Evening Wrap: Pullback for iron ore miners fails to stop ASX 200 marching towards all-time highs

The local sharemarket refuses to take a breather even as heavyweight iron ore miners retreat, CSL hits a 15-month high, demand for new housing loans is down -29% year-on-year, China services bounces into expansion territory for the first time in six months and food for thought for next week.

Let's dive in.

Markets

The ASX 200 is now less than 1% away from all-time highs. Can the market magnet towards that record 7,632 level?

• Healthcare lead to the upside after CSL shares rallied more than 3% to a 15-month high thanks to a positive quarterly update from its Japanese rival Takeda

• Real Estate stocks also rallied as bond yields roll over

• Materials continue to pull back after a massive three month rally. The US Dollar Index also staged a notable bounce overnight, which typically weighs on commodity prices

Economy

New loan commitments for Australian housing fell -4.3% month-on-month in December.

• New loan commitments are now at their lowest level since November 2020

• Year-on-year, new loan commitments are down -29.3%

• Conversely, December witnessed a record high for refinancing activity for both owner-occupiers and investors

• "Borrowers continued to switch lenders for lower interest rates as the RBA’s cash rate target rose." - Sean Crick, ABS Head of Finance and Wealth

Source: ABS

China's services activity jumped to 52.9 in January from 48.0 in the previous month.

• First growth (above 50) since last August thanks to the abrupt end to zero-covid and Lunar New Year activity

Latest news

Post Market Deep Dive

Talking technicals: ASX 200, BHP and Yields

The V-shaped rally just got another V. It's hard to look at such a vertical chart without feeling a bit wheezy. Will the market magnet towards all-time highs or is it too extended? Of note, the 20-day moving average is around -2.0% below current levels.

ASX 200 weekly chart (Source: TradingView)

In previous wraps, we noted how BHP is starting to stall and appear fatigued after a massive reopening inspired rally. Today, it gapped down below the 20-day moving average. A few things to note:

• The ASX 200 managed to rally without the help of BHP

• Iron ore price are still holding up, currently at US$124.05 a tonne

• Can BHP find some support around this $47 level? Or maybe the 50-day (green)

BHP daily chart (Source: TradingView)

From a technical perspective, yields are looking pretty heavy, rolling over from a triple top and into the trendline below.

Australia government bonds 10-year yield (Source: TradingView)

Food for thought next week

• Gold: Gold rallied to 1.1% US$1,950 on Wednesday and then fell -1.9% to US$1,915 on Thursday, resulting in a rather broad-based selloff for gold names today. Can the yellow metal stabilise?

• Iron ore: Heavyweight names like BHP, Rio Tinto and Fortescue are beginning to turn after the massive reopening inspired rally. Is a bounce on the cards for next week or did they run too hard, too fast?

• Lithium: Lithium stocks are trying to stabilise after a rather whipsaw past few weeks. It's been tiresome watching names like Pilbara Minerals and Allkem rip and dip. When will this volatility drop? The only larger cap names that seems to be finding some success is Argosy Minerals.

• Tech: Tech heavyweights like Wisetech and Xero faded pretty hard on Friday, closing the session -2.4% and -0.7% respectively. Tech has shown a rather change in character these past few weeks, so in the event of a pullback, will it be well received?

Interesting news and movers

Trading higher

• +14.8% Weebit Nano (WBT) – Court orders curing delayed release of cleansing notice (Thursday)

• +9.6% Pinnacle Investment Management (PNI) – Upgraded to Add from Hold at Morgans

• +6.4% Argosy Minerals (AGY)

• +5.6% Brainchip (BRN)

• +3.0% CSL (CSL) 

Note strength among REITs with names like Goodman Group (GMG), Stockland (SGP), Mirvac (MGR) up more than 2.5%.

Trading lower 

• -7.0% Paladin Energy (PDN) – Holder Ndovu Capital seeks to sell $91.2m stake

• -5.6% Temple & Webster (TPW)

• -4.9% Adriatic Metals (ADT)

• -4.0% Bega Cheese (BGA) – CEO Paul Van Heerwaarden to resign

• -2.1% Insurance Australia (IAG) – 1H and FY23 guidance update

Note weakness among gold names with Ramelius (RMS), Gold Road (GOR), De Grey Mining (GOR), and Evolution Mining (EVN) down at least 2.5%.

Broker updates 

CSL: “Competitors’ result suggest lg market strengthening” 

• Morgan Stanley: $354.0 target price; Retains Overweight 

• Notes: Japanese multinational pharmaceutical company Takeda posted its 3Q22 results, where immunoglobulin and albumin sales rose 23% and 47% respectively. Morgan Stanley expects CSL’s plasma collections to grow 23% and lg revenue to also rise 23% in FY23.

South 32: Earnings preview

• Macquarie: $4.60 target price; Retains Neutral

• Notes: “We expect S32’s 1HFY23 result to be weaker both YoY and HoH due to softer commodities prices and higher costs in the last six months … The market will be looking for new catalysts.” 

Rio Tinto: Earnings preview

• Macquarie: $125.43 target price; Retains Neutral

• Notes: “We anticipate RIO’s CY22 headline financials to be weaker YoY, as softer commodity prices pertaining to the group’s portfolio have more than offset solid production performance.” Although dividend upside remains due to strong balance sheet, potential special dividend if no acquisitions are planned in the short term.

Treasury Wine: “Another glass? Wine not?”

• Macquarie: $15.50 target price; Retains Outperform

• Notes: “Demand for wine remains strong globally, but we note that channel is shifting from Off Premise to On Premise.” This means that high margin channels such as cellar door and travel are making a comeback but TWE brands outperform in Off Premise. Macquarie expects $1.4bn of revenue and $197m NPAT for the 1H23 result 

Scans