Evening Wrap: ASX 200 tumbles, lithium stocks smashed +RBA keeps rates on hold

The S&P/ASX 200 closed 63 points lower, down -0.89%. 

The ASX 200 marks its biggest fall in six weeks following a weak lead from Wall Street, lithium stocks continue to spiral lower as Chinese spot prices hit limit down of more than 7%, gold stocks tumble after the 'fakeout' to all-time highs, the RBA kept rates unchanged at 4.35% but Governor Bullock warns of more potential hikes and ABARES forecasts a chunky drop in Australian agricultural exports.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower, finished near worst levels (Source: Market Index)

Markets

Hi, Kerry here. Carl is off today so you're stuck with me.

The ASX 200 finished lower and near worst levels on Tuesday. It was a pretty heavy session where a lot of yesterday's winners like Materials, Real Estate and Discretionary gave back their gains. For most of this year, I've been stressing about the importance of a calm and orderly pullback – To which we have seen very few, if any. We need to see volatility ease and buyers step up in the coming sessions or we end up with an all too familiar 'staircase up and elevator down' scenario. In terms of sector specific things:

• Lithium stocks sold off around 3-10% after the most active lithium carbonate futures in China tumbled another 7% to limit down on Wednesday to around 93,000 yuan a tonne. A household name like Pilbara Minerals finished the session down 8.5% to levels not seen since August 2022

• Gold stocks experienced a broad-based selloff after the fakeout on Monday, where prices for the commodity briefly hit an all-time high of US$2,146 before falling around 5.5% to close the session at US$2,030

• Energy stocks continued to slide, led by Woodside (-2.7%), which closed at its lowest level since June 2022. Oil markets remain skeptical on whether or not OPEC will be able to pass on its new supply cutbacks

• Utilities was one of few green sectors after only 69% of Origin Energy (+2.2%) shareholders voted for Brookfield's renewables proposal. But peers AGL Energy (-1.9%) continued to fall, now down 14 out of the last 15 sessions

Economy

The RBA kept interest rates unchanged at 4.35%, in-line with market expectations. Here are some of the key takeaways from Governor Michele Bullock’s statement: 

• Justifying the previous hike:  “Last month, the Board increased interest rates by 25 bps, following a period of four months where it had held interest rates steady. This decision reflected the Board’s view that progress in bringing inflation back to the target range of 2 to 3 per cent was looking slower than earlier forecast.”

• Stick services: “The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation.”

• Waiting for data: “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

Latest news

ABARES Agriculture Overview

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) published its December quarter agricultural overview and crop report on Tuesday.

It provides an important read through for names like:

• Australian Agricultural Company (ASX: AAC)

• Elders (ASX: ELD)

• Graincorp (ASX: GNC)

• Nufarm (ASX: NUF)

Here are the key takeaways:

• The value of agricultural production is forecast to fall 17% to $78 billion in 2023-24

• Expect drier conditions which will cause crop production to fall from record levels reached in 2022-23

• Global prices for most commodities is expected to fall in 2023-24 as more supply comes online

• Lower domestic production and global prices forecast to reduce export values by 14% to $67bn in 2023-224

This might sound bad but most companies have already flagged for such outcomes and most of the above names are down around 10-20% year-to-date (except Graincorp).

Life360's CEO Selldown

Life360 (ASX: 360) has been a strong trender since April and up around 56% year-to-date. The company operates a platform that helps track and protect family members, pets and things they are about. It's got a massive growth runway (Q3 2023 revenues up 37% year-on-year to $78.6 million and recently hit cash flow positive) but now it's hit a bit of a wall.

• The Q3 earnings call noted expectations that Q4 will be slower than Q3 due to seasonality and potential pull forward effects seen in Q3

• Co-founder and CEO Chris Hulls sold a small percentage of his shares, equivalent to $4 million to cover tax obligations. He revealed plans to sell more shares and transfer additional ones into trusts for family members

"I plan to slowly diversify my holdings over the next five years in-line with US market norms, where founders with significant concentration in their companies regularly implement conservative diversification plans," said Hulls.

Life360 chart (Source: Market Index)

Interesting news and movers

Trading higher

• +5.6%  Tower (TWR) – Undertaking Strategic Review (Mon)

• +2.2% Origin Energy (ORG) – Holders reject takeover proposal (Mon)

Trading lower

• -22.2% Mesoblast (MSB) – Completes placement 

• -2.3% Cyclopharm (CYC) – First commercial contract for Technegas

Broker notes

Broker notes are taking a break today.

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