Evening Wrap: ASX 200 rises as critical minerals stocks get critical shot in the arm from Federal Budget

The S&P/ASX 200 closed 26.9 points higher, up 0.35%.

Critical minerals. They're minerals that are critical to Australia's and the world's energy transition. They're future facing, we have a bunch of them, and the world needs loads of them.

Up until today, all of the above key facts considered, the share prices of most ASX critical minerals stocks were in the toilet.

Today, jolted by Federal Budget spin and all-round good vibes...they have emerged from the toilet, to once again take their rightful place at the forefront of Aussie investors' minds.

On that cheery note...

Let's dive in!

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 26.9 points higher at 7,753.7, almost smack-bang at the mid-point of the session's range. As if to illustrate the stagnation and sheer indecision among investors today, in the broader-based S&P/ASX 300 (XKO), advancers and decliners were nearly even at 134 to 137.

The Materials (XMJ) (+1.2%) sector was the best performing sector today, partly due to a strong rise in copper and a few other base metals (only aluminium was down), but also due to plenty of good budget vibes for so called critical minerals stocks. There's also likely just a tad of short covering going on in some of those bottom dwellers too.

Critical minerals stocks got a critical shot in the arm from Federal Budget

Also doing well today were the Health Care (XHJ) (+0.80%) sector and Consumer Discretionary (XDJ) (+0.76%) sectors.

Again it was a case of budget winners versus losers here – particularly in the Health Care sector which was split accordingly. In a research note out today on the impact of the budget on the sector, Citi said that pathology stocks were “incremental winners”, while diagnostic imaging stocks were “incremental losers”.

Whichever way you slice and dice it, at a sector performance level, heavyweights CSL (ASX: CSL) and Cochlear (ASX: COH) were up today, so…

Once could argue there were more budget losers than winners in the Healthcare sector today

Discretionary's gain is a little clearer, there’s enough spending in the budget to keep consumers ticking along, as well as the looming implementation of the Stage 3 tax cuts. Education stocks, like Idp Education (ASX: IEL), and G8 Education (ASX: GEM) were notable inclusions in the sector's winners list.

Consumer stocks also got a nice budget boost

Only three of the eleven major sectors were lower today, one might guess because there weren’t enough goodies for them in the budget. Industrials (XNJ) (-0.63%) was the worst, but Energy (XEJ) (-0.54%) and Financials (XFJ) (-0.25%) weren’t far behind.

ChartWatch

NASDAQ Composite Index

In many ways, the bull starts now

In many ways the bull market starts here for the Nasdaq Composite index, and by extension, for the world of risky assets.

The “Comp” as it’s more commonly known, is the poster child for the riskier end of the stocks spectrum. It contains many earlier stage companies, that are often pre-revenue and more often than that, pre-profit. Importantly these companies are generally debt funded for growth, and that growth will only translate into cashflows and profits later in the future.

We call these types of assets “long duration” assets – and they are the most sensitive to interest rates. This is because the further out an asset’s cashflows is, the more harshly it is dealt with via the discounting process. Higher market interest rates equals a higher discounting rate, which equals lower stock valuations that can be tolerated by investors.

If we’re to get lower interest rates down the track, the Comp is where you want to be, and vice versa.

In short, if the Comp is rising, all is good in the world of risk taking. That’s good for us at home – not to say Aussie stocks have half the flair of the stocks in the Comp!

16539 is the only remaining key point of supply in the way of the official resumption of the Comp’s bull market. With any luck, we’ll close strongly above this point tonight with a long white candle. This would then set the old high as a new demand point, and hopefully therefore provide a base for a meaningful move higher.

16021 is current demand, the short term uptrend ribbon should also provide dynamic demand. As long as the Comp continues to close above both levels the short term uptrend remains intact.

S&P/ASX 200 (XJO)

Lagging other markets, the XJO needs to get a wriggle on or get left behind

There’s definitely a resemblance between the Comp and the XJO, we’re just a few candles and a few percent behind. This does speak of relative underperformance of our index – which indicates on a global level we’re not exactly top of the shopping list for the big fund managers.

In my experience, this kind of underperformance can be very painful indeed. We follow them down alright, but we barely follow them up. You know exactly what I mean!

Still, there’s plenty to like about the trends in the Aussie benchmark index. The short term uptrend has resumed, and the long term uptrend is very much intact.

The push from 7556 occurred on several strong demand-side candles, and the pullback since 7815 has been mild. Demand is greater than supply. Check.

We just need to have a crack at those highs and prove to the naysayers: We’re good for it. We can print new highs. We can print an 8, or even an 8-5? That would be nice.

But to do so, we’re going to need plenty of excess demand. What does plenty of excess demand look like? It will manifest itself in the form of white bodied candles, and or those with downward pointing shadows.

Pushes higher will be sharp and large, and pullbacks will be shallow and small.

7815, 7870, and 7911 must be ticked off summarily, with the above-mentioned candles logged at each. We must not trade back below the short term uptrend ribbon. We cannot afford to see large black bodied candles and or long upward pointing shadows (like today's?), for to do so would signal much doubt in our ability to perform on the big stage.

Anyway, that’s my bit. It’s up to the market now.

