Market Wraps

Morning Wrap: ASX 200 futures higher + Why Macquarie is backing these 7 defensive stocks

Tue 20 Jun 23, 8:31am (AEST)

ASX 200 futures are trading 12 points higher, up 0.16% as of 8:30 am AEST.

European stocks marked their biggest daily drop this month as delays in widely expected Chinese stimulus stoked recession fears, the pound hit a 10-month high versus the euro as investors await British inflation data and a Bank of England hike later this week, RBA Meeting Minutes are due at 11:30 am AEST and broker views on lithium and defensive stocks.

Let's dive in.

Overnight Summary

Tue 20 Jun 23, 8:31am (AEST)

Name Value Chg %
Major Indices
S&P 500 4,410 -0.37%
Dow Jones 34,299 -0.32%
NASDAQ Comp 13,690 -0.68%
Russell 2000 1,875 -0.73%
Country Indices
Canada 19,934 -0.21%
China 3,256 -0.54%
Germany 16,201 -0.96%
Hong Kong 19,913 -0.64%
India 63,168 -0.34%
Japan 33,370 -1.00%
United Kingdom 7,588 -0.71%
Name Value Chg %
Commodities (USD)
Gold 1,963.30 -0.40%
Iron Ore 113.02 -
Copper 3.863 -0.67%
WTI Oil 71.29 -0.68%
Currency
AUD/USD 0.6851 +0.00%
Cryptocurrency
Bitcoin (AUD) 39,046 +1.20%
Ethereum (AUD) 2,530 +0.38%
Miscellaneous
US 10 Yr T-bond 3.769 +1.10%
VIX 14 +4.80%

Note: The US market was closed for Juneteenth National Independence Day.

ASX 200 DAILY CHART

ASX 200 daily chart
ASX 200 is on a six-day winning streak, rallying to 10 week highs (Source: TradingView)

MARKETS

  • ASX 200 futures pointing towards a slightly positive open

  • European stocks fall as healthcare and basic resources weigh (FT)

  • Oil falls on uncertainty about Chinese economic growth (Reuters)

  • Warren Buffett doubles down on Japan, raises stakes in 5 firms (CNBC)

  • ETFs continue to grow in popularity, surpassing US$10tn in assets (FT)

  • JPMorgan says stocks face risks from stalling growth (Bloomberg)

  • Powell in Capitol Hill spotlight this week after rate pause (Bloomberg)

  • Bets for soaring UK rates may unravel over 30 hours (Bloomberg)

  • UK 2-year gilt yield hits 5.0% for the first time since 2008 (Reuters)

STOCKS

  • Germany and Intel agree on US$10.9bn subsidy for chip plant (Bloomberg)

ECONOMY

  • Goldman Sachs cuts China growth forecast as property slowdown bites (FT)

  • China fans stimulus hopes with economic plan for faltering growth (SCMP)

  • PBOC rate cut signals looser policy but more needed to lift growth (Bloomberg)

  • China expected to cut key lending benchmarks on Tuesday (Reuters)


DEEPER DIVE

One for the bulls, and one for the bears

Today's deeper dive features a couple of broker notes. One is for the bulls and one is for the bears (although everything is relative, of course).

For the bulls, I've picked a recent note from Goldman Sachs which argues that a supply-led correction is coming for lithium prices in the near-term. But signs of recovery in the Chinese EV market means that year-end price forecasts will have risen to US$15,000 a tonne from US$11,000 tonne. In this environment, that means a buying signal for the ASX-listed lithium producers."

The Australian lithium sector has continued to outperform global peers with a narrowing multiple discount, where the valuation gap having also narrowed," analysts wrote.

  • Allkem (ASX: AKE) and IGO (ASX: IGO) are BUY-rated

  • Pilbara Minerals (ASX: PLS) and Liontown Resources (ASX: LTR) are both NEUTRAL rated

  • Core Lithium (ASX: CXO) and Mineral Resources (ASX: MIN) remain SELL rated

  • In the case of Pilbara, Liontown, Core Lithium, and MinRes, Goldmans argues that these ratings are hinged on spot prices remaining this high for at least another year - which they argue cannot be the case.

For the bears, I've selected a note from Macquarie Group - appropriately entitled "Don't cut your defense just because of CSL". For this note, the analysts are looking at the recent NAB Business Survey results which they say point to earnings downgrades down the road. They argue that while this risk won't spare any style of stock or investing, cyclicals are at a much greater risk in the upcoming full-year earnings period.

And CSL's recent surprise earnings downgrade only confirms that the lagged effects of rate hikes are providing the dampener on EPS guidance that it's intended to have.

  • "For a downturn in orders, our team's OUTPERFORM-rated defensives in the ASX 100 include AGL (ASX: AGL), Coles (ASX: COL), CSL (ASX: CSL), Endeavour Group (ASX: EDV), ResMed (ASX: RMD), Telstra (ASX: TLS) and Treasury Wine Estates (ASX: TWE). "

  • "UNDERPERFORM-rated stocks in sectors that tend to have downgrades when orders are negative are JB Hi-Fi (ASX: JBH) and REA Group (ASX: REA)."

RBA Minutes: Preview

A very quick word on RBA Meeting Minutes which are out at 11:30 am today. They should not be the most earth-shattering release of all time unless an incredibly hawkish change in words filters through to the page. And the markets have already gotten the new, much higher-for-longer shift in language. I thought Tony Sycamore of IG probably said it best.

"Despite equity market optimism, the rates market isn’t buying into the idea that the Fed has ended its tightening cycle. As recent RBA and BoC meetings showed, a “pause” is only good, if the data that follows cools."

We'll find out how hawkish they (really) feel this morning.

Key Events

ASX corporate actions occurring today:

  • Trading ex-div: Premier Investments (PMV) – $0.70

  • Dividends paid: Amcor (AMC) – $0.18

  • Listing: None

Economic calendar (AEST):

  • 11:30 am: RBA Meeting Minutes

  • 10:30 pm: US  Building Permits

Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

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