Evening Wrap: ASX 200 sees more M&A, lithium rally extends, & Macquarie upgrades uranium forecast

Please note that Market Index Morning and Evening Wraps will take a break from Wednesday 20 December and return on 8 January 2024. Kerry & Carl wish you a safe and happy Christmas and New Year!

It looked like a quiet day on the surface, a modest pullback on very little volume within a tight trading range. But there's still a little bit of action around as the ASX winds down for 2023. M&A activity continues with a buyout offer for Adbri (ASX: ABC), and there's also a bid by Mitsubishi UFJ Financial Group for Link Group (ASX: LNK). The lithium rally extended into its second week, but is getting increasingly patchy, and uranium stocks prospered as major broker Macquarie upgraded its medium term price forecast for the commodity.

Let's dive in.

Markets

ASX 200 Session Chart

Merry Christmas at stake as ASX 200 rally loses steam

The S&P/ASX200 (XJO) finished 16.3 points lower at 7,426.4, just about smack-bang at the mid-point of the session's range. In the broader-based S&P/ASX 300 (XKO), advancers lagged decliners by 111 to 160.

The Consumer Discretionary (XDJ) +0.2% and the Health Care (XHJ) +0.2% were the best two performing sectors today, and the only two to finish in the black. Doing it tough today were the Real Estate Investment Trusts (XPJ) -1.4%, Consumer Staples (XSJ) -0.8%, Utilities (XUJ) -0.8% – a trio of defensive sectors.

Don't panic! The S&P/ASX 200 can't go up every day

It was a typical pullback day within a strong rally, that is, a tiny trading range (just 36 points), a close roughly in the middle of the session, and volume? Nada.

Sure we were down today, but consider how far we've come since the October low. Just like I tell my 12-year old son who's an aspiring leg spinner, if you're going to miss, miss on the off side. Investors, if you're going to have a down day on the index, have one just like today – with hardly any commitment from the supply-side.

I remain comfortable ASX 200 trends, price action, and candles each continue to point to excess demand in the system for Aussie stocks, and therefore I propose the Santa rally is still intact for now! We're possibly baulking a little at 7,473 as demand moves up to 7,320-7,361. Above there we're fine.

Chart of the day: Uranium

My chart of the day today has to be the Uranium futures chart. Talk about a stairway to heaven! Friday's trade saw it push US$86.75/lb on the COMEX futures exchange. To put this into perspective, at the start of this year uranium was trading around US$48/lb, and at current levels, it's trading at 15-year highs.

Macquarie's US$100/lb target doesn't seem so optimistic anymore

In keeping with recent performance, ASX-listed Uranium stocks were generally better today, but have largely missed much of the big move in the uranium price in 2023. This is probably due to the fact that only one of the local cohort - Boss Energy (ASX: BOE) is actually producing uranium, and therefore is able to take advantage of the current high price.

Of the others, of only Paladin (ASX: PDN) is probably close enough to follow suit any time soon. So, in the mean time most companies are burning cash in exploration and development. Still, for most, the current price in the mid-to-high 80's is starting to be a very sweet spot indeed.

It could get even better for the likes of Boss, Paladin, and medium term producers like Nexgen Energy (ASX: NXG) and Deep Yellow (ASX: DYL) if the analysts at Macquarie are correct. In a research note where they reiterated their "Outperform" rating on Paladin, they upgraded their "peak uranium price forecast to US$100/lb in CY25".

The Boss Energy long term trend appears to be holding for now

From a technical perspective, the Boss Energy chart is possibly the pick of the bunch. Over the past four trading sessions, the long term uptrend ribbon appears to be doing what it does best – indicating where short term excess supply tends to give way to longer term excess demand. Today's full white candle is a nice punctuation point on the return of this excess demand.

Uranium stocks were generally better today, but have missed much of the move in the uranium price

Lithium Sector rally into second week, but becoming "sporadic"

The lithium sector rally which was sparked last week on a pop in lithium carbonate futures in China continued today, but is starting to become somewhat sporadic. Those same futures are limping into the close as I write this, putting in question the voracity of the bounce which started on 6 December. My tip: the easy part of the bounce is over for now, so stay on your toes lithium bulls!

GFEX lithium carbonate futures are limping into the close

The ASX lithium sector rally is becoming more sporadic

Economy

No major economic data releases today...

