Evening Wrap: ASX 200 rallies on RBA's dovish remarks, Morgan Stanley downgrades banks' outlook

The RBA hiked rates by 25 bps but with a dovish lean, the ASX 200 extends its winning streak to four, InvoCare rallies 35% after receiving an unsolicited takeover from TPG, Megaport shares tank after its CEO resigns, Morgan Stanley expects major banks to underperform the market in 2023 and Macquarie says pent-up revenge travel demand has 'yet to be completely realised'.

Let's dive in.

ASX 200 Session Chart

The markets moved higher after a choppy open and surged following the RBA rate hike (Source: Market Index)

Markets

The ASX 200 rallied after the RBA hiked rates by the expected 25 bps. The commentary acknowledged that high inflation was only temporary and had already peaked. Now, we just need to make it past Powell’s speech, US inflation and FOMC minutes.

• Energy outperformed as oil is now on a six-day winning streak, up 6.5%

• Discretionary rallied thanks to gains from retailers including Super Retail Group (+2.6%), Wesfarmers (+1.7%) and Harvey Norman (+1.2%)

• Materials continue to struggle for upside amid weakness from South 32 (-2.4%), BHP (-1.0%) and Rio Tinto (-0.35%)

Economy

Australia’s trade surplus fell more than expected in January to $11.69bn from $12.99bn in December and below expectations of $12.5bn.

• A small increase in exports was offset by a spike in imports for automobile and transport equipment 

The RBA hiked interest rates by 25 bps to 3.60%, in-line with market expectations. It made a bold statement that 'inflation has peaked' and tweaked its guidance language from 'further increases ...' to 'expects tightening ... will be needed'. Commentary took a dovish lean in acknowledging the slowdown across the economy and pressures on the household sector. Some key quotes include:

• “The monthly CPI indicator suggests that inflation has peaked in Australia.”

• “Goods price inflation is expected to moderate over the months ahead due to both global developments and softer demand in Australia.”

• “Growth over the next couple of years is expected to be below trend.”

• “The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.”

Latest news

Interesting news and movers

Trading higher

• +35% InvoCare (IVC) – Takeover offer from TPG

• +9.8% Myer (MYR)

• +8.7% Pushpay (PPH) – Bounce after -10% in last three

• +5.4% Weebit Nano (WBT) – Bounce after -13.5% in last three

• +4.3% Sayona Mining (SYA) – $54.9m flow-through shares raising at premium

• +3.0% Orora (ORA)

Trading lower

• -15% Megaport (MP1) – CEO resignation

• -7.6% Brainchip (BRN)

• -5.3% Ioneer (INR)

• -3.8% Liontown Resources (LTR) – Pullback after +22.4% in last three

• Uranium sector move: Boss Energy (-4.3%), Paladin Energy (-3.5%) and Deep Yellow (-3.0%)

Broker updates 

Morgan Stanley says the tailwinds that drove the EPS upgrade cycle for banks over the past year has run its course, making it more likely for majors to underperform the ASX 200 in 2023. Some key catalysts for this view include: Margins now peaking, margins set to decline in FY24, no near-term catalysts for better loan growth, rising loan losses and no change in approach to costs.

• Westpac Bank: Overweight with $23.70 target price 

• ANZ Group: Equal-weight with $26.20 target price

• NAB: Equal-weight with $30.00 target price 

• Commonwealth Bank: Underweight with $85.00 target price

Macquarie reviews global domestic and international airline trends in regions relevant to its coverage. January 2023 capacity in North America leads all key regions at 102% vs. Asia at 89%, Europe and ANZ at 87%. Results ASX-listed half-year results downplayed macro risks and Australia’s consumer spending on travel suggests pent-up revenge demand is “yet to be completely realised.”

• Corporate Travel: Neutral with $17.44

• Flight Centre: Outperform with $21.30

• Webjet: Outperform with $6.82

• Qantas: Outperform with $7.40

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