ASX News LIVE | XJO to Fall as Rate Hike Fears Weigh Down Markets; Pilbara, Coles, Westpac, FMG Feature

The ASX 200 closed down 0.61% at 6,812.3, its lowest point in 2023, with nine of the eleven sectors closing in the red.

Much of the negative movement was spurred from a down day on Wall St as mixed results from some of the Tech giants sent stocks down there. The worst performer across the ditch was Alphabet (google) which closed down 9.5%, wiping nearly US$200 billion off their market cap.

For the ASX, the tech sector followed losses on Wall St with the biggest losses seen by Megaport (-16.3%) and WiseTech (-1.9%). Xero also fell -2%.

The Australian Dollar also took a big hit today, another 1-year low during the session of US 62.68 cents after markets reacted to Michele Bullock’s rather neutral tone about raising rates this morning (more detail on that earlier in the day).

In other company news, Azure Minerals was up 43% after it agreed to a $1.63 billion buyout from Chilean giant SQM.

Westpac fell 1.1% to $20.57 after the company announced it expected $173 million in costs from restructuring, customer remediation and litigation.

Coles rose slightly (+0.2%) to $14.98 as its quarterly report showed revenue rose 4.7% to $9.2 million in the first quarter.

Fortescue metals [ASX:FMG] is up with minutes to go on the day after the company posted its September Quarterly update.

The company shipped 45.9 million tonnes of Iron ore in Q1FY24, 3% lower than the prior period.

The company achieved an average revenue of US$100/dry metric tonne, 87% of the Platts 62% CFR Index.

The company said it was also targeting 5 major green projects and initiatives by the end of the calendar year.

Fortescue maintained its production guidance for FY24 and said its capital and cost expenditure was also unchanged.

‘Higher for longer‘ continues to take its toll on equity markets as today the ASX 200 continues to slide, with the worst hit being the interest rate-sensitive Tech sector, which is down over 3% today.

Only two sectors remain in the green so far today, with Utilities + 0.49% and Materials +0.14% just holding on.

For many, the central cause of concern has been around US 10-year treasury yields that have sat around 5% for weeks now. With the bedrock for pricing risk-taking across markets at such high numbers it leans on everything from gold prices to equity markets.

“There is no anchor in U.S. treasuries,” said Ben Luk, Senior Multi Asset Strategist at State Street Global Markets.

“If [the 10-year yield] doesn’t stay below 5%, then I think it’s still going to be a very choppy market for both U.S. and Asia,” he said.

“Once you have more stable treasury environment, you will have a clearer earnings revision story,” he added, noting markets dominated by tech firms, which rely heavily on financing, will be vulnerable to higher rates due to borrowing costs.

For the markets, there is yet to be a clear sign of direction from the RBA or US Fed when it comes to changing interest rates to relieve pressure on the bond market.

Jerome Powell spoke today but avoided the subject while we await a monetary policy statement and speech from the European Central Bank later this evening.

U.S. GDP data will also be released in our evening (11:30pm AEST), along with some employment data that should give markets a clearer view of the strength of the American economy.

For now, estimates are for a strong showing from both, with some analysts expecting a near 4.5-4.7% GDP annualised gain, which would be the strongest output since the fourth quarter of 2021. Those big numbers may project strength, but many economists are concerned about more forward-looking signals in the market.

“We ought to look at whatever we print in the third quarter with a large degree of suspicion,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America.

“GDP doesn’t tell us where we’re going. We can feel all warm and fuzzy about a good number. But the real problem is what’s next.”

Lithium explorer Azure Minerals [ASX:AZS] is up an incredible 43.2% today as it came out of trading halt. The company announced today that the company has agreed to a $1.63 billion sale to Chile lithium giant Sociedad Química y Minera (SQM).

Before the takeover announcement in January, the company’s shares were worth only 12 cents. They are now trading at $3.495, valuing the company at $68 million.

Azure is looking to develop a flagship Andover Project in West Pilbara, which is one of the world’s largest hard-rock lithium areas.

SQM is currently Azure’s largest stakeholder with a 20% stake in the company and is looking to expand its operations outside of Chile as risks have grown there due to the country’s Government changing legislation, which has added requirements around water usage that have restricted some of the brine operators.

