Market Wraps

Evening Wrap: ASX 200 nosedives on BoJ's surprise, US futures slide

Tue 20 Dec 22, 4:57pm (AEST)

The S&P/ASX 200 closed 110 points lower, down -1.54%.

The local sharemarket tumbled after the Bank of Japan unexpectedly raised its 10-year yield target from 0.25% to 0.5%, every sector was red – notably tech and real estate, RBA posts a no surprises minutes which considered a 50 bp rate hike and US futures currently down around -1.0%.

Let's dive in.


Today in Review

Tue 20 Dec 22, 4:29pm (AEST)

Name Value % Chg
Major Indices
ASX 200 7,024.3 -1.54%
All Ords 7,199.6 -1.66%
Small Ords 2,758.3 -2.81%
All Tech 1,977.6 -4.54%
Emerging Companies 2,063.5 -2.04%
Currency
AUD/USD 0.665 -0.75%
US Futures
S&P 500 3,812.0 -0.87%
Dow Jones 32,746.0 -0.69%
Nasdaq 11,072.5 -1.08%
Name Value % Chg
Sector
Utilities 7,989.0 -0.15%
Financials 6,388.6 -0.24%
Consumer Staples 12,618.1 -1.05%
Energy 11,052.2 -1.38%
Health Care 40,993.4 -1.43%
Industrials 6,341.7 -1.51%
Materials 17,428.1 -1.85%
Communication Services 1,413.7 -2.03%
Consumer Discretionary 2,710.5 -3.53%
Real Estate 2,956.4 -3.79%
Information Technology 1,386.6 -4.38%

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Markets

The ASX 200 closed at session lows after the Bank of Japan expanded its band on yield curve control to 0.50%. This sent the Yen sharply higher or in our case, the Australian Dollar to Yen fell -3.5% to 91.7 to 88.5. The Nikkei also took a sharp fall, currently down -2.9%. Bond yields spiked, with the Australian Government 10-year yield up 4.0 percentage points to 3.74% from 3.59%.

  • Explain this to me like I'm 5 years old: Japan is trying to both tightening financial conditions (lift yield curve control band) while pledging more stimulus (still buying government bonds). They're starting to cave in on negative rates, which works against an economy that's built on the near-permanency of low interest rates (debt-to-GDP ratio is also 240% which makes it difficult to service with higher rates). The announcement sent the Yen soaring and equities lower

  • Defensive sectors outperformed on a relative basis

  • Growth heavy sectors led to the downside

  • Yield sensitive sectors like real estate also tumbled

  • 179 of the top 200 declined (90%)

Economy

RBA meeting minute highlights:

  • "Members also noted the importance of acting consistently, and that shifting to either larger increases or pausing at this point with no clear impetus from incoming data would create uncertainty about the Board's reaction function."

  • "The Board did not rule out returning to larger increases if the situation warranted. Conversely, the Board is prepared to keep the cash rate unchanged for a period while it assesses the state of the economy and the inflation outlook."

  • "Members emphasised that the Board's priority is to re-establish low inflation and return inflation to the 2 to 3 per cent target over time."

The Bank of Japan kept interest rates unchanged at -0.1% but raised the upper band limit on its yield target to 0.5%.

  • "... the Policy Board of the Bank of Japan decided to modify the conduct of yield curve control in order to improve market functioning and encouraging a smoother formation of the entire yield curve, while maintaining accommodative financial conditions." - BOJ Statement on Monetary Policy

  • "While significantly increasing the amount of Japanese Government Bond purchases, the bank will expand the range of 10-year JBH fluctuations from the target level: from between around plus and minus 0.25 percentage points ... to 0.5 percentage points."

Commodities 

  • Copper -1.3% to US$3.73/lb

  • Oil -0.6% to US$75.4/bbl

  • Iron ore futures +1.4% to US$109.3/t


Latest news


Post market brief

The ASX 200 was down around -0.7% just before noon and started showing signs of its usual sideways drift. Then it gets absolutely railed by the Bank of Japan announcement and finished the session at lows of -1.54%.

XJO chart
ASX 200 intraday chart (Source: TradingView)

The market closed just above the 200-day moving average but the trend is now quite damaged, with the 20-day rolling over and the 50-day beginning to slope downward.

XJO chart
ASX 200 (Source: TradingView)

The market previously rallied on hopes of peak inflation (which is beginning to take place) and a Fed pivot. Now, we're met with:

  • Fed: "Historical experience cautions strongly against prematurely loosening policy. I wouldn't say we're considering rate cuts in a sustained way ... you're correct, there are no rate cuts in … for 2023." - Powell last week

  • ECB: "Based on the information that we have available today, that predicates another 50 basis point rise at our next meeting and possibly at the one after that, and possibly thereafter.” - Lagarde last week

  • Kuroda and the Bank of Japan drop the tightening bombshell

What does this mean? Well it looks like central banks are committed to hiking until something breaks.


