Evening Wrap: ASX 200 tumbles to six-month low + RBA pauses for a fourth straight month

The Index cuts through the key 7,000 level to close at levels not seen since March, yield sensitive sectors like Utilities and Real Estate sell off sharply, the RBA keeps interest rates on hold at 4.1%, a small cap battery recycler fails to materials an offtake agreement with a major Chinese buyer and Leo Lithium shares are suspended (again).

Let's dive in.

ASX 200 Session Chart

ASX 200 lower and finished not far off worst levels (Source: Market Index)

Markets

The ASX 200 sold off sharply on Tuesday and finished a little off worst levels. The RBA decision was a rather non-event for markets as everyone (literally everyone) expected a pause with some hawkish remarks. Sector performance was largely in-line with how the US market performed, notably:

• Energy was the worst performing sector as oil prices continued to pull in from recent highs. WTI crude is down 6.1% in the last four sessions to a near 1-month low

• Utilities continued to sell off as bond yields continued to climb. A little bit better than the 4.7% selloff for the S&P 500 Utilities sector which hit levels not seen since March 2020

• Real Estate is another interest rate sensitive sector to cop a sharp selloff, down to levels not seen since October 2022

• Materials experienced some pretty broad-based weakness as commodities such as copper and gold sold off overnight and the US Dollar Index extended gains to an 11-month high (its currently on a 12-week winning streak)

The market remains in a fragile place where its technically oversold but the upward trending US 10-year yield continues to keep any meaningful comeback at bay. We've tumbled below the key 7,000 level and approaching both the 6,900 and March low.

Economy

The RBA has kept interest rates unchanged for a fourth consecutive month, in-line with consensus expectations. Here are the key comments from the RBA statement:

• Inflation still too high: “Inflation in Australia has passed its peak but is still too high and will remain so for some time yet … The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025.”

• Unemployment to tick up: “Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4½ per cent late next year.”

• A hawkish pause: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”

New loan commitments for Australian housing rose 2.2% month-on-month to $24.8bn in August but remains down 9.4% compared to a year ago.

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Industrial Metals Take a Hit

Industrial metal prices like aluminium and copper are experiencing a slow grind down towards year-to-date lows. There's plenty of reasons to be bearish: Fed's higher-for-longer mantra, soaring US dollar and bond yields, China's housing market slump and ongoing Evergrande drama. We're starting to see a thing or two materialise for local companies.

Aluminium (green), copper (blue) and nickel (orange) (Source: TradingView)

NeoMetals (ASX: NMT) operates a few battery metals and recycling-related projects, including the Barrambie vanadium and titanium project in WA. On Tuesday, it announced that:

• "Its wholly owned subsidiary Australian Titanium has been unable to advance from offtake term sheet to binding take or pay offtake agreement with Jiuxing."

• "Regrettably, the broader macroeconomic backdrop has required Jiuxing to adjust its production plans and shelve further Barrambie related activities."

Oh Africa

Shares in Leo Lithium (ASX: LLL) marked its second suspension from quotation in less than three months. This time, the company says its in relation to "correspondence from the government of Mali and the application of the 2023 Mining Code to the Goulamina Lithium Project."

Back in May, I had a look at which ASX-listed lithium stock presents the best value based on two factors: Mineral resource and market cap. Unsurprisingly, Leo Lithium presented the best value, with a resource comparable to Liontown's Kathleen Valley but at almost a quarter of the valuation.

The stock managed to close some of the gap after rallying more than 150% between late April and early July amid a series of upbeat announcements (drill results, resource upgrade, strategic placement at a premium etc.)

Leo Lithium chart (Source: Market Index)

But one day, you wake up and the Mali Government says "we're suspending direct shipping ore operations," and the stock more than halves.

That's just the game you play when investing in Africa.

Interesting news and movers

Trading higher

• +4.8% Galan Lithium (GLN) – HMV Project Phase 2 DFS

Trading lower

• -15.6% Carbon Revolution (CBR) – Further delay of TRCA shareholder meeting

• -10.3% Jervois Global (JRV) – Commences US cobalt refinery BFS

• -7.7% Appen (APX) – Updates on earn out liability of Quadrant Global (Mon)

• -7.7% Delta Lithium (DLI) – MRE update

• -5.3% Cromwell Property Group (CMW) – CFO steps down

Broker notes

Broker notes are taking a break today.

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