Commenting on the Transaction, Azure’s Managing Director, Tony Rovira, said:

“Having carefully considered the merits of the Transaction, the Azure Board has unanimously concluded that the Transaction is in the best interests of Azure shareholders.

“Whilst we firmly believe that Andover has the potential to be a major lithium project, there is significant time, cost and risk associated with developing a project of this scale, particularly in the context of an uncertain broader economic outlook. As such, the Board believes that the Transaction provides Azure shareholders with a compelling opportunity to de-risk their investment and realise certain value at an attractive premium to historical trading levels.”

The ASX 200 is down 0.88% around midday at 6,794.1, with the worst hit today being the Tech sector. The XTX is down 3.21% with the big names in tech all taking a beating.

Wisetech global (-2.52%) Xero (-3.45%) NEXTDC (-4.19%) but the worst performer was Megaport which is down 19.20% after its latest company update today said the company’s, ‘rebuild and recovery of momentum will take time’.

It seemed investors didn’t want to wait as larger corrections occurred over in the U.S. overnight also.

The biggest gainers around midday were AZURE Minerals which is up a whopping +43.44% after the company agreed to sell itself to Chilean giant Sociedad Química y Minera for $1.63 billion.

Pilbara Minerals [ASX:PLS] shares fell over 4% this morning, recovering in recent hours as the company’s revenue plummeted by 42% to $493.1 million in the September quarter compared to the previous quarter.

This decline was attributed to decreased lithium prices and reduced production volumes, according to the company.

The company said it produced 144.2kt this quarter as planned maintenance shutdowns affected its operations. Last quarter, the company produced 162.8kt.

The price realised for its quarterly sales was US$ 2,240/t, which was significantly down from previous quarters. The company is still predicting a supply shortage of lithium in the future, which some analysts (including myself) dispute.

This morning, RBA heads Michele Bullock and Assistant Governor Christopher Kent appeared before the Senate Economics Committee and kept their cards close to their chest.

In the still-ongoing meeting, there have been some interesting lines that I’ll share with our readers. Bold is added for emphasis.

When asked about the higher CPI surprise and immediate impressions, she said:

‘No surprises….while the CPI print came out a little higher than we had been forecasting at our August statement, it pretty much came out where we thought given the information we had been given, particularly the monthly CPI indicator.‘

Here, the information she was referring to was the rising fuel and rent prices and expectations the RBA held to higher costs impacting input costs and services inflation, especially for rent, which were seen in the monthly CPI indicator.

She went on to say:

‘What we are seeing is a continuation of the trend that goods prices inflation is still moderating [coming down], and we are generally seeing consumer durables prices and inflation coming down.’

‘The thing that we’ve been saying for some time, and this particular CPI data reinforced that, was that services inflation generally is remaining fairly persistent.’

‘It’s a trend we are seeing overseas as well, that while goods prices inflation is easing quite a lot as supply issues unwind, consistently we are seeing that while services inflation is declining, it’s still higher than we’re comfortable with and it’s reasonably persistent.’

When asked about her ‘low tolerance’ comments earlier in the week when talking about inflation numbers, Mrs Bullock attempted to walk back the severity of the tone, saying:

‘When I say low tolerance, we’ve always said we have a low tolerance. I don’t think I’ve said anything new there‘, she smirked.

When asked about the CPI data and if it was a ‘materially higher’ CPI number (something that she had previously said would push an RBA move to make an interest rate rise) and if she thought inflation was coming under control.

‘We’re still analysing the number, I’m not prepared to say yet whether or not it’s to change to our forecast, because there is going to be a change to our forecasts,’ she replies.

‘We have to look at whether or not it’s material enough to change our views on monetary policy.’

She said that the RBA still needs time to look at the inflation data and interpret it but then said:

‘No different comments than we’ve been making to date, which is that — wary is a good word — we’re looking at some of the more persistent parts of inflation and asking ourselves ‘Are there signs that those might be coming down in the future?‘ she replied.

‘So yes, we are wary, and we don’t know if the job has been done yet.‘

‘We’ve made that very clear, even though we haven’t raised interest rates since our last interest rate rise in June.’

‘We’ve made it very clear that we might need to go again. We have we had not ruled that out, and we’re in the same position.’