Wednesday, February 1, 2023
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NAB predicts peak in interest rates is near: ASX up 0.1% at noon

NAB’s monthly business survey shows that the economy is beginning to slow and that inflation passed its peak as of December, reinforcing market expectations that a peak in interest rates is near. Business conditions fell 8 points to be up 12 index points, with trading, profitability and employment down. Confidence rose 3 points to be down 1 index points, but remained well below average.

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In addition, Citi has stated that Australian shares are “well positioned” for 2023 in a global context and sees Australia as more attractive than usual relative to other regions given its defensive earnings and exposure to sectors benefiting from the current thematics such as Financials, Healthcare, and Resources. Citi has a year-end target of 7,400 points for the S&P/ASX 200, based on its EPS growth forecast of 4.8 per cent and PE assumption of 14.5 times.

Overall, at noon, the S&P/ASX 200 is 0.07 per cent or 5 points higher at 7,462.20.

The SPI futures are pointing to a rise of 3 points.

Best and worst performers

The best-performing sector is REITs, up 1.07 per cent. The worst-performing sector is Health Care, down 1.11 per cent.

The best-performing large cap is Mineral Resources (ASX:MIN), trading 4.54 per cent higher at $95.60. It is followed by shares in IGO (ASX:IGO) and South32 (ASX:S32).

The worst-performing large cap is Cochlear (ASX:COH), trading 3.26 per cent lower at $201.90. It is followed by shares in Qantas Airways (ASX:QAN) and EBOS Group (ASX:EBO).

Asian news

Markets in the Asia-Pacific traded higher as Lunar New Year holidays were observed in most of the region.

The Nikkei 225 rose 1.17 per cent and the Topix gained 0.88 per cent. The Japanese yen continued to trade above 130 against the US dollar for the second consecutive day and last stood at 130.53.

Most sectors higher today with big tech a notable driver

Market breadth was decidedly positive today, though gains were pared in the later afternoon. Growth and value factors saw similar gains. FANMAGs were mostly positive, with NFLX-US adding to its big Friday gains. Autos and suppliers were broadly higher, though TSLA-US was (again) the standout, boosting EVs and lithium/batteries. Barclays upgrades helped semis; semicaps also did well despite the analyst being incrementally more negative. The risk-on atmosphere made for a good day for meme stocks and most-shorted baskets. Retail, banks, trucking, multis, apparel, and HDDs were among the other outperformers. To the downside, there was some weakness among oil services names. HPCs, food, and tobacco were weaker spots in consumer staples. Industrial metals and precious-metals miners were down. Pharma was mostly lower, as was the managed care space. Tower stocks faced some downgrades in REITs. There was also some weakness among airlines, containerboard, telecom, and healthcare distributors.

Technicals, positioning, tech and tightening

No one specific factor behind today’s upside. May be some technical dynamics in play with S&P over key 200-dma (and negative trend line) and Nasdaq more firmly above key 100-dma. Also more talk about depressed positioning forcing some risk-on trades, while buyback blackout window ends on Friday (per Goldman Sachs). Growth/tech outperformance in focus following the upside leadership during Friday’s big rally. Renewed buying interest in megacap tech highlighted by multiple sell-side trading desks in recent days. Cost-cutting/layoff announcements and high-profile activism in tech seem to be generating some positive spin as well. Also a number of notable upgrades in tech today (though downgrades as well). In addition, some talk of a low earnings bar for big tech, most of which reports next week. Elsewhere, no surprises in WSJ (Timiraos) Fed preview with market priced for a further slowdown in the pace of tightening next week and some discussion about a near-term pause. This also plays into the dampened bond volatility theme flagged as supportive for stocks.

Nothing has really changed

Nothing new from a thematic perspective. Bullish talking points revolve around disinflation momentum, another slowdown in pace of Fed tightening, near-term Fed move to the sidelines, select Fed acknowledgement inflation can be cooled without big ramp in unemployment, pickup in soft-landing expectations (via still tight labor market), easing input price, supply chain and FX pressures on corporates, heightened corporate cost-cutting push to protect margins, near-term resumption of corporate buybacks, faster China reopening, more China policy support measures, no European energy crisis, and positioning dynamics. Bearish talking points revolve around higher-for-longer Fed, accompanying policy mistake/hard-landing risk with Fed focus on lagging indicators, divergence between market and Fed on peak rates and rate cuts, liquidity collapse/QT, expectations for further downside to 2023 consensus earnings estimates, pain for high-income consumer (tech layoffs, asset price destruction), valuation, debt ceiling standoff, and lingering geopolitical tensions.

Company news

Chrysos Corporation (ASX:C79) reported a 25 per cent growth in revenue from Q1 FY23 and 104 per cent growth YoY. The company also reported an increase in samples processed by 8 per cent compared to Q1 FY23 and 69 per cent YoY, reflecting a deployed utilization rate of 58 per cent. Shares are currently trading 2.61 per cent higher at $3.45.

Antilles Gold (ASX:AAU) has updated its gold grades at its oxide deposit in Cuba. In addition, negotiations have now commenced to establish a joint venture between subsidiaries of Antilles Gold and the Cuban Government’s mining company, GeoMinera. In response, Mr Brian Johnson, Executive Chairman of Antilles Gold said, “Based on the results from the recent exploration program, the Company is confident that a relatively small, but gold-rich, mine could be developed next year.” Shares are currently trading 15 per cent higher at 4.6 cents.

AusQuest (ASX:AQD) upgraded its iron concentrate to greater than 70 per cent at its project in WA. In response, AusQuest’s Managing Director, Graeme Drew, “Shareholders can look forward to more detailed assessments of the magnetite potential of this project over the coming quarters.”

Melbana Energy (ASX:MAY) provided an update on preparations for its first appraisal well in Block 9 PSC. Melbana Energy’s Executive Chairman, Andrew Purcell, has commented: “The pace of preparations is increasing as we move closer to commencing our first appraisal well.We’re all excited to see how this first formation performs.” Shares are currently trading 13.3 per cent higher at 1.7 cents.

Spenda (ASX:SPX) provided a Quarter 2 fiscal year 2023 report. The figures show strong performance in key leading indicators, including a 33 per cent increase in Invoice Finance loan facilities, 69 per cent increase in the number of transactions processed and a 41 per cent increase in payment volume from the prior quarter. Shares are currently unchanged at 1.5 cents.

Alcore, an 83 per cent-owned subsidiary of ABx Group (ASX:ABX), has received the first installment of a $7.5M grant from the Federal Government’s Modern Manufacturing Initiative (MMI). The funding will be used to support the proposed $16.4M aluminum bath recycling plant at Bell Bay, Tasmania, as well as pilot plant activities on the NSW Central Coast. Shares are trading 3.85 per cent higher at 13.5 cents.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is flat at US$126.65 a tonne.
Iron ore futures are pointing to a 1.76 per cent rise.
One Australian dollar is buying 70.36 US cents.

Peter Milios

Peter Milios is a recent graduate from the University of Technology – majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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