Evening Wrap: ASX 200 sinks to 11-month low as bond yield rally intensifies

The Index undercuts the March low on Wednesday to close at a fresh 11-month low, bond yields climb another 5 bps to 4.85%, contractionary conditions ease for Aussie industries in September, Bloomberg AI picks up an FDA approval before the company's official announcement and is it just me or is there no panic (despite the recent bearishness)?

Let's dive in.

ASX 200 Session Chart

ASX 200 finishes lower on Wednesday, near worst levels (Source: Market Index)

Markets

The ASX 200 fell for a third consecutive session on Wednesday and finished near worst levels. Weakness continues to be broad-based, led by Banks, Telcos and Energy stocks. The Utilities sector managed to close in positive territory after a sharp selloff on Tuesday to 6-month lows.

The parabolic US 10-year yield remains the key focus area for markets. It's up another 5 bps to 4.85% on Wednesday. How long can it continue its almost-vertical rally and when will it set a blow off top?

Economy

The Ai Group Australian Industry Index reported a reduction in contractionary conditions, marking an 8.2 point rise to -3.5 points in September 2023.

• This marks the 17th consecutive month of contractionary conditions

• “The employment, industrial activity and new orders indicators all improved significantly, the fourth month of a recovery trend following lows seen in April and May.”

• “Price indicators remained strongly positive, but input prices and wages have continued to ease from peaks in July. The sales price indicator recovered after a large fall in August.”

• “Sub-industries reported mixed conditions. The construction indicator strongly returned positive, business services and downstream manufacturing began recovery, but upstream manufacturing remains fragile.”

Latest news

AI in Action

Shares in Noxopharm (ASX: NOX) rallied 47.6% on Tuesday and the next day, announced that it had received 'orphan drug status by the FDA'.

Its shares settled 61% higher on Wednesday, from a session high of 166%.

Before you call it insider trading, Bloomberg's automated news service (available on the terminal) reported the FDA announcement on Tuesday afternoon.

So how did Bloomberg get a hold of the news?

Bloomberg scrapes various sources (in this case, it was the official FDA site). The value they add here is by linking the drug name with the stock.

No Panic

The ASX 200 is down more than 5% since mid-September and undercut the key 6,900 level on Wednesday to close at levels not seen since November 2022. Despite the weakness, things have been relatively calm and somewhat orderly.

We have yet to see a session where the market gaps down at the open and then aggressively sell off to finish at even lower levels. If you look at individual stocks:

• Commonwealth Bank is only now beginning to roll over towards a 3-month low

• BHP remains rangebound

• Woolworths is down around 5% since September but its been a slow grind towards the downside

We have yet to see full-blown panic, which might be a problem because its full-blown panic that often sets the market low.

Interesting news and movers

Trading higher

• +24.8% Adacel Technologies (ADA) – Contract award

• +9.7% Neometals (NMT) – Lithium recovery flowsheet results

• +1.4% IPH (IPH) – Upgraded by Goldman Sachs

Trading lower

• -25.0% NetLinkz (NET) – 30m shares issued

• -7.6% Galan Lithium (GLN) – JV to acquire James Bay lithium projects

• -4.1% Dreadnought Resources (DRE) – Acquire and consolidation of tenements

• -0.5% Aussie Broadband (ABB) – Downgraded at Ord Minnett  

Broker notes

A few Macquarie notes of interest:

CSL (CSL) – Outperform with $321.00 target ($236.36 at 2 Oct)

• “CSL112 is a key pipeline product for CSL. Data from the Phase 3 AEGIS- II trial is expected in early CY24.”

• “We see growth for CSL as supported by a base recovery (increased plasma collection supporting improved revenue, lower CPL), with potential contributions from pipeline products and operational efficiency.” 

QBE Insurance (QBE) – Outperform with $16.50 target ($15.24 at 3 Oct)

• “We estimate FY23 GWP growth of +10.3% (CC) compared with ~10% guidance, prior to a ~40bps headwind from FX.”

• “QBE is trading at a significant premium to weighted international peers, which compares to a three-year average discount of ~2.2%, but in our view this reflects peers being more affected by global economic challenges.”

UBS on the RBA hold and rate outlook:

• “Governor. The RBA held the cash rate at 4.10%, again as widely expected (with 25 out of 26 economists expecting no change).”

• “The RBA retained what we call a mild 'tightening bias', as we previewed. While a tightening bias is notionally 'hawkish', the RBA has not 'followed through' for four meetings in a row, which reduces the effectiveness.”

• “Looking ahead, UBS still expect the RBA to hold the cash rate at 4.10%, and stay at a peak level for a longer-than-normal ~14 months.”

Scans