Economy

Today

• AUS Wage Price Index q/q

  • vs +1% forecast and +1% previous quarter

Wednesday

• 22:30 USA Consumer Price Index (CPI) April

  • Headline CPI +0.4% and 3.4% p.a. forecast vs +0.4% and +3.4% p.a. March

  • Core CPI +0.3% and 3.6% p.a. forecast vs +0.4% +3.5% p.a. March

Thursday

• 11:30 AUS Employment change and unemployment rate April (+25.3k forecast vs -6.6k March; UR 3.9% forecast vs 3.8% March)

Friday

• 12:00 CHN 'Data Dump' (Industrial Production, Retail Sales, Fixed Asset Investment, Unemployment Rate)

Latest News

Interesting Movers

Trading higher

• +30.0% Renascor Resources (RNU) - No news, support for critical minerals in Federal Budget, rise is consistent with prevailing short term uptrend, closed above long term downtrend ribbon 🔎📈

• +8.9% Chalice Mining (CHN) - No news, support for critical minerals in Federal Budget, rise is consistent with prevailing short term uptrend, rising peaks and rising troughs 🔎📈

• +8.3% Vulcan Energy Resources (VUL) - No news, support for critical minerals in Federal Budget, rise is consistent with prevailing short term uptrend, rising peaks and rising troughs 🔎📈

• +7.1% IDP Education (IEL) - No news, budget good vibrations, closed above short term downtrend ribbon

• +6.5% WA1 Resources (WA1) - No news, support for critical minerals in Federal Budget, rise is consistent with prevailing short and long term uptrends 🔎📈

• +6.1% Capitol Health (CAJ) - No news, perceived as a budget winner, bouncing off short and long term trend ribbons

• +5.6% Neuren Pharmaceuticals (NEU) - Investor presentation, 15 May 2024, rise is consistent with prevailing long term uptrend, bouncing off long term uptrend ribbon 🔎📈

• +5.4% Arafura Rare Earths (ARU) - No news, support for critical minerals in Federal Budget

• +4.7% Spartan Resources (SPR) - No news, support for critical minerals in Federal Budget, rise is consistent with prevailing short and long term uptrends 🔎📈

Trading lower

• -8.4% Mayne Pharma Group (MYX)

  - No news, continuation sell off from yesterday, but also likely perceived as a budget loser

• -8.0% Weebit Nano (WBT)

  - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -6.3% Core Lithium (CXO)

  - No news, wow couldn't even go up today! Fall is consistent with prevailing short and long term downtrends 🔎📉

• -6.1% Avita Medical Inc (AVH)

  - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -6.0% Healius (HLS)

  - No news, likely perceived as a budget loser, fall is consistent with prevailing long term downtrend 🔎📉

• -5.6% Botanix Pharmaceuticals (BOT)

  - No news, likely perceived as a budget loser

• -4.0% Fletcher Building (FBU)

  - No news, fall is consistent with prevailing short and long term downtrends 🔎📉

• -3.9% Australian Clinical Labs (ACL)

  - No news, likely perceived as a budget loser, fall is consistent with prevailing short and long term downtrends 🔎📉

Broker Notes

• Australian Clinical Labs (ACL) retained at buy at Citi; Price Target: $3.35

• Aristocrat Leisure (ALL) retained at buy at Citi; Price Target: $51.00 from $52.70

• Eagers Automotive (APE) retained at buy at Bell Potter; Price Target: $14.75 from $15.20

• ARB Corporation (ARB) upgraded to neutral from underperform at Macquarie; Price Target: $40.10 from $32.30

• ASX (ASX) initiated at sell at Goldman Sachs; Price Target: $60.00

• Brickworks (BKW) retained at Neutral at Macquarie; Price Target: $27.30

• CSR (CSR) retained at Neutral at Macquarie; Price Target: $9.00

• Domain Holdings Australia (DHG) retained at neutral at Macquarie; Price Target: $3.53 from $3.56

• Fleetpartners Group (FPR) retained at buy at Citi; Price Target: $4.10 from $4.20

• GWA Group (GWA) retained at Outperform at Macquarie; Price Target: $3.10

• Healius (HLS)

  • Retained at sell at Citi; Price Target: $1.10

  • Retained at underweight at Morgan Stanley; Price Target: $1.00

• Integral Diagnostics (IDX) retained at neutral at Citi; Price Target: $2.20

• IGO (IGO) retained at underweight at Morgan Stanley; Price Target: $6.05

• Iluka Resources (ILU) retained at equal-weight at Morgan Stanley; Price Target: $7.00

• James Hardie Industries (JHX) retained at Neutral at Macquarie; Price Target: $62.40

• Arcadium Lithium (LTM) retained at buy at Citi; Price Target: $9.40

• Nick Scali (NCK) retained at outperform at Macquarie; Price Target: $16.10 from $14.90

• Nine Entertainment Co. Holdings (NEC) retained at neutral at Macquarie; Price Target: $1.65

• Qube Holdings (QUB) upgraded to buy from neutral at UBS; Price Target: $4.15 from $3.53

• Reece (REH) retained at Underperform at Macquarie; Price Target: $19.40

• Reliance Worldwide Corporation (RWC) retained at Outperform at Macquarie; Price Target: $6.10

• South32 (S32) retained at neutral at Citi; Price Target: $3.80

• St Barbara (SBM) retained at neutral at Macquarie; Price Target: $0.29 from $0.27

• Sonic Healthcare (SHL) retained at neutral at Citi; Price Target: $31.00

• Syrah Resources (SYR) initiated at overweight at Jarden; Price Target: $0.71

• Tabcorp Holdings (TAH) retained at outperform at Macquarie; Price Target: $1.00

• Worley (WOR)

  • Retained at buy at Citi; Price Target: $20.00

  • Downgraded to hold from buy at Jefferies; Price Target: $16.80 from $18.50

  • Retained at outperform at Macquarie; Price Target: $18.10

• Xero (XRO) retained at buy at Goldman Sachs; Price Target: $156.00

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