Evening Wrap: Powell pumps ASX 200 to seven-month high led by iron ore miners

The S&P/ASX 200 closed 70 points higher, up 0.96%.

The local sharemarket rallies to a seven month high after Fed Chair Powell signalled a potential pause in rate hikes, a weaker US dollar powered miners higher, China considers easing lockdowns, Australian manufacturing activity fell into contraction and Domino's Pizza kicks off a $150 million capital raising. 

Let's dive in.

Markets

The ASX 200 rallied to a seven month high thanks to Powell's comments about a potential pivot 'as soon as the December meeting'. The dovish speech caused the US dollar index to fall below its 200-day moving average for the first time since last September, sending commodity prices higher.

• Materials led to the upside as iron ore heavyweights BHP, Rio Tinto and Fortescue rallied between 2-3%

• Interest rate sensitive sectors like Utilities and Real Estate rallied as bond yields eased

• Growth heavy sectors like Discretionary and Tech traded in-line with the broader market

• Defensive sectors like Staples, Industrials and Healthcare underperformed benchmarks

• Energy was the odd one out after Woodside shares fell around -2% after holding its Annual General Meeting

• 144 of the top 200 advanced (72%)

Economy

Australia's manufacturing index fell to 44.7 in November from 49.6 in October.

• "Manufacturing fell into contraction in November following three months of stability. Five of the six sectors in the PMI are now in contraction, as are six of the seven activity indicators." - Australian Industry Group

• "Demand-side conditions have deteriorated in the face of national and global economic uncertainty. Production, new orders and sales were all significantly down in November."

• "Supply-side pressures on manufacturing – tight labour markets and supply chain interruptions – appear to have peaked. But these pressures are yet to materially decline, and remain well elevated on long-run trend."

Korean exports fell -14% year-on-year in November from -5.7% in October.

• Below analyst expectations of an -11% decline

• "By export items, automobiles (31.0%), petroleum (26.0%), and batteries (0.5%) grew, while semiconductors (-29.8%), and petrochemicals (-26.5%) dropped sharply." - ING

• "China's lockdown itself should work against Korea's exports, but what's more worrisome is that the final demand for IT seems to be falling very quickly."

China's Caixin Manufacturing Index was stable at 49.4 in November from 49.2 in October.

• "It appears as though smaller manufacturers did not suffer as badly as had been expected by the consensus, which had forecast an index of 48.9." - ING

Commodities 

“Signs of less stringent virus restrictions in China boosted sentiment further across commodity markets. That was aided by weaker USD,” said ANZ senior commodity analyst, Daniel Hynes. 

• Newcastle coal futures +2.9% to US$398.5/t

• Iron ore futures +0.65% to US$100.8

Latest news

Post market brief

The ASX 200 continues to power ahead, showing very few signs of weakness and only brief periods of consolidation in the past few weeks.

XJO chart (Source: TradingView)

Do we have all the ingredients we need for a classic Santa Rally? Powell's said it "makes sense to moderate the pace of our rate increases" which may "come as soon as the December meeting", China is beginning to shift its stance on covid zero and the global economy, while slowing, is still holding up relatively well. The Atlanta Fed's GDPNow model currently estimates Q4 GDP to be 4.3%. If this is a recession, it's a rather strong one.

The relentless strength of the market feels like a lockout rally, with very few pauses and pullbacks to let idled investors back into the market.

The ASX 200 is now down just -3.1% year-to-date. Let's see if the rally's rally rally has more legs to run.

Major announcements

Large caps (>$1bn)

• Dalrymple Bay Infrastructure (DBI) +2.0% announced a third-quarter distribution of 5.025 cents per share, up 10% on the second quarter payout 

• Centuria Industrial REIT (CIP) +0.5% announced the settlement of 30 Clay Place, Eastern Creek NSW for $34.5m. Proceeds will be used to repay debt  

• Cochlear (COH) -0.2% provided a statement for ACCC’s investigation into the company’s acquisition of Oticon Medical. The ACCC said its provisional final decision date will be on 16 March 2023 

• Downer (DOW) -2.90% announced the retirement of its CEO, Grant Fenn from February 2023. Current COO Peter Tompkins will take the reins 

Mid-to-small caps

• Magnis Energy (MNS) +2.7% confirmed media speculation that HSBC will assist in its funding requirements for the expansion of its lithium-ion battery plant in the US

• SRG Global (SRG) +1.5% completed the acquisition of Barterk, an Engineered Products Business for $2.6m     

Trading halt

• Dominos Pizza (DMP) seeks to raise $150m at $65.05 per share, a 2.0% discount to its last close.The company reaffirmed its FY23 guidance and said its new Asian markets were trading in-line with expectations 

Broker updates 

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