Major announcements

Larger caps (>$1bn)

  • Helia Group (HLI) +2.2%: Expects FY22 net claims to be between -$25m to -$40m compared to its previous guidance of -$25m to $25m due to “low claims and low levels of delinquencies experienced over recent months” 

  • Domain Holdings (DHG) -9.1%: Noted a -16% decline in new listings in October and -22% in November after 4% growth in 1Q23. The company downgraded its 1H23 earnings but said it expects to see a stronger second half 

  • Liontown Resources (LTR) -10.3%: Executed a binding Power Purchase Agreement with Zenith Energy for the supply of electricity to the Kathleen Valley Project for 15 years 

  • John Lyng (JLG) -12.3%: Advised that COO Lindsay Barber sold 4 million shares in the company, representing 31% of his prior holding 

Mid-to-small caps

  • Galan Lithium (GLN) -4.7%: Announced a maiden drilling program at its newly defined Fry’s Block located within the Greenbushes South Lithium Project 

  • Essential Metals (ESS) -12.9%: Lifted its Dome North Lithium Project’s indicated resource by 50% to 8.6m tonnes of lithium 

  • Ioneer (INR) -15.8%: Advanced its Rhyolite Ridge Lithium-Boron Project into the final stage of permitting 

  • City Chic Collective (CCX) -31.4%: Noted year-to-date revenue down -7% to $157.1m. The company said it has increased promotional activity to “drive demand” 

Trading halts

  • Arizona Lithium (AZL): Trading resumes on Wednesday, 21 December, pending an announcement regarding a material acquisition 

  • European Lithium (EUR): Trading resumes on Wednesday, 21 December, pending an announcement regarding a long-term offtake agreement

  • Image Resources (IMA): Trading resumes on Wednesday, 21 December, pending the release of an updated Ore Reserves announcement


Broker updates 

Ticker

Company

Broker

Action

Rating

Target price

AMI

Aurelia Metals

Macquarie

Retain

Outperform

$0.20 from $0.23

PRN

Perenti

Citi

Retain

Buy

$1.43 from $1.29

SGR

Star Entertainment

UBS

Retain

Buy

$3.75

WOR

Worley

Macquarie

Retain

Outperform

$15.96 from $15.84


Scans

Top Gainers

Code Company Last % Chg
PXX Polarx Ltd $0.02 +33.33%
SKN Skin Elements Ltd $0.016 +33.33%
3DA Amaero Internatio... $0.17 +21.43%
FIJ Fiji Kava Ltd $0.02 +17.65%
IVZ Invictus Energy Ltd $0.345 +16.95%
View all top gainers

Top Fallers

Code Company Last % Chg
BWX BWX Ltd $0.293 -53.57%
NME NEX Metals Explor... $0.02 -33.33%
CCX City Chic Collect... $0.41 -30.51%
GRV Greenvale Energy Ltd $0.13 -18.75%
KNM Kneomedia Ltd $0.013 -18.75%
View all top fallers

52 Week Highs

Code Company Last % Chg
PRN Perenti Ltd $1.248 +4.17%
LAU Lindsay Australia... $0.70 +2.19%
MTC Metalstech Ltd $0.485 +2.11%
KSC K & S Corporation... $2.20 +1.15%
QGL Quantum Graphite Ltd $0.645 +0.78%
View all 52 week highs

52 Week Lows

Code Company Last % Chg
BWX BWX Ltd $0.29 -53.97%
NME NEX Metals Explor... $0.02 -33.33%
CCX City Chic Collect... $0.405 -31.36%
SER Strategic Energy ... $0.013 -18.75%
SIO Simonds Group Ltd $0.115 -17.86%
View all 52 week lows

Near Highs

Code Company Last % Chg
SMLL Betashares Aust S... $3.38 -2.31%
OZBD Betashares Austra... $43.83 -1.24%
PCI Perpetual Credit ... $0.995 -1.49%
WVOL Ishares Edge MSCI... $35.03 -0.34%
NUF Nufarm Ltd $6.08 -0.82%
View all near highs

Relative Strength Index (RSI) Oversold

Code Company Last % Chg
LEL Lithium Energy Ltd $0.725 -5.84%
CCX City Chic Collect... $0.405 -31.36%
BST Best & Less Group... $1.90 -4.52%
LPM Lithium Plus Mine... $0.375 -6.25%
ALL Aristocrat Leisur... $30.93 -4.24%
View all RSI oversold

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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