Evening Wrap: ASX 200 rally runs out of steam, iron ore miners surge, US futures fall

The S&P/ASX 200 closed 12 points lower, -0.16%.

The local sharemarket faded from session highs of 0.54% as gains from miners and energy stocks were offset by selling across all other sectors.

Let's dive in.

Markets

Resources tried to pull the market higher but everything else seemed to disagree. The ASX 200 seems to be running out of steam after a massive Fed-friendly inflation surprise last Friday. The selloff appears to be led by defensive sectors like Industrials, Health Care and Telcos. Its worth noting that bond yields are starting to rebound a sharp selloff to near three month lows. The Australia 2-year bond yield has bounced from last Thursday's lows of 2.9% to now 3.2%.

• Materials led to the upside after China rolled out 16 measures to support the languished real estate sector

• Energy also higher as China eased some of its covid-related rules but policymakers reaffirmed their commitment to zero-covid

• Industrials led to the downside, led by losses from heavyweights Transurban (-3.2%), Qantas (-2.4%) and Brambles (-1.7%)

• Telcos also posted some rather heavy losses, mainly due to a -3.4% decline from Telstra

• 123 of the top 200 declined (62%)

Economy

The Westpac Card Tracker Index lifted slightly over the two weeks to 5 November.

• Growth “continues to show a flattening profile consistent with slowing growth in nominal spend and a likely stalling in real, inflation-adjusted terms.” - Westpac Economics

• “The detail shows a lift in discretionary categories over the last two weeks partially offset by a decline in essential services.”

• “We now have a range of indicator measures available for Q3. Point estimates vary: retail volumes and card-based measures on the softer side for the quarter but tax-system based measures pointing to something stronger, and both vehicle sales and outbound international travel recording strong gains.”

Commodities 

"Commodities struggled earlier in the week amid a weakening economic backdrop. That narrative shifted on Friday following weaker-than-expected inflation. China easing some COVID-19 restrictions also boosted sentiment." said ANZ senior commodity strategist, Daniel Hynes.

• Iron ore futures +3.2% to US$91.85 /t

• Gold -0.7% to US$1,759/oz

• Copper -0.7% to US$3.89/lb

Latest news

Post market brief

The ASX 200 faded from session highs of +0.54%. If surging iron ore heavyweights can't pull the market higher, what will?

The market is seeing a slight pullback after a massive start to the seasonally strong end of the year. Looking back, the ASX 200 did well to defend June lows, began to consolidate in October and broke out in November.

Now, the question is, what kind of pullback do we get? A go to sleep soundly, garden variety ~3% pullback or the volatile and abrupt style ones that we've seen all year.

In the absence of something left field, the cooler-than-expected inflation print last week, re-emergence of the Fed pivot narrative and China's sweeping rescue policies for its real estate sector appear rather accommodative for equity markets.

Though its worth noting that the S&P 500 is up 11.5% from its 14 October low and rallying into both the 200-day moving average and a key trendline.

S&P 500 (Source: TradingView)

Index charts

S&P/ASX 200: The market pulls back after a massive rally. The 200-day moving average (blue) is starting to slope slightly upwards. As we pull back, where do we find our footing?

XJO chart (Source: TradingView)

Major announcements

Large caps (>$1bn)

• Vulcan Energy (VUL) +1.4% successfully developed, tested and demonstrated its own in-house lithium extraction sorbent at its pilot plant in Germany

• Beach Energy (BPT) +1.4% entered into a scheme to acquire Warrego Energy for 20 cents per share, or approximately $250m  

• ALS (ALQ) -0.7% reported 23.9% revenue growth in 1H23 to $1.27bn and 29.3% underlying net profit growth to $164.3m. The life sciences company guided to FY23 NPAT of $300-320m, up 17% YoY at midpoint of guidance 

• Ridley Corp (RIC) -2.8% said it expects 1H23 earnings to ‘improve on the previous corresponding period’ but shares likely tanked to due Elders’ FY23 profit warning 

• Flight Centre (FLT) -3.8% said Group total transaction volumes were up 246% in the first four months of FY23 to $6.8bn but revenue margins are expected to remain below pre-covid levels due to changes in business mix, ‘abnormally high airfares’ and commission changes for some airlines 

• Nearmap (NEA) -5.8% notes a possible downgrade of two customers in 1H21 worth ~$6m. The company expects FY23 to post annual contract values between $195-208m, up 16.3% to 24.1% compared to FY24

• Elders (ELD) -22.9% posted 35% revenue growth in FY22 to $3.45bn and 1% underlying profit growth to $152.2m. The company warned that adverse weather conditions has created some uncertainty around cropping regions

Mid-to-small caps

• Alpha HPA (A4N) +10.6% expanded its strategic partnership with Orica, who has now taken a 5% equity interest in the company and signed a MoU to investigate the feasibility of establishing a new manufacturing facility in North America 

• Perenti (PRN) +4.3% upgraded its FY23 revenue to $2.6-2.7bn (from previous guidance $2.4-2.5bn) and EBITDA to $215-230m (from $185-205m) due to improved commercial conditions and favourable exchange rates

• Highfield Resources (HFR) +0.6% received authorisation from the Government of Navarra to build its Muga Potash Mine’s processing plant 

• Ramelius Resources (RMS) -6.5% reaffirmed its FY23 guidance and provided a 3-year production outlook that was in-line with its July 2021 Mine Plan 

Broker updates 

Scans