The Match Out: Stocks rally as interest rates cool, Property the main winner

A ‘risk on’ session washed over the ASX today with stocks enjoying a softer inflation read from the US overnight and a subsequent drop in bond yields – markets are pricing out further interest rate hikes, and starting to price in a higher potential for cuts. The market opened well this morning, peaked at midday and while we finished ~20pts off the session highs, all sectors finished higher with over 80% of stocks on the main board in the green.

• The ASX 200 finished up +99pts/ 1.42% at 7105 – a strong move.
• The Property sector was the standout (+4.58%) while IT (3.35%) and Materials (2.42%) also enjoyed strong moves.
• Energy (-0.73%) was the weakest link, and the only sector to finish down.
• At the halfway mark, November is looking a lot better than October, with the ASX 200 now up ~5%, recovering October’s decline and some.
• The sectors that have struggled with rising yields were the key today – property stocks are a sector we’ve been highlighting in recent notes.
• Centuria (ASX: CNI) +11.46%, National Storage (ASX: NSR) +4.74%, Goodman Group (ASX: GMG) +3.43% & Dexus (ASX: DXS) +4.47% all performing well – it has been a while since we said that!
• We lamented underperformance last week across portfolios however, to give some context around portfolio positioning, the Active Growth Portfolio was ~60bps above the index today, up ~2% highlighting our positioning towards the ‘peak rates’ trade.
• While we were early on this positioning, and October was a struggle, things certainly turn quickly in markets.
• Fund Managers have bounced and this is an area that has room to move if the market sustains today’s bullish vibe, Magellan (ASX: MFG) +2.83% is now up ~20% from its recent lows, while others have moved, Regal Partners (ASX: RPL) +8.74% had the best session in a long time - Charlie Aikten has picked a good to join them, Pinnacle (ASX: PNI) +8.78% also rallied nicely. We answered a good question on this sector recently via the Market Matters Q&A portal here, outlining what we like and why.
• Insurance stocks on the other hand were soft, these guys like higher rates, IAG (ASX: IAG) -2.35% & QBE (ASX: QBE) -4.26%
• We met with ANZ (ASX: ANZ) management today following their FY23 results this week. They defended their numbers as you’d expect following a lacklustre reception from analysts who universally downgraded on margin weakness. While CBA (ASX: CBA) is still clearly the best in the sector, ANZ in our view has done a very good job winning market share. As an aside, they didn’t sound too confident about winning Suncorp (ASX: SUN), nor did they seem too concerned if they don’t allay the regulators' concerns. Expect a capital return if they don’t get the nod.
• Seek (ASX: SEK) +6 ripped after re-affirming FY24 guidance at their AGM today.
• Aristocrat Leisure (ASX: ALL) -0.95% a small beat for FY23 but shares edged lower with some underlying softness in their margin outlook.
• SRG Global (ASX: SRG) +2.26% won a total of $200m worth of contracts over~10 different deals continuing their strong start to the year. SRG’s EBITDA guidance of 20% growth looks conservative given the ~$460m in contracts on FYTD. We own.
• Nufarm (ASX: NUF) +8.09% rallied as the crop protection firm saw a small fall in earnings at FY23 results today, but still came in better than expectations. As with Elders, Ag stocks have faced some headwinds, but clearly, Nufarm was too cheap heading into the update.
• Allkem (ASX: AKE) +5.8% was higher after Australia’s foreign investment regulator approved the proposed $16bn merger with Livent, although the whole sector was up, Mineral Resources (ASX: MIN) +4.98% and Pilbara (ASX: PLS) +4.56%.
• Iron ore futures in Singapore touched $US130/mt for the first time since March on improving demand for steel in China.
• Gold was up US$2 in Asia, trading at $US1966/oz at our close.
• Asian stocks rallied, Hong Kong +3% the best of them while the Nikkei in Japan +2.5% and China +0.40% were also solid.
• US Futures have built on overnight gains, up around 0.3%.
• We covered recent updates from two International equity positions this morning, namely The Trade Desk (TTD US) and First Solar (FSLR US) – both have had very volatile periods.

ASX 200 Intraday

ASX 200 Daily

Aristocrat Leisure (ALL) $39.48

ALL -0.95%: FY23 results on first look were in line or better than expected, however, Aristocrat’s shares gave up early gains today as the market got into the nitty gritty of results for the gaming company. Revenue was up 13% to $6.3b and Segment EBITA was up 4% to $2,750m both slightly ahead of consensus. The beat was driven by the Americas gaming segment with both volume and price growth supporting earnings. Still, Group EBITA at $1,808m was in line largely due to higher than expected Design & Development (D&D) spending which was one of the concerns analysts had with the numbers.

Mobile gaming segment Pixel also fell short of expectations largely on higher user acquisition and marketing costs. Both D&D and marketing spending appear stickier than hoped and longer-term margin expectations will likely have to come down as a result. Guidance of earnings growth was provided, but not further specifics, the standard for Aristocrat at full-year results and in line with expectations.

Broker Moves

• Nova Eye Medical Ltd Cut to Neutral at Evans & Partners Pty Ltd
• Aussie Broadband Raised to Overweight at Wilsons; PT A$4.20
• AUB Group Rated New Buy at Ord Minnett; PT A$32.20
• Warehouse NZ Cut to Underperform at Forsyth Barr; PT NZ$1.55
• ALS Raised to Overweight at Barrenjoey; PT A$13.15
• Calidus Raised to Speculative Buy at Canaccord
• Clinuvel Rated New Add at Morgans Financial Limited; PT A$22
• CSL Raised to Buy at Goldman; PT A$309
• Pantoro Raised to Hold at Bell Potter; PT 4 Australian cents
• ALS Raised to Buy at Jefferies; PT A$13.20
• Maas Group Rated New Buy at Jefferies; PT A$4.25

Major Movers Today