Evening Wrap: ASX 200 plunges, lithium stocks reverse steep losses, UK inflation cools

The S&P/ASX 200 closed 181 points lower, down -2.58%.

Wall Street handballs us a bloodbath, sectors including energy, lithium and coal held up relatively well, US airline CEOs are bullish on travel demand and UK inflation comes in cooler-than-expected.

Let's dive in.

ASX 200, All Ords and All Tech intraday overview

Markets

• All 11 sectors declined

• Defensive sectors including Utilities and Health Care were relative outperformers

• Real Estate, Tech and Discretionary led to the downside

• 91% of the top 200 companies declined

Stocks

• Anson Resources (ASX: ASN) +1.2% completed resource definition drilling for Cane Creek at the Paradox Lithium Project. Initial assay results have confirmed further resource expansion potential

• Tietto Minerals (ASX: TIE) 0% said that construction activities for its 3.45m oz Abujar Gold Project remains on schedule and budget. First gold pour is expected for the fourth quarter of 2022   

• Lake Resources (ASX: LKE) -16.5% shares tumbled amid a dispute with its technology partner Lilac Solutions regarding the date by which project milestones need to be achieved

Economy

• UK inflation rose 9.9% year-on-year in August from 10.1% in July

  • Below consensus expectations of 10.0%

  • Downward pressure from motor fuels costs was the main reason for the decline in the annual rate of inflation, said the Office for National Statistics

• UK core inflation rose 6.3% year-on-year in August from 6.2% in July

  • Above consensus expectations of 6.2%

Commodities 

• Iron ore futures on China’s Dalian Commodity Exchange fell -1.1%

  • "Sentiment in China's iron ore market brightened during the 5-9 September after market participants sensed steel demand was improving and noted the reduction in ore stocks at ports. Both factors drove up prices of imported iron ore after the prior week's slip," noted Mysteel

Latest news

Scans

Post market charts

S&P/ASX 200: Things are pretty ugly at the Index level. On Tuesday, we talked about the key 200-day moving average and "in the event of a pullback, the index needs to show an orderly pullback, not the volatile and heavy selling we saw a month earlier."

Wednesday was exactly what we don't want to see. The 200-day has once again proved to be a key area of resistance. The face value drop has wrecked all the momentum that's accumulated in the last four days. The 6,800 level will be a key area to hold. Luckily, the Index has so far managed to stay above this area.

XJO chart (Source: TradingView, Annotations by Market Index)

S&P/ASX 200 Tech: We weakness that's been pointed out in individual names like WiseTech (ASX: WTC) and Xero (ASX: XRO) was right on cue for the CPI report. More aggressive rates typically does not bode well for richly valued and growth heavy sectors like tech and discretionary

XIJ chart (Source: TradingView, Annotations by Market Index)

S&P/ASX 200 Staples: Rolling over

XSJ chart (Source: TradingView, Annotations by Market Index)

Sectors and stocks

Lithium just doesn't care: You'd expect such V-shaped charts to be the ones to sell off more heavily as investors de-risk and take profits. That was hardly the case. Names like Global Lithium (ASX: GL1), Piedmont Lithium (ASX: PLL) and Lithium Power International (ASX: LPI) all closed in positive territory after a sharp decline at the open.

Global Lithium chart (Source: TradingView)

Large cap names like Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE) closed 2-3% lower after opening down 5-8%. The strength behind lithium stocks remains extraordinary.

Graphite showing strength: A few mid cap graphite names held up relatively well. Notably Renascor Resources (ASX: RNU) and Talga Group (ASX: TLG).

Renascor chart (Source: TradingView, Annotations by Market Index)

Australian Agricultural Co: Mentioned an improvement in soft commodity prices in Tuesday's wrap. Alongside a few agriculture stocks. Australian Agricultural Company (ASX: AAC) reversed some pretty steep losses. Eyes on that $1.93 area.

Australian Agricultural Co chart (Source: TradingView, Annotations by Market Index)

Food for thought

Why graphite might be underrated: The sheer amount of additional graphite supply that needs to come online by 2035 far outpaces that of lithium.

Source: Benchmark Mineral Intelligence

US airlines see a really strong September: Notable comments from The Transcript include:

• United Airlines SVP of International Network & Alliances Patrick Quayle: "What I would say is we're seeing a really strong September, and it doesn't -- it does not appear that summer has come to an end ... You look at Mexico, you look at the Caribbean, you look at Europe, kids are back in school, but the demand for our product in those places is the same as it was during the summer."

• American Airlines CEO Robert Isom: "... as we get past Labour Day, our leisure bookings remain strong ... There was some question about whether that would hold? Our business bookings remain strong. And as we look to the future in the fall, I anticipate being able to build from here."

How far will rates go: CME's Fedwatch tool expects US interest rates to be somewhere between 4.0% to 4.5% by February next year.

Source: CME Group