Evening Wrap: ASX 200 in great shape heading into Santa territory, tech best, vs lithium woes continue

Tech stocks were the clear standout on the ASX today, but all of the major sectors except for the Materials (XMJ) sector were higher (the XMJ was down 0.01%!). The prospect of lower interest rates at home and abroad is titivating investors who are looking past the valley of some pretty lousy Aussie economic data today, and as they remain sanguine ahead of crucial US inflation data tonight.

Let's dive in.

Markets

ASX 200 Session Chart

Here comes Santa Claus...

The S&P/ASX200 (XJO) finished 36.3 points higher at 7,235.3, 0.54% from its session low and just 0.08% from its high. In the broader-based S&P/ASX 300 (XKO), advancers beat decliners by 176 to 104. High close, broad-based = 👍.

The S&P/ASX 200 Information Technology Sector (XIJ) +2.1% was the best performing sector today, likely in response to a nice move higher on the tech-heavy NASDAQ Composite Index in the USA. That move was itself likely in response to expectations of lower long term rates.

Tech stocks are typically high-growth, high-PE (price to earnings) stocks which often have high levels of debt to finance their growth. This means they have the most to gain/lose when long term interest rates fall/rise.

The NASDAQ Composite is enjoying a fantastic short and long term uptrend

The benchmark for long term interest rates is the US Government 10 Treasury Note yield. All stocks, not just tech stocks, love lower rates. So basically, if this chart can complete the turnaround potentially started yesterday and make another leg down, it could be good for stocks in general.

Cheer your favourite BBL team this summer, or cheer for this chart to fall!

Tech stocks love lower long term bond yields

Also doing well today were Consumer Staples (XSJ) +1.4%, Real Estate Investment Trusts (XPJ) +1.4%, and Health Care (XHJ) +0.9%. With the exception of the XHJ, these are again heavily interest rate sensitive sectors.

On the point of health care, though, the reason why our XHJ is probably more interest rate sensitive than other health care sectors in other markets, is ours is dominated by a bunch of high-PE stocks like CSL (ASX: CSL), Cochlear (ASX: COH), and Resmed (ASX: RMD).

The Cochlear chart looks even stronger than the NASDAQ!

Cochlear's chart is one I've been positive on for a while, but as much as it's exactly my kind of chart (trend follower remember!), some might baulk at its rapid ascent. Another XHJ stock which I've been watching closely for more of a turnaround play rather than a trend continuation, is Resmed.

Could the Resmed chart finally be turning around?

If there was a weak point in today's ASX performance, it was again in the lithium sector. Lithium prices in China slumped again today, trading limit down for lithium carbonate on the Guangzhou Futures Exchange (GFEX). The GFEX lithium carbonate futures contract for January 2024 delivery was down 10.0% at the time of writing.

GFEX lithium carbonate is trading limit down in China

The bounce in ASX listed lithium stocks appears to be very short lived...

Economy

NAB Monthly Business Survey, November

Data out today showed a drop in confidence among Australian businesses in November. The NAB Business Confidence Index fell to -9 from -3 in October. The Conditions sub-index declined from 13 to 9, the Profitability sub-index from 11 to 6, while the Employment sub-index managed to hold steady at 8.

Confidence & Conditions (Net Balance, SA), dotted lines are long-run averages since Mar-97 Source: NAB Group Economics

According to NAB Chief Economist Alan Oster the data is a sign of “ongoing soft growth in Q4”. The pain was particularly felt in consumer exposed sectors, noted Oster, who warned “you really need to go back to the GFC to see confidence this weak”.

Westpac-Melbourne Institute Index of Consumer Sentiment, November

It wasn’t all bad news in the Westpac Consumer Sentiment Index, which showed consumers were a little more upbeat in November, but that sentiment remains around the lowest level since before the pandemic. The index rose 2.7% to 82.1 which Westpac described as “still very weak”.

Consumer Sentiment Index. Source: Westpac

Westpac also said “easing rate hike fears” helped lift consumer spirits, but consumers are “still wary” of possible hikes in 2024, with 60% of respondents expecting rates to go higher. Apart from the prospect of higher interest rates, consumers are still worried about higher inflation, their budget, taxation, economic conditions, and employment.

On a positive note, Westpac noted the sub-index tracking where consumers see themselves compared to 12 months ago posted “a solid” 5.9% gain and is now 11% from its September low. But, at 68.2, that sub-index remains stuck in “extremely weak” territory, some 30pts lower than what Westpac considers a “neutral” level of 100.

What to watch out for...

Strap yourself in for one of the most important data releases going around at the moment - USA Core CPI for November at 12:30am AEDT. Economists are forecasting a 0.3% increase in core consumer prices for the month, (core CPI strips out volatile components like food and energy). This would equate to an annualised clip of 4%, which is double the Fed's 2% p.a. target.

