Evening Wrap: ASX 200 slides as rate cut hopes fade, weaker commodities, gold stocks only place to hide

The S&P/ASX 200 closed 72.7 points lower, down 0.87%.

It was a disappointing end to what was until today, shaping up as a potentially watershed week for the S&P/ASX 200. Yesterday's record close, helped by a resurgence in major banking stocks, was for the most part not being impeded by resources stocks.

Sure, resources have been off the boil since their heroics in September, but there was for perhaps the first time this year, a semblance of coordinated prosperity among the two biggest ASX sectors. I can say with confidence: If banks and resources both get going at the same time, the Aussie stock market is going to do some very special things.

But alas, it wasn't meant to be. At least not today!

It was a dour Friday's trade, were losers outnumbered winners by nearly five to one. Interest rate sensitives were hit the hardest, while gold stocks offered the only glimmer among a sea of red.

I'll explain who, what, and why in the main Wrap, so be sure to click/scroll through for the usual reporting of the major sector and stock-specific moves, the broker responses to them, as well as all of the key economic data.

Also, I have detailed technical analysis on the Russell 2000 and Gold in today's ChartWatch.

Let's dive in!

Today in Review

Fri 18 Oct 24, 4:52pm (AEDT)

Markets

ASX 200 Session Chart

The S&P/ASX 200 (XJO) finished 72.7 points lower at 8,283.2, 0.88% from its session high and just 0.26% from its low. In the broader-based S&P/ASX 300 (XKO), advancers lagged decliners by a totally dismal 54 to 231. For the week, the XJO finished up 68.7 points or 0.84% higher, 1.22% from its intraweek high and just 0.84% from its intraweek low.

Much of writing an evening wrap like this is coming up with reasons why stuff happened during the session. Today was a little tricky. It wasn’t a massive fall today on the benchmark, but it was significantly broad-based. Digging a little deeper, the sectors that were hit the hardest each lost over 2%, and several others lost well over 1%. It felt nastier than the headline 0.9% drop – and probably nastier than it should have been given overseas leads.

US stocks were flat and European stocks were up. Asian stocks are mixed – China is up and Japan is down a touch. Iron is recouping a sliver of its losses from yesterday, but yes, other base metals were down 1-2% in London overnight. Oil and gas prices have been subdued all week. Countering these negative leads, the Chinese economic data dump today wasn’t at all terrible (see Economy section below).

It’s all a bit ho-hum until you get to one item – that probably won’t be discussed in any other evening wrap – Aussie bond yields have spiked over the last 24-hours following yesterday’s much stronger than expected employment data.

Australia 2-year Government Bond Yield

The benchmark peg for short term market-based rates in Australia, the 2-year Government Bond Yield, has popped over 10 basis points since the employment data to top 3.9% for the first time since the mini-correction triggered by the carry trade unwind at the start of August. 10 basis points in 24-hours is kind of a big deal. Consider the RBA usually deals in 25 basis point moves – The market just applied nearly half an interest rate hike.

I’ve told you many times here: Bond yields represent the price of money and the price of money impacts the pricing of all other assets (that you might want to use money to buy). In terms of bond yields, it also represents a relatively risk-free return compared to stocks – which are giant balls of risk (oh, no Carl, not my bank stocks and BHP and RIO – they’re not risky!).

Um, yes they are!

When the return on risk free rises to near-on 4% over the next two years…the relative return on risk-assets like stocks doesn’t look as good. In practice, what it means is that some nerd at some big broker or fund manager updates one cell in their big-fancy spreadsheet. Ex-post, valuations on risk-assets in general just notched lower.

But, not all risk assets are created the same. In terms of stocks, there are some that are more sensitive to changes in interest rates than others. These are usually “long duration” stocks, whose future cash flows are more distant than “short duration” stocks. It’s Friday, I don’t want to bore you any more than I already have, but Information Technology (XIJ) (-1.6%) is a classic long duration sector.

Other sectors might naturally use more debt in their business models, like Real Estate Investment Trusts (XPJ) (-2.0%), or are fixed interest proxies, like Utilities (XUJ) (-3.5%). Other sectors might be heavily reliant on the debt levels of customers, like Consumer Discretionary (XDJ) (-1.9%).

