Market Wraps

Morning Wrap: ASX 200 to bounce, Barclays says buy the AI dip + Macquarie's 6 favourite resource stocks

Tue 27 Jun 23, 8:20am (AEST)

ASX 200 futures are trading 20 points higher, up 0.28% as of 8:20 am AEST.

US equities continued to ease with the S&P 500 lower and closing at worst levels. Investment banks are downgrading tech stocks like Tesla and Alphabet on valuation grounds, Buffett's Berkshire sells US$86.3m of EV maker BYD, German business sentiment points to a longer recession, Barclays reckons a pullback in AI stocks represents a 'tactical opportunity', Macquarie downgrades its outlook for commodities and why the bottom might be in for the ASX 200.

Let's dive in.

Overnight Summary

Tue 27 Jun 23, 8:20am (AEST)

Name Value Chg %
Major Indices
S&P 500 4,329 -0.45%
Dow Jones 33,715 -0.04%
NASDAQ Comp 13,336 -1.16%
Russell 2000 1,823 +0.09%
Country Indices
Canada 19,587 +0.87%
China 3,151 -1.48%
Germany 15,813 -0.11%
Hong Kong 18,794 -0.51%
India 62,970 -0.01%
Japan 32,699 -0.25%
United Kingdom 7,454 -0.11%
Name Value Chg %
Commodities (USD)
Gold 1,933.20 -0.03%
Iron Ore 112.46 -
Copper 3.779 -0.15%
WTI Oil 69.49 +0.17%
Currency
AUD/USD 0.6676 +0.03%
Cryptocurrency
Bitcoin (AUD) 45,139 -1.17%
Ethereum (AUD) 2,773 -2.51%
Miscellaneous
US 10 Yr T-bond 3.719 -0.53%
VIX 14 +6.03%

US Sectors

Tue 27 Jun 23, 8:20am (AEST)

Sector Chg %
Real Estate +2.21%
Energy +1.71%
Materials +1.00%
Utilities +0.98%
Industrials +0.79%
Consumer Staples +0.03%
Financials -0.20%
Health Care -0.60%
Information Technology -1.03%
Consumer Discretionary -1.25%
Communication Services -1.88%

S&P 500 SESSION CHART

S&P 500 intraday
S&P 500 lower and finished at session lows (Source: TradingView)

MARKETS

  • S&P 500 lower and finished at worst levels, led by tech and discretionary stocks

  • Relatively uneventful session after Nasdaq snapped an eight-week winning streak last Friday and the S&P 500 snapped a five-week streak

  • S&P 500 down 2.7% from 16 June peak, still up 3.55% since the end of May

  • Markets have largely ignored the geopolitical uncertainty coming out of Russia – An armed uprising by the Wagner Group which quickly fizzled out with an exile deal

  • Tech stocks slide as traders rein in rate cut bets (Bloomberg)

  • Morgan Stanley’s Wilson says stock risks rarely been higher (Bloomberg)

  • Investors piling into bullish options on expectations rally will continue (Yahoo)

  • Markets brace for more rate hikes as Fed focuses on fighting inflation (Bloomberg)

  • After the buzz, investors are doing their homework on AI (Reuters)

STOCKS

  • EV maker Lucid rallied after saying it will provide powertrain and battery systems to luxury automaker Aston Martin (CNBC)

  • REIT Trust SL Green sold a 49.9% interest in one of its New York City office buildings at a US$2bn valuation, implies positive equity value for the property (Reuters)

  • Tesla was downgraded to Neutral from Buy at Goldman Sachs, noting that the stock is up 108% year-to-date (CNBC)

  • Berkshire Hathaway sells US$86.3 million worth of shares in China’s BYD (Reuters)

  • Alphabet was downgraded to Neutral from Buy at UBS, citing that the stock had limited upside from here and a shift towards AI could weigh on near term earnings (CNBC)

  • Pfizer shares sank after announcing plans to end the development of its experimental obesity and diabetes drug due to potential liver damage (Reuters)

  • Cruiseline operator Carnival tumbled 7.6% despite posting a smaller-than-expected second quarter result plus an upbeat outlook (CNBC)

ECONOMY

  • German business sentiment tumbles further in June (Reuters)

  • Chinese investors wait for stimulus surge before making aggressive bets (Reuters)

  • South Korea may cut 2023 GDP growth forecast as chip sales fail to recover (Bloomberg)

Industry ETFs

Tue 27 Jun 23, 8:20am (AEST)

