The Match Out: ASX treads water to start the week

Markets @ Midday: Market Matters Midday update with Harry Watt – Listen Here

A lackluster way to start the week with the market chopping around in a tight 27pt trading range as strength in Energy & Property was offset by weakness amongst the Resources, particularly the Lithium stocks that got the jitters after a new Chinese Lithium Futures product was met by a barrage of selling…

• The S&P/ASX 200 lost -7pts points / -0.10% to close at 7306
• Energy (+2.20%), Real-Estate (+0.91%) & Communications (+0.78%) the pick of the bunch.
• Materials (-1.41%), Staples (-0.34%) and IT (-1.45%) the biggest drags.
• Core Lithium (ASX: CXO) -17.24% hit today after saying they would produce 90-100k tonnes of Spodumene in FY24 (largely inline with expectations) however their FY25 guidance was weak as they flagged capacity constraints at their processing plant. In a recent Resource Webinar (here) we discussed the complexities in producing Lithium and this is an example of that playing out.
• They chose a bad day to come out with negative news with Lithium prices on the skids – China has launched a new Lithium Futures Exchange that traded limit down when it launched on Friday. We’ll have more in this once our Chinese interpreter goes through the finer details!
• Other Lithium stocks were also lower, Pilbara (ASX: PLS) -5.75%, Allkem (ASX: AKE) -5.58%, Mineral Resources (ASX: MIN) -2.57% and Global Lithium (ASX: GL1) -6.98%
• Energy stocks had a strong day - Coal companies were generally bullish with Whitehaven (ASX: WHC) +3.14%, Bowen Coking Coal (ASX: BCB) +3.57% & New Hope (ASX: NHC) +3.65% while Woodside (ASX: WDS) +2.34% looks to have broken out of its range.
• Signs growing that demand is starting to overcome supply in energy markets should be bullish – for our updated views on the coal stocks see last week’s note on the topic here.
• South32 (ASX: S32) -2.62% fell after writing down the value of its proposed Hermosa project in the US to the tune of US$1.3bn.
• Monadelphous (ASX: MND) -4.73% lost ground after JP Morgan downgraded to Neutral….lots of other broker moves out today which are listed below.
• Lots of Central Bank action this week including….
• The Fed is expected to hike rates to 5.25%-5.5% on Wednesday, their highest level in 22 years. The decision will be closely followed by a statement by Jerome Powell.
• The ECB is expected to hike rates by 0.25% on Thursday with the most attention resting on Lagarde’s plans beyond July i.e. is the ECB approaching the end of the most aggressive tightening cycle in its 25-year history?
• The BOJ is not expected to pivot towards tighter monetary policy with no changes expected on Friday, interest rates around zero are a distant memory in Australia.
• Inflation data due out in Australia on Wednesday which will go a long way in determining whether or not the RBA pause - currently, the probability of a hike is sitting at 45%.
• Iron Ore was up a touch in Asia, but nothing dramatic.
• Gold was flat at $US1960 at our close
• Asian stocks were mixed, Hang Seng off -2.3%, the Nikkei in Japan added +1.1%, while China lost -0.61%
• US Futures are flat – stocks we own in our International Equities Portfolio reporting this week include Microsoft (MSFT US), First Solar (FLSR US), Peabody Energy (BTU US), Brunswick (BC US) & Chipotle (CMG US).

ASX 200 Chart

Bowen Coking Coal (ASX: BCB)

BCB +3.57%: the Queensland coal company rallied today in line with peers, though they also released their June quarter production numbers late in the day. Operationally they’ve shown an improvement with Run-of-mine (ROM) numbers up 27.3% on pcp, though they only managed a 15% increase in coal sales. This has constrained cash flow for the company which should be seeing a greater benefit from higher coal prices but instead has seen stockpiles grow 85% on pcp. The good news is that $31.4m in sales have been booked for this month with four ships of Bowen Coal hitting the seas in June. 199kt of coal was shipped in total for the month, a rate they are aiming to maintain for the current quarter which would put them well ahead of expectations. Bowen recently raised money to fund the continued ramp-up of their processing plant along with other growth projects.

Broker Moves

• Northern Star Cut to Hold at Ord Minnett; PT A$12.30
• Ingenia Raised to Overweight at Jarden Securities; PT A$4.40
• Aurizon Cut to Neutral at Jarden Securities; PT A$3.70
• Centuria Capital Cut to Neutral at Jarden Securities; PT A$1.80
• Centuria Industrial Raised to Neutral at Jarden Securities
• Abacus Property Cut to Neutral at Jarden Securities; PT A$2.85
• Adbri Cut to Underweight at JPMorgan; PT A$2.20
• Accent Group Cut to Sell at CLSA; PT A$1.50
• Premier Investments Cut to Sell at CLSA; PT A$19
• Myer Raised to Reduce at CLSA; PT 65 Australian cents
• Harvey Norman Cut to Sell at CLSA; PT A$3.30
• Breville Cut to Sell at CLSA; PT A$18.50
• JB Hi-Fi Cut to Reduce at CLSA; PT A$45
• CSR Raised to Reduce at CLSA; PT A$5.30
• Boral Raised to Reduce at CLSA; PT A$4.30
• Wesfarmers Raised to Buy at CLSA; PT A$57.10
• REA Group Raised to Reduce at CLSA; PT A$153
• Carsales.com Raised to Buy at CLSA; PT A$29
• Woolworths Group Cut to Reduce at CLSA; PT A$40.50
• James Hardie GDRs Raised to Accumulate at CLSA; PT A$45
• Monadelphous Cut to Neutral at JPMorgan; PT A$13

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