And finally, I arrive at my point. Ladies and gentlemen, the worst performing sectors today were: Utilities, Property, Consumer Discretionary, and Information Technology.

Now you know why! 🧐

Commodities-based sectors Resources (XJR) (-1.6%) and Energy (XEJ) (-1.2%) were also pretty lousy as per those falling commodity prices mentioned above.

The best performing sector was the Gold (XGD) (+0.30%) sub-index. Read tonight’s ChartWatch to find out why on that one.

Best👍 & Worst👎 Tables:

Today's best performers

Today's worst performers

ChartWatch

Russell 2000 Index (RUT)

Hope or trust...whichever you prefer...(click here to view full size chart)

The last time we covered the RUT was in ChartWatch in the Evening Wrap on 28 August.

Yes, we haven’t covered this one in a while, but it’s pleasing to see since the last update (just after the rally from 1993 and after the carry trade unwind dip from 2300), that the long term uptrend ribbon continues to quietly and unassumingly do its job – act as a zone of dynamic excess demand.

It’s important that 2058 is higher than 1993 (or any troughs are higher than the previous trough for that matter) as higher troughs indicate demand reinforcement.

We can also see 2170 adds another higher trough, and that 2260 is higher than 2238 to give us broadly rising peaks as well. Rising peaks are a good indicator of supply removal.

Demand reinforcement and supply removal are consistent with a state of excess demand. A state of excess demand is consistent with a rising price.

These are just a few of the basic tenets of economics I base my technical analysis on.

For those who have forgotten, the RUT hosts 2000 smaller capitalisation stocks. Compare this to the S&P 500’s 500 (obviously) large capitalisation stocks, and it is clearly a far broader snapshot of US stocks’ performance. It is, however, less broad than the NASDAQ Composites roughly 4,700 stocks of all shapes and sizes.

The key advantage of the Russell 2000 is not just its breadth, however, it’s the fact that it’s far less dominated by its largest constituents – a problem that other market capitalisation-weighted indices like the S&P500, NASDAQ, and Dow Jones all suffer from. For example, the top 10 RUT stocks account for around 5% of the index’s total market cap compared to around 55% for the NASDAQ. Not a misprint.

The RUT is important because it represents the true heart of corporate America – and therefore by extension – the very core US economic health.

So, moving back to the technicals, I take heart in noting that the RUT trends, price action, and candles all remain skewed to the upside, and that the last few candles in particular, are far superior showings of demand-side control than those witnessed on other major US index counterparts.

2300 remains supply. We’re testing that supply right now. A close above it paves the way for a move back to the all time high for the RUT set way back in November 2021 at 2459 (off the chart above). There’s very little in the way of clear points of supply to get in the way between here and there.

Demand is 2238-2260, but really it is broader, all the way down through the short term uptrend ribbon to 2170.

We’re seeing a few nasty candles about the place in global markets today, so hope / trust (whichever you prefer!), the RUT is telling us the true story of enduring demand-side control.

Gold Futures (Front month, back-adjusted) COMEX

Golden perfection...hey - the chart...not in your pint glass! (click here to view full size chart)

The last time we covered was in ChartWatch in the Evening Wrap on 11 October.

In that update, I said “If there is major top in the gold price in the offing – I can’t see it.”

I’ll keep this short and sweet because it’s Friday and no doubt you’re already a couple of frothies or grapes in…

Ditto.

Demand is at the short term uptrend ribbon and down to the 2618.8 point of demand. The short term uptrend remains intact while the gold price continues to close above both of those. Supply? There isn’t any.