Most analysts expect the Fed to be on hold when it meets for its final time in 2023 to consider the official cash rate in the States. That's on Wednesday local time.

Latest News

Interesting Movers

Trading higher

• +8.0% Silex Systems (SLX) - No news

• +4.8% Strike Energy (STX) - Energy sector M&A activity

• +4.7% Telix Pharmaceuticals (TLX) - Strong tech and health sectors

• +4.2% Temple & Webster Group (TPW) - Strong tech sector, Morgan Stanley price target upgrade (see Broker Notes)

• +4.0% Audinate Group (AD8) - Strong tech sector

• +3.8% Xero (XRO) - Strong tech sector

• +3.6% Silver Lake Resources (SLR) - No news

• +3.4% Regis Healthcare (REG) - No news

• +3.1% Virgin Money UK (VUK) - Macquarie upgrade (see Broker Notes)

• +2.9% Wisetech Global (WTC) - Strong tech sector

Trading lower

• -6.7% Beacon Lighting Group (BLX) - No news

• -6.3% Piedmont Lithium Inc (PLL) - Heavy falls in lithium prices in China

• -6.2% Genesis Minerals (GMD) - Downgraded by Macquarie (see Broker Notes 11 Dec)

• -4.6% Lynas Rare Earths (LYC) - No news

• -4.5% Cettire (CTT) - No news

• -4.3% IDP Education (IEL) - No news

• -4.2% Abacus Storage King (ASK) - No news

• -4.1% Infomedia (IFM) - No news since 11-Dec Change in substantial holding

• -4.1% Liontown Resources (LTR) - Heavy falls in lithium prices in China

• -4.0% Core Lithium (CXO) - Heavy falls in lithium prices in China

• -3.9% IGO (IGO) - Heavy falls in lithium prices in China

Broker Notes

• Abacus Group (ABG) retained at buy Ord Minnett; Price Target: $1.75

• Alligator Energy (AGE) retained at buy Bell Potter; Price Target: $0.10 from $0.08

• Costa Group Holdings (CGC)

  • Downgraded to neutral from outperform at Macquarie; Price Target: $3.20

  • Retained at hold Ord Minnett; Price Target: $3.20

• Cochlear (COH) upgraded to overweight from market-weight at Wilsons; Price Target: $318.46 from $230.84

• Eroad (ERD) downgraded to hold from buy at Bell Potter; Price Target: $0.95

• Evolution Mining (EVN) retained at buy UBS; Price Target: $4.05 from $4.15

• Fletcher Building (FBU) upgraded to neutral from underperform at BofA; Price Target: $4.45 from $4.35

• Fineos Corporation Holdings (FCL) retained at outperform Macquarie; Price Target: $2.47

• IPD Group (IPG) retained at buy Bell Potter; Price Target: $5.75 from $5.50

• MA Financial Group (MAF) retained at buy UBS; Price Target: $6.10

• McMillan Shakespeare (MMS)

  • Retained at outperform Macquarie; Price Target: $19.02

  • Retained at overweight Morgan Stanley; Price Target: $20.60

• Macquarie Group (MQG) retained at overweight Morgan Stanley; Price Target: $202.00

• Newmont Corporation (NEM) retained at neutral UBS; Price Target: $60.00

• Pilbara Minerals (PLS) downgraded to neutral from buy at Citi; Price Target: $3.90 from $4.40

• Platinum Asset Management (PTM) retained at sell Bell Potter; Price Target: $0.84

• QBE Insurance Group (QBE) retained at overweight Morgan Stanley; Price Target: $18.20 from $18.30

• Regis Resources (RRL) retained at buy Bell Potter; Price Target: $2.37 from $2.31

• Sigma Healthcare (SIG) retained at neutral Citi; Price Target: $0.80

• Smartgroup (SIQ)

  • Downgraded to hold from add at Morgans; Price Target: $9.70

  • Smartgroup Corporation (SIQ)Retained at buy Citi; Price Target: $10.20

  • Retained at outperform Macquarie; Price Target: $9.48

  • Retained at buy Ord Minnett; Price Target: $9.75

• Santos (STO) retained at accumulate Ord Minnett; Price Target: $12.30

• Suncorp Group (SUN) retained at buy UBS; Price Target: $15.00

• Temple & Webster Group (TPW) retained at overweight Morgan Stanley; Price Target: $9.25 from $7.00

• Virgin Money UK (VUK) upgraded to outperform from neutral at Macquarie; Price Target: $3.45 from $3.20

• Woodside Energy Group (WDS) retained at accumulate Ord Minnett; Price Target: $45.00

• WiseTech Global (WTC) initiated hold at Morgans; Price Target: $73.20

Scans