) can fund its transition, explicit FY24 earnings guidance (August) and stable wholesale pricing environment (continuous).”

Auckland International Airport (AIA): Outperform with $9.23 target price

• AIA released an update on its capex programme for an integrated domestic and international terminal programme

• “At an estimated total cost of $3.9b over 6 years (including related infrastructure projects) it is consistent with earlier guidance of $600m/year .. We remain comfortable with the inputs into our PSE4 pricing assumptions that support a ~50% lift in aeronautical pricing in FY24.”

Endeavour Group (EDV): Outperform with $7.40 target price

• “Regulatory risk has weighed on the share price, we see this easing post the NSW election.”

• “Reinvestment in Gaming fleet has lowered average age of machines and provides immediate return for EDV.”

• “We see significant opportunity for EDV to reinvest in its Hotel network … a relatively low risk self help story in an increasingly challenging broader economic environment.” 

Synlait Milk (SM1): Underperform with NZ$2.61 target price

• “SM1 has been hit by a number of challenges at once, driving a weak performance and pushing out the recovery and lifting financial risks.”

Scans