Evening Wrap: ASX 200 relief rally kicks in, China's economy rebounds, US futures flat

The local sharemarket bounces thanks to strength from Tech, Healthcare and Real Estate stocks, China's retail sales rebound but unemployment comes in slightly higher than expected and what happens to markets when the Fed starts cutting interest rates?

Let's dive in.

ASX 200 Session Chart

A strong 0.9% open fades to just 0.25% at noon but buyers return (Source: Market Index)

Markets

It's one of those "so what" bounces. The ASX 200 is now down 3.3% in the last four sessions instead of being down 4.1%. We're seeing oversold sectors like Tech stage a little bounce, while price action for banks was choppy at best. The ASX 200 has undercut its 200-day moving average and a key trendline, so strength needs to follow through over the next few days.

• Tech stocks led to the upside, in-line with Nasdaq outperformance overnight

• Healthcare snapped a four-day losing streak with CSL doing the heavy lifting (+1.8%)

• Financial stocks were mostly up 1-2% but CBA (+0.1%) was incredibly choppy, down from session highs of 1.8%

• Discretionary underperformed with the top 5 largest names (Wesfarmers, Aristocrat, The Lottery Corp, IDP Education and Harvey Norman) all red

Economy

China released a series of economic updates including:

• Industrial production up 2.4% year-on-year in Jan-Feb vs. 2.6% expected

• Retail sales up 3.5% year-on-year in Jan-Feb vs. in-line with expectations

• Unemployment at 5.6% in Feb vs. 5.5% expected

• Fixed asset investment up 5.5% year-on-year in Jan-Feb vs. 4.4% expected

• NBS spokesman also reiterated the goal of achieving 5.0% GDP growth in 2023, saying that “China is planning relevant policies to expand demand this year.”

Latest news

Market Insights

A bounce vs. a dead cat bounce

The ASX 200 is in an awkward place where its oversold but also badly damaged. Let's see how the rest of the week plays out.

The market's VIX Index has eased from 16 to 14 but remains above the comfort level of 11-12.

ASX 200 chart (Source: TradingView)

What happens when the Fed cuts interest rates?

It's been an absolutely crazy week where the market's gone from expecting 50 bps to now 25 bps and cuts on the horizon. But what happens to markets when the Fed starts cutting?

Here's the S&P 500's average return following an initial Fed rate cut during expansionary periods since 1971, according to Fundstrat:

• 3 months after: +9.7%

• 6 months after: +13.5%

• 9 months after: +15.7%

• 12 months after: +16.5%

However, it's worth noting that the last two rate cuts in 2000 and 2008 both triggered the bear market. The average returns for those two instances are rather dire:

• 1 month after: 5.4%

• 3 months after: -6.2%

• 6 months after: -12.3%

• 9 months after: -19.3%

• 12 months after: -20.4%

Interesting news and movers

Trading higher

• +19.4% Neuren Pharma (NEU) – Upgraded by Bell Potter

• +6.4% Life360 (360)

• Coal sector move: Terracom (+6.3%), Coronado Global (+5.4%), Whitehaven Coal (+3.7%)

Trading lower

• -14.8% 29Metals (29M) – Updates on weather event and withdraws guidance

• -3.4% Bellevue Gold (BGL) – 1H earnings

• -1.3% Northern Star (NST) – Halts Pogo gold production

Broker updates

A few Macquarie notes for lithium stocks: 

Galan Lithium (GLN): Outperform with $1.90 target price

• “GLN’s 1HFY23 result was ahead of our forecasts with better-than-expected costs; free cash outflow and net cash were both in line.”

• “The receipt of all approvals to allow construction of the Hombre Muerto West (HMW) Pilot project present a key near-term catalyst.”

Global Lithium (GL1): Outperform with $3.60 target price

• “GL1’s cost performance in 1HFY23 was better than we had anticipated while its free cash outflow was in line with our estimates.” 

• “The recent scoping study for Manna delivered a robust project. Drilling updates for Manna and Marble Bar present key near-term catalysts for GL1.”

Liontown Resources (LTR): Outperform with $2.60 target price

• “LTR reported losses were wider than our forecasts while cash flow performance was in line.”

• “The timeline to first production was unchanged and we believe delivering Kathleen Valley on schedule remains a key catalyst for LTR, with evidence of this set to be provided through regular project updates.”

Scans