Description Last Chg %
Commodities
Copper Miners 37.99 +1.60%
Silver 20.9 +1.55%
Steel 62.53 +1.21%
Strategic Metals 81.88 +0.61%
Lithium & Battery Tech 62.7 +0.38%
Gold 178.51 +0.17%
Uranium 21.33 +0.09%
Industrials
Global Jets 20.18 -0.15%
Aerospace & Defense 113.47 -0.16%
Healthcare
Cannabis 6.72 +0.45%
Biotechnology 127.07 -1.11%
Description Last Chg %
Cryptocurrency
Bitcoin 16.97 -2.53%
Renewables
Solar 68.41 +0.54%
CleanTech 14.1 +0.36%
Hydrogen 8.84 -0.56%
Technology
Semiconductor 486.29 +0.32%
Sports Betting/Gaming 16.9279 +0.11%
Video Games/eSports 54.22 +0.04%
FinTech 21.12 -0.24%
Electric Vehicles 24.9 -0.28%
E-commerce 17.79 -0.39%
Robotics & AI 27.76 -0.64%
Cybersecurity 23.43 -0.76%
Cloud Computing 19.14 -1.09%

A new education piece is out about the above ETF list. If you want to learn more about why this list can be helpful (or you just want to suss what the tickers are) read here.

Deeper Dive

I could tell you all about Canadian CPI tonight but that'd bore you to tears. So instead, I've dredged up a couple of my favourite sell-side research notes of late. (Today's Deeper Dive also features some data insights from Kerry)

Barclays on AI

The impact of AI (artificial intelligence) on tech stock valuations is well-worn and written about ad nauseum. What is different about Barclays' recent outlook for AI-linked stocks is how bullish they are on the thematic. In not so many words, they essentially say that any weakness in AI stocks should be a "buy the dip" opportunity.

"We think any retracement would present a tactical opportunity rather than a structural collapse of the trade, because multiples have not risen to historical extremes," analysts wrote last week as part of the investment bank's mid-year outlook.

In their note, they also attached this helpful chart about the number of AI mentions on earnings calls and the sectors where it is occurring the most. Unsurprisingly, everyone's super bullish on it!

Screenshot 2023-06-26 at 10.08.20 am
Source: Barclays

They also put this chart in their outlook, suggesting FY earnings estimates have been upgraded significantly for AI stocks - and that's led to some remarkable increases in share prices. The only problem is that valuations are incredibly expensive, especially among the leading names in this field. Barclays argues that this chart should not throw you off buying the US mega-cap tech stocks given they are better-run and much larger. Just wait for the right valuation.

Screenshot 2023-06-26 at 10.11.14 am
Source: Barclays

Macquarie on iron ore, gold, coal, and base metals

With China cutting its flagship loan prime rate last week, everyone's running into the miners/resources stocks as if it were a hotcakes run at Maccas. But Macquarie has a warning for all those who are experiencing some Beijing-sparked FOMO - the good times probably won't last.

"Near-term price forecasts have largely been downgraded, particularly for bulk commodities and base metals," analysts wrote.

"Key earnings changes are near-term downgrades to coal miners and medium term upgrades to uranium plays."

This is especially true, they say, for zinc and coal stocks. Iron ore stocks may also have a rough time in the short-term while gold stocks could be set to benefit from further increases in the precious metal's price. Given this, they:

  • Downgraded New Hope (ASX: NHC) to an UNDERPERFORM from neutral

  • Their preferred coal play is Coronado Global Resources (ASX: CRN)

  • On expectations of a strengthening in the gold price, they re-iterated their preference for Northern Star (ASX: NST)

  • Upgraded Capricorn Metals (ASX: CMM) to OUTPERFORM from neutral on valuation grounds.

In the bulk metals space, near-term earnings for the Big Three iron ore miners by as much as 20% due to their expectations for lower iron ore prices. They continue to prefer BHP (ASX: BHP). They also noted earnings downgrades may be coming for South32 (ASX: S32) given lower commodity prices for the products in its portfolio. Finally, among the base metals miners, they prefer Sandfire Resources (ASX: SFR).

Is the ASX 200 set to bottom?

The ASX 200 has been smashed in the last four sessions, down 3.8% to a near three month low. On Monday, I looked at the ASX 200's historical performance in June and July. These are my key findings (based on data between June 1992 to March 2023):

  • June is the second worst performing month of the year, down an average 0.68%

  • June 26 has historically marked the seasonal low for the May-June trough

  • June 27-30 historically marks a four-day winning streak where the market is up 0.49%

  • July is the third best performing month of the year, up an average 2.19%

  • This trails December (+3.30%) and April (+3.42%)

  • The ASX 200 has been positive in July 100% of the time in the past ten years (2012-22) and up an average 3.28%

  • If we look at the past twenty years (2002-22), it's been positive 70% of the time and up an average 1.8%

Key Events

ASX corporate actions occurring today:

  • Trading ex-div: Ricegrowers (SGLLV) – $0.40, Fat Prophets Global Property Fund (FFP) – $0.03

  • Dividends paid: TerraCom (TER) – $0.03, Westpac Bank (WBC) – $0.70

  • Listing: None

Economic calendar (AEST):

  • 10:30 pm: Canada Inflation

  • 10:30 pm: US Durable Goods 

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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