Evening Wrap: ASX 200 tumbles, growth-heavy sectors sell off, China cuts lending rates again

The S&P/ASX 200 closed 68 points lower, down -0.95%.

Evening Wrap No 3 (I'll keep counting until we nail it).

Market fatigue has now translated into a sharp selloff. As the recent euphoria comes back to earth, the million dollar question is - what kind of pullback do we get?

Let's dive in.

Overview

ASX 200, All Ords and All Tech intraday overview

Markets

• All 11 sectors declined

• Defensives including Health Care, Telcos, Utilities and Staples were relative outperformers

• Growth-heavy sectors underperformed

• 74% of the top 200 declined

• 70% of the top 500 declined

Stocks

• Ooh! Media (ASX: OML) +8.5% said it delivered "continued momentum across key formats with Road, Retail & Street Furniture all performing strongly." OML posted $6.1m in half-year FY22 profits versus -$9.3m a year ago

• NIB Holdings (ASX: NHF) +7.0% announced a strong FY22 result with underlying operating profit up 14.8%

  • “Our Australian Residents Health Insurance business grew 3.2%, well above what we expect the industry will report. Premium revenue rose 5.2% to $2,286.2 million, even though we deferred the 2022 annual premium increase. Our final quarter of FY22 was particularly good; the best we’ve experienced in seven years,” said Managing Director Mark Fitzgibbon

• EML Payments (ASX: EML) +6.1% posted FY22 revenue growth of 21% but underlying profits fell -1% , largely reflecting increased investment in the company's European operations

  • EML plans to initiate an on-market share buy-back program of up to $20m on a 12-month basis from 5 September 2022

• Nearmap (ASX: NEA) +5.3% board unanimously recommended Thoma Bravo's $2.10 cash per share takeover offer and entered into a scheme implementation deed

  • A scheme booklet containing detailed information on the scheme, including an independent export's report, is expected to be issued to shareholders in October

• Nick Scali (ASX: NCK) +5.0% FY22 sales rose 18.2% -11.1% weighed by store closures and Chinese lockdowns which impacted delivery volumes in the fourth quarter. Nick Scali expects sales revenue in H1 FY23 to "be materially above the previous year"

• Ampol (ASX: ALD) +2.3% posted record first-half profits of $695.9m, up 114% compared to a year ago. The company noted 'unprecedented' strength in Lytton refiner margins

• New Hope (ASX: NHC) +1.0% posted unaudited FY22 EBITDA of approximately $1.56bn and a closing cash position of $815m. The company has a market cap of ~$4.2bn

• Adairs (ASX: ADH) -13.7% reported a -30% decline in EBIT as a result of covid-related issues, including the loss of approximately 16% of its total store trading days due to government mandated store closures. Group like-for-like sales was -3.3% compared to the company's FY18-21 average of 12.98%

• Adbri (ASX: ABC) -16.9% underlying FY22 profits fell -1.3%, impacted by operational challenges associated with extreme wet weather on the east coast. Price rises were unable to offset the impact of inflation and weather

Economy

• China cut its one-year loan prime rate by 5 bps to 3.65%

• China cut its five-year loan prime rate by 15 bps to 4.30%

  • Interesting line from Bloomberg: “Sentiment toward China’s frayed financial markets looks to be on its last legs, with rebounds that don’t last, inflows that don’t stick and vows of more action from Beijing that keep falling flat."

Commodities

• Iron ore futures on China's Dalian Commodity Exchange rose 1.8%

  • Chinese iron ore port inventories rose for an eighth consecutive week, up 600,000 tonnes to 139.2m

Scans

Latest news

Charts

Index

S&P/ASX 200: Big red candle that sliced through the 200-day moving average. Things are starting to get volatile. The ASX 200 is still 0.7% above its 20-day moving average. In the event of a pullback, will it be orderly or will it be something like the ones we saw in May and June?

ASX 200 chart (Source: TradingView, Annotations by Market Index)

S&P/ASX 200 Info Tech: Down -6.1% since 9 August. Starting to see weakness in risk sectors. When risk sectors were underperforming earlier this year, in parallel with rising bond yields, there were a lot of headlines/commentary about a rotation into defensives. Is this something we see again? (No chart by the way)

S&P/Consumer Staples: Recent run up gives it a bit more cushion for losses.

ASX 200 Staples Index chart (Source: TradingView, Annotations by Market Index)

Stocks and sectors

Large cap lithium: Crazy to see Pilbara Minerals (ASX: PLS) rally 7.8% off session lows to close 3.9% higher. The company is expected to report its earnings tomorrow. Chilean lithium giant SQM posted a second quarter profits of US$859.3m compared to $89.8m a year earlier. So a big profit is expected for Pilbara Minerals. Other large cap lithium names like Mineral Resources (ASX: MIN), Allkem (ASX: AKE) and Liontown (ASX: LTR) also managed to close green.

Pilbara Minerals price chart (Source: TradingView, Annotations by Market Index)

Still thinking lithium: Small cap and explorer lithium names underperformed their large cap peers. Some names are pulling back to key moving averages and support areas. Anson Resources (ASX: ASN) one of the more left-field charts breaking out on massive volumes.

Anson price chart (Source: TradingView, Annotations by Market Index)

Coal stocks: Continue to power ahead. Whitehaven Coal (ASX: WHC) hits an all-time high. New Hope (ASX: NHC) sitting at 10-year highs. They're very extended from the 20-day moving average. But still interesting to watch these companies rally as they pump out >30% FCF.

What to look out for this week

What kind of pullback: I might sound like a bit of a broken record but ... the ASX 200 has witnessed an ~11% rally from June lows. We've seen longer-term moving averages like the 100 and 200-day start to flatten, showing some signs of life for the damaged trend. As the market naturally takes a breather from a massive run up, investors should note how it pulls back.

China trying to help: China cut rates again which helped a lot of resource names bounce from session lows. Still, we've seen heaps of headlines and moves from China to try and revive its economy. And still, economic data (e.g. last weeks retail sales, industrial production and fixed asset investment missed expectations) is underwhelming. Is more on the cards?

Jackson Hole Preview: Bank of America expects Fed Chair Powell to emphasise the Fed's commitment to restoring price stability. "We expect Chair Powell to indicate that a slower pace of rate hikes will likely be appropriate at some point. The risk-reward for rate hikes shifts once policy becomes restrictive given lags between changes in monetary policy and economic outcomes ... Powell is likely to communicate that the committee continues to believe a restrictive policy setting remains appropriate ... We expect the Fed to push back against any notion of a quick pivot to rate cuts."