Economy

Today

• 13:00 CHN "Data Dump"

  • GDP September +4.6% p.a. vs +4.6% p.a. forecast and +4.7% p.a. previous ⚖️

  • New home prices September -0.71% m/m and -5.7% p.a. vs -0.73% and -5.3% p.a. in August ⚖️

  • Industrial Production +5.4% p.a. vs +4.6% p.a. forecast and +4.5% p.a. previous ✅

  • Retail Sales +3.2% p.a. vs +2.3% p.a. forecast and +2.8% p.a. previous ✅

  • Fixed Asset Investment +3.4% vs +3.3% year to date vs previous corresponding period ✅

  • Unemployment Rate 5.1% vs 5.3% forecast and 5.3% previous ✅

Later this week

Friday

• 23:30 USA Building Permits September (1.45 million forecast vs 1.48 million August) & Housing Starts September (1.35 million forecast vs 1.36 million August)

Latest News

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Market Wraps

Morning Wrap: ASX 200 to fall, Dow closes at all-time high, Gold at record levels

Fri 18 Oct 24, 8:39am (AEDT)

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More News

Interesting Movers

Trading higher

• +11.4% Lake Resources (LKE) - No idea, no idea at the company either: Price Query response (ASX: Is LKE aware of any information concerning it that has not been announced to the market which, if known by some in the market, could explain the recent trading in its securities? LKE: No, LKE is not aware of any information concerning it that has not been announced to the market, which, if known by some in the market, could explain the recent trading in its securities.)

• +6.7% Talga Group (TLG) - Approval of Mine Exploitation Concession

• +6.1% Ioneer (INR) - No news, just an improving technical picture, it's found itself in ChartWatch Daily Scans Uptrends lists a few times last couple of weeks 🔎📈

• +5.9% Ora Banda Mining (OBM) - Continued positive response to yesterday's September 2024 Quarterly Activities Report…but I note today's rise is consistent with prevailing short and long term uptrends…making it one of the most Featured charts in ChartWatch Daily Scans Uptrends lists 🔎📈

• +4.6% Perpetual (PPT) - First Quarter FY25 Business Update and 2024 AGM Addresses and Presentation, also 2 x ratings upgrades today, 1 x BUY from NEUTRAL at Citi (PT $22.50 from $21.40) and 1 x OVERWEIGHT from NEUTRAL at JP Morgan (PT $23.50 from $22)

• +4.6% Telix Pharmaceuticals (TLX) - Telix Files Form 20-F Registration Statement for Nasdaq ADS, rise is consistent with prevailing short and long term uptrends…another ChartWatch Daily Scans Uptrends lists regular 🔎📈

• +4.4% Westgold Resources (WGX) - No news since 15 Oct Westgold Enhances Leadership Team, rise is consistent with prevailing short and long term uptrends, Feature chart in today's ChartWatch Daily Scans Uptrends list 🔎📈

• +4.1% Clarity Pharmaceuticals (CU6) - No news since 1 Oct Copper-67 SAR-bisPSMA update

• +3.7% Yancoal Australia (YAL) - Quaterly Activities Report, rise is consistent with prevailing short and long term uptrends, bouncing off short and long term uptrend ribbons, has appeared in ChartWatch Daily Scans Uptrends lists several times in last couple of weeks 🔎📈

• +3.2% Mayne Pharma Group (MYX) - Annual Report to shareholders

• +3.1% Catapult Group International (CAT) - No news, rise is consistent with prevailing short and long term uptrends…another ChartWatch Daily Scans Uptrends lists regular 🔎📈

• +2.3% Spartan Resources (SPR) - Continued positive response to yesterday's Quarterly Activities Report, rise is consistent with prevailing short and long term uptrends…another ChartWatch Daily Scans Uptrends lists regular 🔎📈

Trading lower

• -20.4% Flight Centre Travel Group (FLT) - Morgan's Conference Presentation, Including Trading Update

• -9.5% Corporate Travel Management (CTD) - No news, tagged by FLT plunge

• -7.4% Alcoa Corporation (AAI) - Alcoa Corporation Reports Third Quarter 2024 Results

• -6.9% The Star Entertainment Group (SGR) - No news, fall is consistent with prevailing short and long term downtrends…a ChartWatch Daily Scans Downtrends lists regular 🔎📉

• -6.3% APA Group (APA) - No news, fall is consistent with prevailing short and long term downtrends…a ChartWatch Daily Scans Downtrends lists regular 🔎📉

• -6.3% AMP (AMP) - Pullback from yesterday's massive gain post AMP Limited provides Q3 24 cashflows and business update

