Evening Wrap: ASX 200 tumbles, energy and bank stocks sell off, Fed rate in focus

The local sharemarket hits a 1-month low amid a second consecutive day of heavy selling, Energy stocks tumble following a 5% drop in oil prices overnight, Australia's industrial activity marks 12 consecutive months of contraction and the Fed is expected to make its last 25 bps hike tonight at 4:00 am AEST.

Let's dive in.

ASX 200 Session Chart

ASX 200 tumbles again after a heavy overnight session on Wall Street and Wednesday's unexpected rate hike (Source: Market Index)

Markets

The ASX 200 managed to bounce off session lows of -1.47% on Wednesday but things are getting quite volatile and heavy post RBA rate hike. We have the Fed decision tonight and consensus expects another 25 bp hike to 5.0% - 5.25%. In the event of another 25 bps, will the Fed's messaging remain hawkish or will it hint at a pause? Whatever they do, prepare for some fireworks.

• Energy stocks tumbled after oil prices fell 5.6% overnight. Woodside, Santos, Ampol and Beach Energy finished the session down 2-3%

• Financials underperformed amid renewed US banking fears

• Real Estate stocks are struggling post RBA rate hike, the Australia 2-year Government Bond yield is up 26 bps this week

Economy

Ai Group Australian Industry Index, which measures industrial activity, tumbled to -20.1 in April from -6.1 in the previous month. Here are some of the highlights from the report:

• "Australian industry sank deeper into contraction in April on the back of falling demand and activity."

• "April is the twelfth consecutive month that the Australian Industry Index has indicated industrial contraction."

• "Industrial activity/sales sunk deeply into contraction, while new orders continued to fall which began in March."

• "Upwards pressures on prices continued to be strong despite inflation having peaked."

Australian retail sales rose 0.4% month-on-month in March from 0.2% growth in April. Here are some of the key comments from Ben Dorber, ABS Head of Retail Statistics:

• “Food retailing has now recorded 13 consecutive monthly rises, largely driven by high food inflation."

• “Businesses in cafes, restaurants and takeaway food services are passing on their rising costs to consumers through price rises, while also benefitting from strong demand driven by the continued return of large-scale cultural and sporting events.”

• “Spending on non-food retailing has slowed in response to interest rate rises and increased cost of living pressures. This follows increased spending during and immediately following much of the COVID-19 pandemic period.”

Latest news

Market Insights: It's Fed Time

The Fed is widely expected to make its last 25 bp hike tomorrow at 4:00 am AEST. But after the RBA unexpectedly hiked by another 25 bps, it might be fair to say that both the market and economists have no idea what's going on.

If Powell is more hawkish than expected and emphasises that the Fed may hike again, then the rollercoaster may be far from over.

Now, instead of talking about what ifs, let's see how the S&P 500 performed on previous rate hike days.

2022:

• 16 March: +2.2% (in-line)

• 4 May: +3.0% (in-line)

• 15 June: +1.5% (larger-than-expected)

• 27 July: +2.6% (in-line)

• 21 September: -1.7% (in-line)

• 2 Nov: -2.5% (in-line)

• 14 Dec: -0.6% (in-line)

  • -2.5% the next day

2023:

• 2 February: +1.1% (in-line)

• 22 March: -1.7% (in-line)

The data doesn't really tell us much hey?

Although the last time the S&P 500 was down more than 1% the day before a Fed meeting (September 2022). It fell 1.7% the day of the rate hike and the another 0.8% the following day, according to Ryan Detrick, Chief Market Strategist at Carson Group.

He also makes an interesting observation about the last 10 'last Fed hikes' and how the S&P 500 was up a year later 8 times and up more than 14% on average. Will this time be any different?

Source: Carson Investment Group

Interesting news and movers

Trading higher

• +20.0% MoneyMe (MME) – Earnings

• +8.4% Mesoblast (MSB)

• +5.7% Appen (APX) – NVIDIA AI collaboration

• +5.0% Centaurus Metals (CTM)

• +2.2% Flight Centre (FLT) – Business update 

• +1.1% Humm (HUM) – Q3 update

• Gold sector move: Ramelius (+5.1%), Gold Road (+4.8%), Evolution Mining (+3.7%)

Trading lower

• -9.5% Amcor (AMC) – Earnings

• -5.7% ARB Corp (ARB) – Business update

• -4.8% Ramsay Healthcare (RHC) – Earnings

• -3.0% Domain (DHG) – Business update

• Energy sector move: Beach Energy (-3.5%), Strike Energy (-3.2%), Woodside (-2.3%)

Broker updates

Goldman notes:

Woolworths (WOW): Buy with $42.80 target price

• March quarter result was better-than-expected and Group sales of $16.34bn was in-line with expectations

• “During the analyst call, management further expanded on targeted execution against an increasingly value conscious customer with the perception of “value” interpreted differently by key cohorts.”

• “The more pressured “saver families” are leaning into own brands including affordable protein and “Value” stores now have ~40% own brand volume penetration.”

• “We expect that more targeted and personalised execution in the AU Foods business … and digital media +34% You will drive high quality earnings with continued margin expansion into 1H23 and the medium term.” 

Endeavour Group (EDV): Buy with $7.50 target price

• March quarter sales was in-line but Hotels missed consensus expectations

• “Given price increases from alcohol excise hike of 3.7% from 1 Feb 2023, mgmt noted that volumes were negative during the quarter though a focus on new product innovation.”

• “The stock is currently trading at ~20x P/E implying 2.4x PEG which remains attractive relative to the rest of our Consumer coverage.”

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