Morning Wrap: ASX 200 to rise, small caps surge + NextDC, Flight Centre results

The S&P 500 inched higher amid a relatively quiet session, the Russell 2000 rallied amid strength across sectors like expensive tech and biotech, Bitcoin and Ethereum surge to two-year highs, more household US companies like Expedia and Sony announce job cuts, Apple ditches its plan to develop an electric vehicle, Flight Centre and NextDC among several companies to report half-year results and Australia's monthly CPI indicator is due at 11:30 am AEDT.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 recovers in the last two hours of trade to close slightly higher (Source: TradingView)

ASX TODAY

• Companies reporting today include Enero Group, Flight Centre ,Kelsian Group, NextDC, Perpetual, Steadfast, Spark New Zealand, Worley and more

• Steadfast Group flagged as potential buyer of Allianz Australia’s Hunter Premium Funding business (The Australian)

• Copper Energy upgraded to Overweight from Neutral at Jarden and target increased to $0.19 from $0.15 

• Healius downgraded to Underweight from Neutral at JPMorgan and target cut to $1.00 from $1.30 

• Ingenia Communities downgraded to Neutral from Buy at UBS but target increased to $4.90 to $4.76 

• Polynovo downgraded to Underperform from Outperform at CLSA but target increased to $2.00 from $1.70  

• Woodside resumed Overweight at Morgan Stanley with $34.00 target

MARKETS

• S&P 500 finished higher and near best levels, up from session lows of -0.24%

• Small-cap Russell 2000 outperformed, adding to yesterday's strength. Sectors such as expensive tech, most shorted and biotech were key standouts

• Markets struggled for direction ahead of key US GDP, personal consumption index (the Fed’s preferred inflation measure) and manufacturing data

• Consensus is looking for almost 11% S&P 500 earnings growth in 2024 – This earnings rebound is a key piece of the bullish narrative for stocks

• Barclays raises year-end S&P 500 target to 5,300 from 4,800 citing ongoing inflation normalisation, resilient economy and big tech EPS leadership 

• Global hedge funds selling tech stocks at the highest pace in nearly eight months (Reuters)

• Dollar to remain supported by higher yields and resilient growth (Bloomberg)

• Goldman Sachs CEO Solomon says markets overly optimistic on soft landing (FT)

• BlackRock says high rates, persistent inflation and geopolitical risks offer active managers new opportunities (Bloomberg)

• European private credit rebounds to levels last seen in mid-2022 (Reuters)

• Chinese regulators are prioritising stability for yuan exchange rate (FT)

• Bitcoin and Ether surge to two-year highs, fueled by large-scale buying and upcoming Bitcoin halving event (Reuters)

STOCKS

• Expedia to cut about 1,500 jobs amid moderating travel demand (Reuters)

• Shein considering switching its IPO to London due to hurdles in getting approved by the US SEC (Bloomberg)

• Warner Bros. Discovery, Paramount Global no longer pursuing a merger (CNBC)

• Sony to cut 900 PlayStation employees and close London studio (Reuters)

• Apple scrapping EV project, shifting employees to generative AI projects (Bloomberg)

• Intel planning to deliver up to 100 million AI-enabled PCs by 2025 (Nikkei)

• Klarna working on IPO as soon as Q3, seeking US$20bn valuation (Bloomberg)

CENTRAL BANKS

• Kansas City Fed President Schmid urges patience on cuts as inflation, says 'we are not out of the woods yet' on inflation fight (Bloomberg)

GEOPOLITICS

• Biden says he hopes for Israel-Hamas cease-fire by Monday (NY Times)

• NATO and EU states 'considering sending troops to Ukraine' (FT)

• China tariffs on Australian wine expected to be gone by end of March after trade minister meets with Chinese counterpart (ABC)

ECONOMY

• German consumer confidence stabilises at weak levels (Reuters)

• UK grocery price inflation lowest since March 2022 (Reuters)

• Japan core inflation eases to BOJ's 2% target, lowest since Mar-2022 (Reuters)

Biotech Time?

The SPDR S&P Biotech ETF rallied 5.7% overnight to levels not seen since January 2022. The ETF invests in mostly US-based biotech companies that are generally still in the development and trial phase. If you look at its top holdings – It's filled with companies you've probably never heard of.

Anyway, my point is – The biotech ETF has gone nowhere since the hiking cycle started in early 2022. It's now starting to poke its head to a two-year high. This is a classic scenario where risk assets are pricing in lower rates and beaten down assets, like biotech, are catching a bid.

SPDR S&P Biotech ETF weekly chart (Source: TradingView)

Our above ETF watchlist tracks the iShares Biotechnology ETF. How are the two ETFs different? – iShares tracks some of the world's largest biotech names (e.g. Amgen, Gilead, Moderna etc.) whereas SPDR tracks more speculative and developmental names.

iShares Biotechnology ETF (Source: TradingView)

Woodside Earnings Call Highlights

Woodside (ASX: WDS) delivered an operationally in-line result, with better-than-expected NPAT driven by lower depreciation and amortisation costs. The result was somewhat ugly at face value, with net profit after tax down 74% to $1.66 billion but the company maintained a solid dividend payout ratio of 80%. Woodside finished the session up 0.9%.

Numbers aside, here are some of the nuggets from its 2H23 earnings call.

• Woodside's growth strategy includes expanding its LNG portfolio or deepwater oil projects. The company is comfortable with its current portfolio and is focused on profitably growing the business.

• The company expects Pluto's production profile to ramp back when Scarborough comes online. Pluto has passed the 50% mark but continues to generate significant cash.

• Shenzi represents ~5% of Woodside's production last year. Despite disappointing resource performance from Shenzi North, the company feels it has a good understanding of where Shenzi stands now.

• The impairment charge related to Wheatstone was due to short-term LNG price outlooks. This does not reflect on Wheatstone's underlying performance which remains strong.

• In terms of capital management, Woodside will balance investing for growth, maintaining a strong balance sheet and returning capital back to shareholders. The dividend component currently yields around 3.7%, which could be increased through special dividends or share buybacks.

• Woodside is not currently in discussions with Santos regarding potential mergers or acquisitions but remains open to opportunities that align with their strategic priorities: LNG, deepwater oil and new energy.

ASX corporate actions occurring today:

• Trading ex-div: The Lottery Corp (TLC) – $0.08, Maxiparts (MXI) – $0.026, Ooh!Media (OML) – $0.035, Fortescue (FMG) – $1.08, EVT (EVT) – $0.14, Woolworths (WOW) – $0.47, Telstra (TLS) – $0.09, Beach Energy (BPT) – $0.02, Mitchell Services (MSV) – $0.02, Bell Financial Group (BFG) – $0.04, Mystate (MYS) – $0.115

• Dividends paid: Symbio Holdings (SYM) – $0.35, BWP Trust (BWP) – $0.09 

• Listing: None

Economic calendar (AEDT):

• 11:30 am: Australia Construction Work Done (Q4) 

• 11:30 am: Australia Monthly CPI Indicator

• 12:30 am: US GDP (Q4)