Evening Wrap: ASX 200 rallies for a sixth straight session, Woodside fades OPEC production cuts

The local sharemarket extends gains for a sixth straight session, Australian new loan commitments for housing falls 33% from January 2022 highs, Woodside struggles to hold onto session highs even after oil prices jump 5% on OPEC's production cuts and Macquarie's take on the local banking landscape and tin markets.

Let's dive in.

ASX 200 Session Chart

ASX 200 eases from a session high of 0.95% (Source: Market Index)

Markets

The ASX 200 is up for a sixth straight session, up 3.85%.

• Energy stocks gapped up after OPEC+ announced a surprise output cut

• Real Estate firmer and up 4.6% from 24 March lows

• Tech continues to benefit from Nasdaq outperformance, up 4.8% in the last four sessions

• Materials eased after iron ore majors rallied 2.5% to 4% last Friday

Economy

Australian new loan commitments for housing fell 0.9% month-on-month to $22.6 billion in February.

• “Housing finance continued to decline from the record highs in January 2022, with the total value of new loan commitments falling 33 per cent since then.” – Dane Mead, ABS Head of Finance and Wealth

• “Owner-occupier first home buyer lending continued to decline from the high reached in January 2021, to the lowest level seen since May 2017. It was also 27 per cent lower than February 2020, prior to the COVID-19 pandemic.” 

Australian building permits rose 4.0% month-on-month in February after a 27.1% dip in January.

• "This increase was driven by an 11.3 per cent rise in approvals for private sector houses, after a 10-year low in January. The result remains 13.6 per cent lower than February 2022.” – Daniel Rossi, Head of Construction Statistics 

• “Total dwelling approvals have continued their downward trend since September 2022, following the conclusion of government stimulus and rising interest rates."

China’s Caixin Manufacturing PMI fell to 50.0 in March from 51.6 in February.

• February was an eight-month high and signals a moderation in activity

• You might have noticed that China has two PMI surveys: NBS and Caixin. The Caixin index focuses on smaller firms, while the official NBS tracks larger companies 

Latest news

Market Insights

Market mood: Overextended, eyes on a pullback

That's quiet a relief rally we've got on our hands. But as we get more and more extended, the focus should turn to the pullback. If you've been reading my wraps for a while, you'll know exactly what I say, because I say pretty much the same thing every single time. In summary:

• The ASX 200 is rallying into a key trendline.

• In the event of some weakness, what does the pullback look like?

• Do we get a constructive pullback into the 50-day or 200-day, that's less volatile and met with buying support?

• Or do we see the all-too-familiar selloff where volatility picks up, the market fails to hold and eventually gets pummeled

ASX 200 chart (Source: TradingView)

OPEC's production cut: Fade the news, price implications

OPEC+ unexpectedly cut oil production by 1.2 million barrels per day earlier today, triggering a ~5% rally for oil prices.

The news was pretty fresh, so I thought local energy stocks would gap up and trend higher. Turns out, the opposite happened.

Woodside rallied 5.0% as the market opened, hit session highs of 5.9% and faded to a 2.7% close.

Woodside intraday chart (Source: Market Index)

Interestingly, the oil price actually drops on average 1, 3 and 6 months after the production cut. The largest cuts in the past 20 years were during recessions and typically a sign of demand weakness.

On the flip side, production hikes typically see higher prices, when the oil cartel perceive demand being strong enough that additional supply won't hurt prices.

Source: Macro Pabst

Interesting news and movers

Trading higher

• +29.6% PPK (PPK)

• +18.2% Jervois Global (JRV) – Chairman purchases 3.7m shares

• +8.0% Tyro Payments (TYR) – Potentia can buy TYR for $1.80-2.00 per share

• +7.8% Lake Resources (LKE) – Testing confirms >99.8% purity for Kachi Project

• +7.7% PYC Therapeutics (PYC) - Drug program progressing to human trials

• +6.5% Karoon Energy (KAR) – FY23 production guidance

• Travel sector move: Corporate Travel (+5.4%), Webjet (+2.7%)

• Energy sector move: Woodside (+2.8%), Santos (+2.8%)

• Tech sector move: Wisetech (+2.3%), Altium (+2.3%), Technology One (+2.1%)

Trading lower

• -15.1% Nuix (NXL) – Pullback after +20% in last three sessions

• -9.1% MetalsX (MLX) - Macquarie expects tin market surplus in 2023

• -7.5% Netwealth Group (NWL) – Third quarter and full-year FUM guidance

• -5.2% Syrah Resources (SYR)

• -1.3% Dacian Gold (DCN) – Indefinite suspension of Mt Morgans

• Gold sector move: Ramelius (-7.1%), Bellevue Gold (-4.7%), Perseus (-3.9%)

• Lithium sector move: Winsome (-8.5%), Patriot Battery Metals (-7.8%), Pilbara Minerals (-3.6%)

Broker updates

Macquarie on Australia banks 

• “Current margin trends continue to favour business over retail franchises, but volumes are slowing across the board with SME growth turning negative.”

• “With front book spreads ~80-90bps below FY21 levels and rising book churn, the outlook for mortgage margins remains challenging.”

• “TD rates increased materially in recent months, suggesting potential downside risk to our already “conservative” FY24 margin forecasts.” 

• “Bank valuations appear more supportive following ~8% YTD derating relative to the market.”

• “We see Australian banks as defensive but expensive in a global context and remain Underweight the sector on the medium-term view.”

Macquarie on tin:

• Tin prices experienced a dramatic selloff from 2022 highs of US$48,650/t to lows of almost US$15,000/t. Prices bounced strongly last January to US$32,000 before taping off to the US$25,000 level this year. 

• “Estimated demand fell 2.1% YoY as consumption from soldering and tinplate sectors waned … the market is likely to have been in surplus through much of H2 and we expect a full year surplus of 5kt in 2023.”

• “This surplus is expected to persist in 2024 before the market drifts back towards progressively larger deficits.” 

Scans