Evening Wrap: ASX 200 tumbles again, China stimulus buoys iron ore, lithium miners rally

The S&P/ASX 200 closed 85 points, down -1.2%.

We're on a two day losing streak where the ASX 200 opened flat, progressively sold off and closed at session lows. Altium jumps on better-than-expected earnings, Pilbara Minerals posts a thirty-fold jump in profits and China's US$29bn stimmy buoys local mining stocks.

Let's dive in.

ASX 200, All Ords and All Tech intraday overview

Markets

• 2 out of 11 sectors higher

• Energy and Utilities were the only green sectors

• Staples underperformed after Endeavour shares tumbled -12.3% post earnings

• Financials also lagged, with the Big 4 Banks all down around -2%

• 78% of the top 200 companies declined

Stocks

• Altium (ASX: ALU) +19.8% posted 57% net profit growth to US$56m ahead of Bloomberg estimates of $48m

  • Altium CEO: “Altium delivered a strong financial performance for fiscal 2022 supported by a record performance from our Octopart business and solid growth from our Electronic Design Software business,” 

• Ansell (ASX: ANN) +8.6% reported a -27.9% decline in FY22 EPS to 138.6 cents but in-line with previous guidance of 125-145 cents

  • Ansell CEO: “Surgical and Life Sciences grew above market rates showing the benefit of some important new business wins. Mechanical achieved respectable growth in a mixed industrial demand environment, delivering very strong results in emerging markets and success with new products.”

• Monadelphous Group (ASX: MND) +5.9% posted 11% profit growth to $52m ahead of Bloomberg estimates of $48m 

  • Monadelphous: “The result reflects strong demand for maintenance services across the resources and energy sectors as customers maintained high levels of production, capitalising on favourable commodity prices.”

• Pilbara Minerals (ASX: PLS) +3.15% posted a 993% jump in statutory profit to $561.8m. Still, the profit figure missed Bloomberg estimates of $829.9m

• Breville Group (ASX: BRG) -0.1% FY22 profits rose 16.2% to $105.7m, slightly below Bloomberg estimates of $108m 

  • Breville: “Gross margins were well managed, with demonstrated pricing power in the global segment, offsetting an inflationary backdrop of increased freight and product costs and a strong USD”

• Credit Corp (ASX: CCP) -6.1% says an internal QA review found it has been overcharging interest rates to a number of customers. Plans to remediate up to $4m to customers but does not expect this to have a material impact on FY23 earnings

• Kogan (ASX: KGN) -6.6% posted an FY22 net loss of -$35.5m compared to $3.5m profit a year ago. The business was impacted by excess inventory, covid interruptions and increased logistics costs

• Endeavour Group (ASX: EDV) -12.3% shares tumbled even after FY22 profits of $495m beat Bloomberg estimates of $489.5m. Expects ‘retail drinks and hospitality market’ to continue the run towards normal in FY23

  • Management warned of a “variety of factors which may impact performance in the year ahead including inflation, limited team availability and the potential for supply chain disruption."

• Service Stream (ASX: SSM) -17.2% posted FY22 revenue growth of 94.5% but adjusted net profits fell -19% due to impairments and onerous contracts. The network services provider faced several challenges associated with covid, project resourcing and extreme weather events

Economy

S&P Global Australia PMI:

• Manufacturing: 54.5 in August from 55.7 in July

• Services: 49.6 in August from 49.8 in July

• Readings below 50 signal a contraction in activity 

Commodities 

• Iron ore futures on China's Dalian Commodity Exchange rallied 2.6%

  • Most commodities futures opened higher in China after policymakers announced plans to offer 200bn yuan (US$29bn) in special loans to ensure stalled housing projects are delivered to buyers, Bloomberg reported

Scans

Latest news

Post market charts

S&P/ASX 200: The pullback so far has been rather heavy, with two back-to-back declines of around -1%. Both days, the ASX 200 opened flat, sold off intraday and closed at session lows. Plus we sliced through the 20 and 200 day moving averages without a bounce. It’s not a good look.

Source: TradingView, Annotations by Market Index

S&P/ASX 200 Financials: On a four-day losing streak, sliding -4% into no man's land. Westpac economists forecast that Sydney property values will fall -10% this year and another -8% in 2023. Likewise, Melbourne prices were projected to fall -8% this year and -10% next year. Senior economist Matthew Hassan said “the housing downturn that began at the start of the year has accelerated and broadened over the last three months.”

S&P/ASX 200 Staples: Damn. I guess that’s why they call it a bear market rally. The Staples Index sets up for a break out, starts to move out, sucks you in and then bam. 

Source: TradingView, Annotations by Market Index

Stocks

Iron ore names: A few charts like Grange Resources (ASX: GRR) and Champion Iron (ASX: CIA) are holding up pretty well. Thanks China.

Source: TradingView, Annotations by Market Index

Biotech starting to weaken: CSL (ASX: CSL) ekes a bit lower. Telix Pharma (ASX: TLX) and Clinuvel Pharma (ASX: CUV) sell off. Polynovo (ASX: PNV) pulling into the 20-day. Biotech names all started to move around the same time, breaking out of 3-5 month bases. So what happens if CSL starts to test $286 or worse, breaks lower?

Source: TradingView, Annotations by Market Index

Big lithium, little lithium: Macquarie released a note on Monday afternoon, upgrading its short and medium-term outlook for lithium prices and share price targets for five large cap producers. We saw names like Pilbara Minerals (ASX: PLS), Allkem (ASX: AKE) and Mineral Resources (ASX:MIN) hold up well in a weak market. Whereas most other lithium names finished lower. Perhaps inflows are going into large cap names that are already producing instead of specs?

Source: TradingView, Annotations by Market Index

Random spec chart: Norwest Energy (ASX: NWE) chart starting to tighten around 0.45 cents.

Source: TradingView, Annotations by Market Index

What to look out for on Wednesday

Pullback needs to be orderly: So far, the pullback has been pretty ugly. Buyers aren't stepping up and sellers are in control. Imagine if we didn't get that US$29bn stimulus headline from China to buoy resources. Things would've probably been a little uglier. The VIX is starting to spike from lows of 12, now at 14.3. We want less volatility, not more.