What to watch out for...

The US housing market is one of the major employers within the US economy, plus the wealth effect (or lack thereof) resulting from a strong property market is a major driver of consumer spending. It's simple: the US housing market is vitally important for the US economy, and therefore it's important for investors to keep an eye on major US housing data.

With this in mind, watch out tonight for the NAHB Housing Market Index for December which indicates the relative level of current and future single-family home sales. The data is compiled from a survey of around 900 home builders – so it's comprehensive.

The NAHB Housing Market Index is presently mired in contraction. Source: Forex Factory and Fair Economy

A reading above 50 in the index indicates a favorable outlook on home sales versus below indicates a negative outlook. Economists are forecasting the index to be 36 versus November's 34 – so a slight improvement – but as you can see from the above chart, the US housing market has been on a steady decline since the Fed's interest rate lift off in early 2022, and is presently mired in contraction.

Latest News

Interesting Movers

Trading higher

• +31.3% Adbri (ABC) - Scheme of arrangement acquisition proposal from CRH & Barro

• +29.5% Neuren Pharmaceuticals (NEU) - P2 trial shows significant improvements in Phelan-McDermid

• +27.1% Link Administration Holdings (LNK) - Link Group enters into Scheme Implementation Deed

• +23.1% Tabcorp Holdings (TAH) - New Exclusive Victorian Wagering and Betting Licence

• +10.9% Immutep (IMM) - No news, technical breakout

• +6.6% Talga Group (TLG) - No news, bounce within major long term downtrend

• +6.6% Core Lithium (CXO) - Ongoing lithium sector rally

• +6.2% Judo Capital Holdings (JDO) - Positive broker commentary

• +5.7% Bell Financial Group (BFG) - No news, technical breakout

• +5.4% MMA Offshore (MRM) - No news, monster long term uptrend, technical breakout

Trading lower

• -5.4% GDI Property Group (GDI) - Dividend/Distribution - GDI

• -5.3% Catapult Group International (CAT) - No news

• -5.0% Delta Lithium (DLI) - No news, pullback after recent lithium sector rally

• -4.9% Global Lithium Resources (GL1) - No news, pullback after recent lithium sector rally

• -4.7% Garda Property Group (GDG) - No news

• -4.5% Omni Bridgeway US Prohibited (OBL) - Move is consistent with long term downtrend

• -4.5% Audinate Group (AD8) - No news

• -4.2% Pexa Group (PXA) - No news

• -4.2% Adriatic Metals (ADT) - No news

• -4.1% EML Payments (EML) - Move is consistent with long term downtrend

• -3.8% Austal (ASB) - Move is consistent with long term downtrend

Broker Notes

• Alpha HPA (A4N) retained at buy Bell Potter; Price Target: $1.68

• Adbri (ABC)

  • Retained at equalweight Morgan Stanley; Price Target: $2.30

  • Retained at underperforrm Macquarie; Price Target: $2.20

  • Retained at hold Ord Minnett; Price Target: $2.00

• Australian Finance Group (AFG) retained at hold Citi; Price Target: $1.55 from $1.70

• Alligator Energy (AGE) retained at buy Bell Potter; Price Target: $0.10

• Allkem (AKE) retained at buy Bell Potter; Price Target: $18.45

• Arafura Rare Earths (ARU) retained at buy Bell Potter; Price Target: $0.44

• Azure Minerals (AZS) retained at buy Bell Potter; Price Target: $4.90

• Bega Cheese (BGA) retained at buy Bell Potter; Price Target: $4.10 from $3.35

• Brickworks (BKW) retained at neutral Macquarie; Price Target: $24.75

• Boral (BLD) retained at outperform Macquarie; Price Target: $5.60

• Boss Energy (BOE) retained at outperform Macquarie; Price Target: $5.00 from $4.50

• Beach Energy (BPT) retained at buy Bell Potter; Price Target: $2.00

• Bluescope Steel (BSL) downgraded to neutral from buy at Citi; Price Target: $22.50 from $21.40

• Catapult Group International (CAT)

  • Downgraded to hold from buy at Bell Potter; Price Target: $1.43

  • Retained at hold Bell Potter; Price Target: $1.43

• Centuria Industrial Reit (CIP) retained at hold Bell Potter; Price Target: $3.20

