Evening Wrap: ASX 200 stalls, V-shaped bounce for iron ore miners, rare earths stocks tumble

The S&P/ASX 200 closed 4 points higher, up 0.05%. 

The local sharemarket closed around breakeven as resources offset weakness from all other sectors, Australian private sector building permits plummet to decade lows, BHP recovers from an almost 8% dip and why rare earth stocks are getting solid off.

Let's dive in.

ASX 200 Session Chart

ASX 200 fades from session highs of 0.4% to close around breakeven for a second straight session (Source: Market Index)

Markets

On Wednesday, the ASX 200 rallied off session lows to close around breakeven. Today, we fade from session highs for another flat close. What's interesting is that in both sessions, it was the Resources sector doing all the heavy lifting while the rest of the market underperformed.

• Materials and Energy outperformed thanks to higher commodity prices overnight and China's positive manufacturing data on Wednesday

• Financials tumbled amid increasing concerns about slowing housing credit growth and bank profitability, the Bank Four Banks all closed between 1-3% lower

Economy

Australian building permits fell -27.6% month-on-month in January after a 15.3% increase in December.

• "Approvals for private sector houses fell by 13.8 per cent, the fifth consecutive drop, to be the lowest result recorded since June 2012." - ABS Head of Constructive Statistics, Daniel Rossi

• "The more volatile, private sector dwellings excluding houses series, fell 40.8 per cent, following a 41.9 per cent rise in December"

Latest news

Market Insights

V-shaped bounce for iron

BHP was down -7.8% between 22-27 Feb and over the following three sessions, up 7.9% – all thanks to unexpectedly strong Chinese manufacturing data on Wednesday.

China's manufacturing PMI jumped to 52.6 in February from 50.1 in January, well-above analyst expectations of 50.5 and the highest reading since April 2012.

What's interesting is that the PMI is reported on a month-on-month basis. So it can be deceptively strong if the data is coming from a depressed prior period. That said, the prior period was positive (barely) at 50.1.

BHP chart (Source: TradingView)

Fortescue chart (Source: TradingView)

Rare earth stocks dumped on Tesla news

Tesla said it plans to create a permanent magnet electric vehicle motor that doesn't use any rare earths due to the health and environmental risks associated with mining them.

The most common rare earth found in EV batteries is neodymium as well as dysprosium and terbium.

Unfortunately, most ASX-listed rare earth players are focused on producing neodymium and that's why we're seeing such dramatic selloffs for names like:

• Hastings Tech (HAS) -7.3%

• Lynas Rare Earths (LYC) -6.8%

• Arafura (ARU) -6.2%

• Dreadnought Resources (DRE) -4.7%

Interesting news and movers

Trading higher

• +12.1% Marley Spoon (MMM)

• +6.7% Aeris Resources (AIS) – Drilling results from Canbelego

• +5.8% 29 Metals (29M)

• +5.2% South 32 (S32)

• +5.1% Nickel Industries (NIC)

• +2.3% Northern Minerals (NTU) – AFR reports Aus government blocking Chinese businessman from increasing stake

• Iron ore sector move: Fortescue (+4.3%), Rio Tinto (+4.0%), BHP (+4.0%) and Grange Resources (+3.6%)

• Gold sector move: Evolution (+3.9%), Perseus Mining (+3.9%), Ramelius (+3.1%), Northern Star (+2.9%) and Newcrest (+2.2%)

Trading lower 

• -6.3% Novonix (NVX) – Downgraded to Hold from Speculative Buy at Morgans

• -3.6% Karoon Energy (KAR) – Brazilian export tax

• -2.8% NextDC (NXT)

• -2.2% PEXA Group (PXA)

• -2.0% Corporate Travel (CTD)

Broker updates 

Morgan Stanley’s takes:

Dicker Data (DDR): Overweight with $10.00 target price

• “2H22 was an indication of durable top-line growth, with PC headwinds offset by category mix shift.”

• Retains Overweight rating as long-term thesis remains intact. Key themes include: Leading competitive advantage in the ANZ region, durability of IT spend and diversification 

Pexa Group (PXA): Overweight with $15.00 target price

• First half result was a small beat at revenue but net profit fell ~$8m short of expectations due to higher UK losses

• MS noted Pexa’s 88% transfer penetration in the Australian market as well as tailwinds from mortgage refinancing volumes

• Areas of weakness include the near-term unprofitable nature of its UK venture and the importance to deliver ROIC for that region 

Macquarie’s takes:

Champion Iron (CIA): Neutral with $6.90 target price

• “Our Commodity Strategy Team believes iron ore pellet prices have bottomed, with the upcoming supply/demand gap supportive of pricing.”

• Champion Iron viewed as “well positioned to benefit from the increase in pellet demand”

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

• “GLN has completed its first diamond drillhole at Santa Barbara, with core results indicating a favourable condition for a high permeability aquifer.”

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

Scans