• -5.9% Cettire (CTT) - No news, generally tough day for interest rate sensitives

• -5.7% Bannerman Energy (BMN) - No news, broad ASX uranium sector decline, nothing specific - U-price was very slightly firmer, bucked trend of generally higher U-stock prices in US overnight

• -5.4% Lovisa (LOV) - No news, ditto tough day for interest rate sensitives

• -4.9% Lotus Resources (LOT) - Ditto uranium

• -4.8% Peninsula Energy (PEN) - Proposed Consolidation of Share Capital

• -4.4% OFX Group (OFX) - Continued negative fallout to yesterday's Update on 1H25 Trading

• -4.4% Temple & Webster Group (TPW) - No news, ditto tough day for interest rate sensitives

• -4.2% Collins Foods (CKF) - No news, ditto tough day for interest rate sensitives

• -4.1% Paladin Energy (PDN) - Ditto uranium

• -4.1% WEB Travel Group (WEB) - Ditto FLT fallout

• -3.6% Deep Yellow (DYL) - Ditto uranium

Broker Notes

• Amaero International (3DA)

  • Retained at buy at Shaw and Partners; Price Target: $0.60

• AIC Mines (A1M)

  • Retained at buy at Ord Minnett; Price Target: $0.60

  • Retained at buy at Shaw and Partners; Price Target: $1.10

• Australian Clinical Labs (ACL)

  • Retained at neutral at Macquarie; Price Target: $2.95

• Actinogen Medical (ACW)

  • Initiated at buy at Moelis Australia; Price Target: $1.38

• AMP (AMP)

  • Downgraded to neutral from buy at Citi; Price Target: $1.70 from $1.45

  • Retained at neutral at Jarden; Price Target: $1.35

  • Retained at buy at Jefferies; Price Target: $1.80 from $1.55

  • Retained at neutral at JP Morgan; Price Target: $1.36

  • Retained at overweight at Morgan Stanley; Price Target: $1.48

  • Downgraded to hold from accumulate at Ord Minnett; Price Target: $1.55

  • Retained at sell at UBS; Price Target: $1.20 from $1.07

• ANZ Group (ANZ)

  • Retained at underperform at Macquarie; Price Target: $26.50

• Eagers Automotive (APE)

  • Retained at overweight at Morgan Stanley; Price Target: $12.70

• ARB Corporation (ARB)

  • Retained at buy at Citi; Price Target: $50.00 from $48.00

  • Retained at neutral at Goldman Sachs; Price Target: $40.00

  • Retained at overweight at Morgan Stanley; Price Target: $46.00

  • Retained at buy at Ord Minnett; Price Target: $47.00 from $46.00

• Bendigo and Adelaide Bank (BEN)

  • Retained at underperform at Macquarie; Price Target: $9.50

• BHP Group (BHP)

  • Retained at buy at Citi; Price Target: $46.00

  • Retained at buy at Goldman Sachs; Price Target: $47.80 from $47.50

  • Retained at hold at Jefferies; Price Target: $48.00

  • Retained at overweight at JP Morgan; Price Target: $50.00

  • Retained at outperform at Macquarie; Price Target: $44.00

  • Retained at overweight at Morgan Stanley; Price Target: $47.10

  • Retained at accumulate at Ord Minnett; Price Target: $45.00

• Brickworks (BKW)

  • Retained at neutral at Macquarie; Price Target: $27.40

• Bank of Queensland (BOQ)

  • Downgraded to sell from lighten at Ord Minnett; Price Target: $5.00

• Beach Energy (BPT)

  • Retained at sell at Citi; Price Target: $1.10

• Commonwealth Bank of Australia (CBA)

  • Retained at underperform at Macquarie; Price Target: $95.00

• Challenger (CGF)

  • Initiated at buy at Bell Potter; Price Target: $8.25

  • Retained at buy at Citi; Price Target: $7.80 from $8.30

  • Retained at buy at Goldman Sachs; Price Target: $7.82 from $8.00

• Clarity Pharmaceuticals (CU6)

  • Retained at buy at Bell Potter; Price Target: $10.00

• De Grey Mining (DEG)

