Evening Wrap: ASX 200 higher + Macquarie's take on the minimum wage increase

The market continued to bounce thanks to strength across retailers, miners and healthcare stocks, Australian mineral exploration expenditure begins to ease, Macquarie's take on the Fair Work Commission minimum wage decision, Citi believes Appen shares are far too expensive and how does the ASX 200 perform on RBA decision days?

Let's dive in.

ASX 200 Session Chart

ASX 200 higher but closed off session highs (Source: Market Index)

Markets

The ASX 200 rallied thanks to a strong lead from Wall Street and strength across the resource sector. The worry here is if this is the kind of strength that'll fade. And we've seen plenty of that take place in the past few weeks. The RBA's interest rate decision takes place on Tuesday 2:30 pm AEST and consensus expects a pause. But after the hotter-than-expected inflation print last week, will the RBA be forced to hike? Regardless, this is the next major catalyst or focus point for markets. So let's see where we end up tomorrow.

Economy

Australian mineral exploration expenditure rose 0.7% QoQ and 4.0% YoY to $1.03bn in the March quarter.

• Gold exploration recorded the largest fall, down 20.5% QoQ to $285.7 million

• Exploration for new deposits fell 22.2% QoQ to $274.6 million

• Exploration for existing deposits fell 11.2% QoQ to $617.2m

Latest news

Market Insights

ASX 200 on Rate Decision Days

The RBA started its hiking cycle last May, so let's take a look at how the market tends to perform on rate hike days.

2022:

• 3 May -0.42% (larger-than-expected)

• 7 Jun -1.53% (larger-than-expected)

• 5 Jul +0.25% (in-line)

• 2 Aug +0.07% (in-line)

• 6 Sep -0.38% (in-line)

• 4 Oct +3.48% (smaller-than-expected)

• 1 Nov +1.65% (in-line)

• 6 Dec -0.78% (in-line)

2023:

• 7 Feb -0.46% (in-line)

• 7 March: +0.49% (in-line)

• 8 April: +0.18% (in-line)

• 2 May: -0.91% (larger-than-expected)

Averages:

• Larger-than-expected: -0.95%

• In-line: +0.13%

• Smaller-than-expected: +3.48%

Interesting news and movers

Trading higher

• +17.3% Immutep (IMM) – Part C TACTI-002 Phase II Trial data

• +5.0% NRW Holdings (NWH) – Upgraded by Citi

• +2.7% Elders (ELD) – CEO Mark Allison to continue role 

• Iron ore sector move: Fortescue (+3.6%), BHP (+1.7%), Rio (+1.3%)

• Lithium sector move: Global Lithium (+4.4%), Patriot Battery Metals (+4.2%), Core Lithium (+2.3%), Allkem (+2.2%), Pilbara Minerals (+2.0%)

Trading lower

• Gold sector move: Perseus (-2.9%), Bellevue Gold (-1.5%), Newcrest (-1.4%)

• Tech sector move: Xero (-1.8%), Altium (-1.2%), Wisetech (-0.7%)

Broker notes

Macquarie’s take on the Fair Work Commission minimum wage decision:

• “The Fair Work Commission (FWC) has decided to increase award wages by 5.75% and the national minimum wage by 8.65%, effective 1 July.”

• “Staples are better placed to pass through costs, with QSR operators likely to face the most significant margin pressure in our coverage.”

• “We flag that despite these increases, COL, WOW, and EDV are likely best placed to pass on these costs through to the consumer given the staples nature of its products.”

• “QSR operators CKF and DMP, on the other hand, are likely most at risk from these rising costs, as consumers become more price sensitive.”

Citi’s take on Appen:

• Sell with $2.40 target price

• “Gen AI is a tailwind, but at 58x EBITDA upside is more than priced in.”

• “We forecast revenue growth to pick up in FY24e/FY25e (11%/13%) which primarily reflects increased work from large language models (LLMs)/GenerativeAI.”

• “However, Appen’s current crowd advantage could be limited given the fine-tuning and assurance work requires ‘segmented’ or specialized crowd workers (e.g. OpenAI used 40 skilled contractors to fine-tune GPT-3).”

Scans