Evening Wrap: Hawkish RBA triggers sharp selloff for ASX 200, coal stocks shine

The local sharemarket tumbled at 2:30 pm AEDT after a hawkish RBA flagged "further increases" over the months ahead, energy and coal stocks outperform the market, retail stocks fall on hard times and a long night for Fed speeches.

Let's dive in.

ASX 200 Session chart

ASX 200 intraday chart (Source: TradingView)

Markets

The RBA hawkish remarks after the interest rate hike triggered a sharp selloff for the ASX 200 from +0.1% at 2:29 pm AEDT to -0.5% shortly after. The market failed to bounce and closed around session lows.

• Energy was the only positive sector but closed well off session highs of 1.33%. Oil prices are up around 2.2% so far this week

• Real Estate tumbled after the Australia 10-year yield jumped 8 bps to 3.6%, now on a three-day winning streak

• Healthcare was heavy thanks to CSL (-1.2%), which was up as much as 5.5% in February

Economy

RBA raised interest rates by another 25 bps to 3.25%, in-line with market expectations. The comments were rather hawkish, including:

• "Given the importance of avoiding a prices-wages spiral, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms."

• "And if high inflation were to become entrenched in people's expectations, it would be very costly to reduce later."

• "The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target."

Also note that over the next two days, we will hear from several Fed policymakers including Powell, Barr, Williams and Waller.

Latest news

Post market brief

Did Lowe just top the market?

The ASX 200 is in the midst of a pullback. We're at a key inflection point where the market will show its true colours: Was January the beginning of a new bull market or a false breakout in the midst of a bear market?

Some sectors of interest:

Coal: Coal stocks experienced a broad-based rally after the Australian Energy Market Operator (AEMO) flagged that supply issues will persist this year. This prompted a 6.8% rally for Newcastle coal futures.

Retail: Plenty of retail stocks under pressure. Nick Scali posted its 1H23 results on Monday, which read well at face value but flagged a pullback in January 2023 orders.

Interesting news and movers

Trading higher

• +7.0% Neometals (NMT)

• +4.8% Weebit Nano (WBT) – Continuation rally, up more 10% in last three

• +2.9% Beach Energy (BPT) – Upgraded to Neutral from Underperform at Macquarie

• +2.7% Red 5 (RED) – Drilling update for King of the Hills Project

• +1.5% Aeris Resources (AIS) – Drilling update at Canbelego

• +1.0% Ridley Corp (RIC) – Initiated Buy at CSLA

• Coal stocks higher: Terracom (+4.9%), Stanmore (+4.0%), Whitehaven Coal (+1.9%) and New Hope (+3.7%)

Trading lower 

• -12.4% ARB (ARB) – Downgraded to Neutral from Outperform at Macquarie

• -6.6 Cettire (CTT) – 1H results

• -5.9% Adairs (ADH)

• -5.6% Centuria Capital (CNI) – 1H results

• -4.4% Nick Scali (NCK) – 1H results (Monday)

• -3.3% Sonic Healthcare (SHL)

Broker updates 

Nick Scali: Interim beat but top-line slowing

• Citi: $15.83 target price; Retains Buy

• Notes: 1H23 net profit of $60.6m was 8% above Citi estimates. Key positives include Plush acquisition synergies, gross margins of 62% were ahead of 61.3% estimates and solid new store rollouts. Negatives include customers deposits down -26% on pcp and -33% on FY22 and operating cash flow of $33m below estimates of $50m

ARB Corp: Downgrade on valuation

• Macquarie: $33.00 target price; Downgrades to Neutral from Outperform

• Notes: 1H21 trading update notes $341m revenue and $64-64.6m profit before tax which is a top line beat but PBT miss, impacted by lower sales volumes. 

DDH1: Earnings beat, outlook remains positive

• Macquarie: $1.15 target price; Retains Outperform

• Notes: Monday’s 1H23 result beat Macquarie’s revenue, EBITDA and net profit expectations. “Outlook remains positive with ‘the fundamentals and macro trends driving long-term demand for DDH’s services remaining compelling’.” 

Insurance Australia: “Stock remains cheap”

• Macquarie: $5.70 target price; Retains Outperform

• Notes: IAG pre-released its 1H23 results last Friday, where margin guidance was lowered and stock fell -2.1%. Macquarie downgraded its FY23 EPS forecasts by -30% to reflect NZ floods. Remains Buy-rated as the “stock remains cheap”

Magellan Financial Group: “Worst may be over”

• Macquarie: $9.15 target price; Retains Neutral

• Notes: February 2023 FUM update noted $0.5bn of outflows. “We think it is likely MFGs has seen the worst of their outflows in $-value terms”. 

Scans