Evening Wrap: ASX 200 rallies back up to breakeven, NAB margin headwinds drags banks lower

 The S&P/ASX 200 closed 4 points lower, down 0.06%. 

The local sharemarket closes around breakeven after a steep selloff in early trade, Australia's trade surplus comes in near record highs for March, China's manufacturing PMI deteriorates in April, a classic ASX compliance stitch up between three gold stocks and a few more insights about the Fed.

Let's dive in.

ASX 200 Session Chart

ASX 200 bounces from session lows to close around breakeven (Source: Market Index)

Markets

The ASX 200 bounced from session lows of -0.77% to close around breakeven. Several sectors rallied or bounced quite strongly to offset weakness across the banking sector. The intraday reversal (which also happens to be a bounce off the 200-day moving average) seems positive at face value. Does this mark somewhat of a bottom after a 2.6% fall from mid-April highs? Let's see how we close out tomorrow (which also includes Apple earnings and more US banking crisis developments).

• Real Estate stocks bounced after falling 3.1% in the previous two sessions

• Materials also bounced but remain choppy, with the heavyweight BHP closing 1.6% higher from session highs of 2.5%

• Tech rallied and closed at best levels, led by Wisetech (+1.2%), Xero (+1.8%) and Life360 (+5.2%)

• Financials didn't stand a chance after NAB (-6.1%) posted slightly weaker-than-expected first half earnings and flagged net interest margin headwinds

Economy

Australia's trade surplus widened to $15.3bn in March from $14.2bn in February.

• Second largest on record

• Exports rose 3.8%, driven by metal ores and minerals

• Imports rose 2.5%, driven by a bounce in passenger vehicles

• Net exports are expected to detract 0.5 percentage points from GDP in 1Q23

China's Caixin Manufacturing PMI fell to 49.5 in April from 50 in March.

• Firms reported a modest increase in output but a decline in new orders weighed

• New orders fell for the first time in three months amid weak domestic demand and consumer spending

• Average input costs fell at the sharpest rate since January 2016

Latest news

Market Insights

The Fed: Language, no cuts, Volcker

A few bits and bobs about the Fed.

FOMC statement language: In 2006, the Fed used the exact same wording while it raised for the last time, which was "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth."

But no cuts: Powell said it "would not be appropriate" to cut rates. The Fed does not want to go down as the one that pivoted too early. We're more so going down the path of Paul Volcker, at least for now.

Who's Volcker: For 8 consecutive bear markets, the Fed responded by cutting rates and QE. This time they're doing the opposite by hiking rates and reducing their balance sheet. The last time this happened was under Fed Chair Paul Volcker.

Source: Charlie Bilello

Markets don't care: Markets continue to price in rate cuts from August 2023. Fed fund futures are pricing in rates to be back down to 3.8% by May 2024 and 2.9% by the end of 2024.

A pause feels like a hike: The Fed and markets remain at crossroads. If the Fed continues to pause, it'll feel like tightening at every meeting.

ASX compliance: The classic stitch up

I received an announcement at 2:44 pm AEST about Silver Lake Resources (ASX: SLR) and how the company unsuccessfully attempted to engage the St Barbara (ASX: SBM) board about acquiring its Leonora assets in WA for $732 million.

The announcement can be found on the 'Media announcements' section on Silver Lake's website. And that's the only place you could view it.

Silver Lake did not announce this to the ASX and its shares continued trading.

Now this is where it gets spicy. The Leonora assets are currently set to be acquired by Genesis Minerals (ASX: GMD) for $600 million.

St Barbara's board has recommended shareholders to accept the $600 million offer. But Silver Lake's represents a 14% premium to the Genesis offer.

Here's the catch:

• SBM shares were halted at 2:35 pm AEST for an unspecified reason

• SBM shares resumed trading just before close to announce the non-binding and indicative proposal from Silver Lake

• Genesis shares stopped trading at around 2:50 pm AEST

• Silver Lake shares resumed trading throughout all of the above and did not announce the offer to market

And price action (% change refer to intraday from the time the stock started moving):

• SBM shares started to rally around 2:10 pm and up around 7% before the trading halt

• SLR shares didn't really move until 3:00 pm and sold off 5.6% by 3:05 pm

• GMD shares sold off 6.9% between 2:25 and 2:50 pm

Interesting news and movers

Trading higher

• +5.2% Jumbo Interactive (JIN) – Revised FY23 outlook (Wed)

• +5.0% Auteco Minerals (AUT) – Gold resource upgrade

• +3.7% Atlas Arteria (ALX) – IFM 32.9m share block trade

• Gold sector move: Evolution (+7.2%), Northern Star (+2.5%), Perseus (+2.3%)

Trading lower

• -7.1% Super Retail Group (SUL) – Trading update

• -4.6% Mineral Resources (MIN) – Downgraded by Goldman Sachs

• -4.0% Ooh!Media (OML) – Downgraded by Goldman (Wed)

• -2.4% Terracom (TER)

• -1.0% Nine Entertainment (NEC) – Trading update (Wed)

• Banking sector move: NAB (-6.4%), Westpac (-4.1%), CBA (-2.6%), ANZ (-2.4%)

Broker updates

Morgan Stanley notes: 

ARB Corp (ARB): Equal-weight with $31.00 target price

• “We feel ARB continues to execute on the global growth story (particularly in the US)”

• “However, our cautious 6mth view is also playing out with volatile 3Q trading and large 4Q skew to hit consensus.”

Aristocrat Leisure (ALL): Overweight with $43.00 target price

• “ALL will report 1H23 results on 18 May. We forecast revenue of A$3bn (+9.2% YoY) and EBITA of A$870mn (+3.2% YoY). EBITA growth to be driven by Americas and tailwinds from lower AUD/USD.”

• “Despite uncertainty resulting from macro events/trends, including stress on consumer balance sheets and the US banking crisis,gaming trends largely held or accelerated in 1Q23.”

Jumbo Interactive (JIN): Overweight with $20.80 target price

• “The bad news from JIN's update was how soft 2H jackpot draws have been, we cut FY23e EPS 9.1%.”

• “Good news was the delivery of long awaited take-rate restoration ... JIN is a premium product, users receive an email after every draw - peace of mind if playing for millions of dollars. Stay OW.”

Ramsay Healthcare (RHC): Underweight with $57.60 target price

• “Generally speaking, RHC's F3Q23 trading update suggests the volume recovery remains on track and with ongoing acceleration into F4Q23, revenue growth is shaping up within expectations.”

• “However, cost pressures are greater than we had anticipated and the turnaround required in F4Q to meet our prior expectations too great.”

Smartgroup (SIQ): Equal-weight with $6.00 target price

• “SIQ 1Q23 is another recent data point on resilient autos/novated demand, which has been further supported by interest in EVs.”

• “SIQ has traded strongly YTD with signs of stabilisation despite DET loss last year and this will likely be taken positively. However, we remain EW given the re-rate to 15x and 2H skew.” 

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