Evening Wrap: ASX 200 pullback intensifies, RBA downgrades near-term growth, tech stocks tumble

The local sharemarket fails to muster up a bounce on Friday, the ASX 200 tech index is on a five-day losing streak, the RBA downgrades near-term GDP forecasts and expects inflation to peak in the June half at 6.25% and China's CPI was stable at 2.1% in January.

Let's dive in.

ASX 200 Session Chart

ASX 200 fails to muster up any intraday bounces, closing towards session lows (Source: TradingView)

Markets

The ASX 200 finishes the week down -1.65%.

• Financials and Energy are the only two sectors to finish the week in positive territory

• The risk-off mood has weighed on Tech stocks, with the index down -3.5% this week

• Hawkish central banks has weighed on yield sensitive sectors like Real Estate and Utilities, both down around -3.5% this week as well

Economy

RBA statement on monetary policy highlights:

• Downgraded near-term GDP forecasts (2.25% for 1H23, 1.5% for 2H23, 1.5% for 1-2H24), which assumes population growth at 1.5% (in other words zero GDP growth per capita)

• Trimmed mean inflation forecast to peak in the June half at 6.25% and fall to 3.0% by the end of 2024

  • Refers to a measure of inflation that excludes a certain percentage of the highest and lowest readings from the basket of prices

• Wage growth is forecast to peak at 4.2% in December, up from 3.9%

China's consumer price index was 2.1% in January, just below the 2.2% increase economists had expected in a Reuters poll.

• CPI was 1.8% in the previous month, prices have picked up amid a seasonal surge in Lunar New Year spending

• The producer price index was down -0.8% year-on-year, much faster than Reuters expectations of -0.5%

Latest news

Deeper Dive

Talking Technicals: ASX 200

The ASX 200 is making the turn after an aggressive rally, although the way its pulling back is equally as aggressive, or at least so far.

As the market pulls back, the question is where do we find some bids? Distribution is picking up and the weakness has been rather broad-based. Friday's close undercut the 20-day (red), so can the market muster up a bounce early next week to keep the strong trend intact? Or is there more mean reversion ahead?

ASX 200 daily chart (Source: TradingView)

Sectors and stocks of interest

A lot of sectors that performed well in January are starting to fall apart in February. Notably:

Coal: Most names continued to aggressively sell off after Newcastle coal futures dipped another -5.8% to US$225.50 a tonne. A few names like Stanmore, Yancoal and Whitehaven managed to close off session lows but still down heaps week-to-date.

Tech: A name like Wisetech rallied almost 20% in January and now its on a six-day losing streak, down -14%. Hawkish central banks, higher terminal rates and a risk-off attitude has turned the breakout into a false one.

Wisetech daily chart (Source: TradingView)

Other notable mentions: Gold, Real Estate

Interesting news and movers

Trading higher

• +12.5% Appen (APX) – Continuation rally, up more than 14% in last three

• +7.4% Imugene (IMU) – PD1 Vaxx immunotherapy patent granted in the US

• +6.8% Service Stream (SSM) – 1H update (Thursday close)

• +6.1% Neometals (NMT)

• +4.5% Boss Energy (BOE)

Trading lower 

• -9.8% Mesoblast (MSB)

• -6.2% Block (SQ2) – US-listed BNPL Affirm falls -18% on earnings

• -6.1% Domain (DHG) – Rivals REA Group posted earnings

• -5.1% Wisetech (WTC)

• -4.4% Novonix (NVX)

• -2.7% PointsBet (PBH)

Also note:

• Coal sector move: New Hope (-8.6%), Terracom (-8.4%), Yancoal (-5.9%), Whitehaven (-3.7%) 

• Gold sector move: Gold Road (-5.5%), Perseus Mining (-5.6%), Ramelius Mining (-5.3%), Evolution Mining (-3.1%) Northern Star (-3.1%) 

Broker updates 

REA: Solid results

• UBS: $120.20 target price; Retains Neutral

• Notes: “Solid 1H23 result, Aus residential depth penetration was key highlight as well as Jan volumes, although it's too early to assess whether volumes are bottoming.” 

AGL: “Another misstep but earnings momentum remains”

• UBS: $8.05 target price; Retains Buy 

• Notes: 1H23 underlying net profit of $87m missed consensus and UBS estimates by more than 30% due to outages and mismatch in timing of rising wholesale electricity costs. “We maintain a Buy rating as we still expect AGL's earnings to more than double by FY25 as retail tariffs pass-through the higher wholesale electricity prices and legacy contract positions are reset.”

Wesfarmers: “Pressures starting to build on households”

• Macquarie: $46.20 target price; Retains Underperform

• Notes: “WES operates a number of best-in-class divisions. However, we are cautious on the outlook for the consumer over calendar 2023 ... WES’s retail divisions target middle Australia and are heavily exposed to families with mortgages. We see this as a risk to performance as cost of living squeezes household discretionary income.”

Maas Group: “A structural growth opportunity”

• Goldman Sachs: $4.20 target price; Retains Buy

• Notes: “At ~10x FY24e P/E, we believe the market is valuing MGH as a cyclical industrial that is ex-growth, under-appreciating its vertical integration and the long term growth potential of the real estate division.

Scans