Evening Wrap: BHP, Rio Tinto and Fortescue power the ASX 200 higher

The Index finishes the week up 1.7% and above its 200-day moving average, resource stocks rallied on China stimulus and better-than-expected economic data, UBS is bullish on coal miners and why the market's in a bit of a bullish dilemma.

Let's dive in.

ASX 200 Session Chart

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

Markets

The ASX 200 rallied and finished off session highs of 1.85%. Every sector finished higher, led by growth and resources. The local market is feeling the kick from the the Arm IPO (which closed almost 25% higher from its offer price) as well as more stimulus and positive economic data out of China.

We've seen a strong response from the resource space, with outsized gains from Fortescue (+4.0%), BHP (+3.5%), Rio Tinto (+3.0%) and Sandfire (+3.3%) Resources. It was interesting to see Woodside (+1.4%) fade from session highs of 2.4%.

Economy

China’s slew of economic data was largely ahead of expectations in August:

• House price index down 0.1% year-on-year 

• Industrial production up 4.5% vs. 3.9% expected

• Retail sales up 4.6% vs. 3.0% expected

• Fixed asset investment up 3.2% vs. 3.3% expected

• Unemployment rate eased to 5.2% from 5.3% July

Latest news

A Bullish Dilemma

The ASX 200 has pushed from its recent 7,150 to 7,200 trading range and above the trendline noted in the chart below.

ASX 200 daily chart (Source: TradingView)

The market is finding some strength amid:

• More China stimulus (and forgetting about its credit crisis)

• Arm IPO was 12 times oversubscribed (reflecting strong risk appetite)

• As well as recent filings from names like Instacart, Birkenstock and Klaviyo, all of which are projected to have multi-billion dollar valuations

If we look at how the market's performed in the past year, it's had the tendency to rally hard but fall just as hard. We're seeing a bit of momentum now, but the question is, how long can it last amid:

• Bond yields: A benchmark like the US 2-year has been sitting around the 5.0% level for the past few weeks

US 2-year Treasury Yield (Source: TradingView)

• Oil prices: Oil prices are back above US$90 a barrel. What will that mean for consumers and inflation? Us headline inflation accelerated to 3.7% in August from 3.2% in July mostly due to a 5.6% month-on-month uptick in energy prices

Interesting news and movers

Trading higher

• +17.7% Sezzle (SZL) – Resumes Nasdaq trading (Thu)

• +9.2% Develop Global (DVP)

• +8.9% Australia Ethical (AEF)

• +5.3% Polynovo (PNV)

• +5.1% Bigtincan (BTH) – Reduce Opex

• +4.8% Stanmore Resources (SMR)

• +3.2% Iluka Resources (ILU)

• +3.3% Adbri (ABC)

• +3.3%  Pinnacle Investment Management (PNI)

• Iron ore sector move: Champion Iron (+5.9%), Fortescue (+4.0%), BHP (+3.5%), Rio Tinto (+3.0%)

Trading lower

• -26.7% Brockman Mining (BCK)

• -5.2% Ainsworth Gaming (AGI)

• -4.0% Duratec (DUR)

Broker notes

UBS on coal:

• “Met coal prices are up >20% 1mth to US$312/t amid soft Q3-CY23 seaborne shipments and China stimulus expectations.”

• “Australian coal exports in Jul/Aug-23 were 32.5/28.7Mt respectively, with Aug-23 a seasonal 11-year low, driven in part by maintenance across the sector and weakness post FY23.”

• “Drier weather conditions across Australia and Q4 being a seasonally stronger period for shipments could pressure prices lower.”

• “We remain positive coal miners and CRN (Buy rated A$1.90/sh) remains our preferred exposure with strong leverage to higher met coal prices.”

Scans