• Capricorn Metals (CMM) retained at buy Bell Potter; Price Target: $5.70 from $5.50

• Centuria Capital Group (CNI) retained at buy Bell Potter; Price Target: $1.55

• Cooper Energy (COE) retained at buy Bell Potter; Price Target: $0.17

• Centuria Office Reit (COF) retained at hold Bell Potter; Price Target: $1.25

• Comet Ridge (COI) retained at buy Bell Potter; Price Target: $0.26

• Conrad Asia Energy (CRD) retained at buy Bell Potter; Price Target: $2.30

• CSR (CSR) retained at neutral Macquarie; Price Target: $5.50

• Delta Lithium (DLI) retained at buy Bell Potter; Price Target: $1.35

• Dreadnought Resources (DRE) retained at buy Bell Potter; Price Target: $0.15

• Develop Global (DVP) retained at buy Bell Potter; Price Target: $4.30

• Dexus Convenience Retail Reit (DXC) retained at buy Bell Potter; Price Target: $2.85

• Dexus Industria Reit (DXI) retained at sell Bell Potter; Price Target: $2.65

• Deep Yellow (DYL) retained at buy Bell Potter; Price Target: $1.84

• GDI Property Group (GDI) retained at buy Bell Potter; Price Target: $0.75

• Green Technology Metals (GT1) retained at buy Bell Potter; Price Target: $0.72

• GWA Group (GWA) retained at outperform Macquarie; Price Target: $2.20

• Healthco Healthcare and Wellness Reit (HCW) retained at buy Bell Potter; Price Target: $1.75

• Homeco Daily Needs Reit (HDN) retained at hold Bell Potter; Price Target: $1.25

• Hartshead Resources (HHR) retained at buy Bell Potter; Price Target: $0.07

• HMC Capital (HMC) retained at buy Bell Potter; Price Target: $5.55

• Insurance Australia Group (IAG) retained at equalweight Morgan Stanley; Price Target: $5.45

• IGO (IGO) retained at buy Bell Potter; Price Target: $11.30

• Imdex (IMD) upgraded to buy from neutral at Citi; Price Target: $2.20 from $1.60

• James Hardie Industries (JHX) retained at outperform Macquarie; Price Target: $58.40

• Liberty Financial Group (LFG) retained at hold Citi; Price Target: $4.40

• Latitude Group Holdings (LFS) retained at underperforrm Morgan Stanley; Price Target: $0.99 from $1.06

• Lake Resources (LKE) retained at buy Bell Potter; Price Target: $0.36

• Link Administration Holdings (LNK) upgraded to neutral from underweight at Barrenjoey; Price Target: $2.26 from $1.70

• Latin Resources (LRS) retained at buy Bell Potter; Price Target: $0.46

• Liontown Resources (LTR) retained at buy Bell Potter; Price Target: $2.75

• Meteoric Resources (MEI) retained at buy Bell Potter; Price Target: $0.40 from $0.40

• Mineral Resources (MIN) retained at buy Bell Potter; Price Target: $90.00

• Monash IVF Group (MVF) retained at outperform Macquarie; Price Target: $1.50

• Nickel Industries (NIC) retained at buy Bell Potter; Price Target: $1.80

• Orora (ORA) retained at overweight Morgan Stanley; Price Target: $3.30 from $3.50

• Paladin Energy (PDN) retained at outperform Macquarie; Price Target: $1.40 from $1.30

• Pilbara Minerals (PLS) retained at hold Bell Potter; Price Target: $3.90

• Pepper Money (PPM) upgraded to buy from neutral at Citi; Price Target: $1.40 from $1.45

• Reece (REH) retained at underperforrm Macquarie; Price Target: $15.40

• Resimac Group (RMC) retained at hold Citi; Price Target: $0.95 from $1.10

• Reliance Worldwide Corporation (RWC) retained at outperform Macquarie; Price Target: $4.05

• Select Harvests (SHV) upgraded to underperform from sell at CLSA; Price Target: $3.25 from $3.60

• Strike Energy (STX) retained at hold Ord Minnett; Price Target: $0.50

• Suncorp Group (SUN) retained at overweight Morgan Stanley; Price Target: $15.70

• Talga Group (TLG) retained at buy Bell Potter; Price Target: $2.50

Scans