  • Retained at outperform at Macquarie; Price Target: $2.10

• DUG Technology (DUG)

  • Retained at buy at Ord Minnett; Price Target: $2.67 from $3.39

• Duratec (DUR)

  • Retained at buy at Shaw and Partners; Price Target: $1.90

• EQT (EQT)

  • Retained at buy at Ord Minnett; Price Target: $37.00 from $37.50

• Evolution Mining (EVN)

  • Retained at neutral at Goldman Sachs; Price Target: $4.50 from $4.55

• EVT (EVT)

  • Retained at neutral at Citi; Price Target: $11.32

• Flight Centre Travel Group (FLT)

  • Retained at buy at Citi; Price Target: $24.35

  • Retained at buy at UBS; Price Target: $26.80

• Genesis Minerals (GMD)

  • Retained at outperform at Macquarie; Price Target: $2.70

  • Retained at accumulate at Ord Minnett; Price Target: $2.50 from $2.35

  • Retained at buy at Shaw and Partners; Price Target: $2.80

• GWA Group (GWA)

  • Retained at outperform at Macquarie; Price Target: $3.05

• Guzman y Gomez (GYG)

  • Retained at overweight at Morgan Stanley; Price Target: $38.50

• Healius (HLS)

  • Retained at neutral at Macquarie; Price Target: $1.60

• IPH (IPH)

  • Retained at buy at Goldman Sachs; Price Target: $7.50 from $8.25

• James Hardie Industries (JHX)

  • Retained at outperform at Macquarie; Price Target: $64.20

• Johns Lyng Group (JLG)

  • Retained at hold at Bell Potter; Price Target: $4.40 from $4.20

• Lynas Rare Earths (LYC)

  • Downgraded to hold from buy at Bell Potter; Price Target: $8.00 from $8.30

• National Australia Bank (NAB)

  • Retained at underperform at Macquarie; Price Target: $32.50

• Patriot Battery Metals (PMT)

  • Retained at outperform at Macquarie; Price Target: $0.45

• Perpetual (PPT)

  • Upgraded to buy from neutral at Citi; Price Target: $22.50 from $21.40

  • Upgraded to overweight from neutral at JP Morgan; Price Target: $23.50 from $22.00

  • Retained at neutral at Macquarie; Price Target: $21.05 from $21.20

• Qoria (QOR)

  • Retained at buy at Jefferies; Price Target: $0.60

  • Retained at overweight at Wilsons; Price Target: $0.55 from $0.45

• Reece (REH)

  • Retained at underperform at Macquarie; Price Target: $22.85

• Resmed Inc (RMD)

  • Retained at outperform at Macquarie; Price Target: $37.80 from $36.25

• Reliance Worldwide Corporation (RWC)

  • Retained at outperform at Macquarie; Price Target: $6.40

• Sonic Healthcare (SHL)

  • Retained at neutral at Macquarie; Price Target: $26.10

• Santos (STO)

  • Retained at neutral at Citi; Price Target: $7.60 from $8.00

  • Retained at buy at Goldman Sachs; Price Target: $7.90 from $8.00

  • Retained at overweight at JP Morgan; Price Target: $8.10 from $8.15

  • Retained at outperform at Macquarie; Price Target: $8.50 from $8.65

  • Retained at overweight at Morgan Stanley; Price Target: $8.08

  • Retained at outperform at RBC Capital Markets; Price Target: $7.75

• Seven Group (SVW)

  • Retained at outperform at Macquarie; Price Target: $47.80

• Treasury Wine Estates (TWE)

  • Retained at neutral at Citi; Price Target: $12.97

  • Retained at overweight at Morgan Stanley; Price Target: $14.60

• Westpac Banking Corporation (WBC)

  • Retained at underperform at Macquarie; Price Target: $26.00

• Webjet (WEB)

  • Retained at neutral at Macquarie; Price Target: $4.48 from $5.12

  • Retained at buy at UBS; Price Target: $5.60 from $10.00

Scans

Top Gainers

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Top Fallers

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52 Week Highs

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52 Week Lows

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Near Highs

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Relative Strength Index (RSI) Oversold

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