Evening Wrap: ASX 200 on a seven-day winning streak, RBA hits pause after ten consecutive hikes

The RBA hits pause but "expects that some further tightening of monetary policy may well be needed", the ASX 200 continues its V-shaped bounce led by energy and tech stocks, gold and coal stocks catch a bid and Morgan Stanley's take on banks.

Let's dive in.

ASX 200 Session Chart

ASX 200 rallies after the RBA kept its official cash rate on hold (Source: Market Index)

Markets

The RBA has ended a run of ten consecutive rate rises, in-line with market expectations. This triggered a sharp jump for the ASX 200, which was trading around breakeven before the rate decision. The ASX 200 is now on a seven day winning streak, up 4.0%. That kind of V-shaped move puts the market in a rather short-term overbought state. But the renewed strength is also worth respecting. Let's see how the rest of the week plays out.

• Energy stocks rallied for a second day following the OPEC cut on Monday

• Tech outperformed with heavyweight Wisetech (+1.9%) hitting an all-time high

• Materials led to the downside as iron ore prices slumped below US$120 a tonne

Economy

The RBA paused interest rate hikes for the first time since April 2022 and kept rates on hold at 3.60%. Some key quotes from the Monetary Policy Decision release include:

• “The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.”

• “The central forecast is for inflation to decline this year and next, to around 3 per cent in mid-2025.” 

• “The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”

Latest news

Market Insights

Markets Insights is taking a little break today.

Interesting news and movers

Trading higher

• +27.5% Li-S Energy (LIS) – Semi-solid state lithium sulphur battery development

• +5.3% Australian Unity Office (AOF) – Dividend guidance with special distribution

• +2.9% European Lithium (EUR) – Launches $6.9m on-market buyback

• Gold sector move: Ramelius Resources (+5.1%), Gold Road (+4.8%), Northern Star (+3.5%), Newcrest Mining (+3.2%)

• Energy sector move: Beach Energy (+3.2%), Santos (+2.1%), Woodside (+0.7%)

• Coal sector move: Terracom (+9.5%), Whitehaven Coal (+5.7%), New Hope (+4.7%)

Trading lower

• -7.3% Energy Resources of Australia (ERA) – Entitlement offer and update

• -4.6% EML Payments (EML) – Pullback after +31% in last three sessions

• -0.95% Seek (SEK) – Guidance update

• Uranium sector move: Deep Yellow (-10.2%), Peninsula Energy (-6.1%), Boss Energy (-3.6%), Paladin Energy (-3.1%)

Broker updates

Morgan Stanley on banks:

• “The average major bank total shareholder return of -5.2% in March was weaker than the ASX200's broadly flat performance.”

• Since the start of the current RBA tightening cycle, the PE multiples have de-rated by an average of ~3.5x

• “ANZ and WBC are trading more than one standard deviation below their average P/E since 2010 and NAB is trading slightly below, but CBA is trading about one standard deviation above.”

• “We believe that the tailwinds which drove the EPS upgrade cycle during 2022 have run their course. This makes it more likely that the major banks will underperform the ASX200 in 2023.”

A few standalone Macquarie notes as well:

Austal (ASB): Outperform with $2.60 target price

• “The SEC/DOJ charges are serious, however relate to the 2013-2016 period and at this stage appear targeted at three former employees rather than Austal.”

• “Austal has continued to win work from major US government customers despite the investigation, including the OPC contract with the US Coast Guard (worth up to US$3.3b).”

Alumina (AWC): Underperform with $1.10 target price

• “Alumar operations will operate at a reduced production rate in the near term due to conveyance system failures.”

• “AWC is trading on free cash flow yields of 1% for CY23 and 5-12% for CY24-25 on our forecast.”

Netwealth (NWL): Outperform with $15.00 target price 

• “At ~39x NTM earnings, NWL is not cheap. However, if management can deliver operating leverage in line with our expectations, NWL grows quickly into their multiple.”

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