ASX 200 to slip, S&P 500 retreats from record highs, Iron ore hits four-month low

ASX 200 futures are trading 4 points lower, down -0.05% as of 8:30 am AEDT.

S&P 500 SESSION CHART

ASX TODAY

• Companies reporting today include City Chic Collective, Coles, G8 Education, Southern Cross Electrical, Capricorn Metals, Healius, Johns Lyng Group, Woodside Energy, Chorus and more
• Alcoa makes $2.2bn bid for Alumina to consolidate upstream assets (Bloomberg)
• China Cida selling $200m stake in Yancoal (AFR)
• Adairs upgraded to Add from Hold at Morgans, target increased to $2.40 from $1.70
• Kogan upgraded to Neutral from Underweight at Jarden, target increased to $7.50 from $4.90
• Lynas Rare Earths downgraded to Neutral from Overweight at JPMorgan, target cut to $6.90 from $7.40
• Michael Hill International upgraded to Buy from Neutral at Citi, target increased to $0.92 from $0.86
• Mayne Pharma upgraded to Buy from Hold at Canaccord, target increased to $6.69 from $3.80
• Nanosonics upgraded to Neutral from Underweight at JPMorgan but target decreased to $2.80 from $3.40
• TPG Telecom downgraded to Neutral from Outperform at Macquarie, target cut to $5.10 from $5.40

MARKETS

• S&P 500 finished lower and near worst levels amid a relatively uneventful session
• Market's path of least resistance remains higher on megacap tech earnings, resilient US macro backdrop, a largely intact disinflation narrative and fund inflows
• Relative outperformance of S&P 500 over the small-cap Russell 2000 index is at its widest point in decades – Eventual rate cuts are generally seen as bullish due to small caps’ higher reliance on flating-rate debt
• Funds increase short yen bets in test to BoJ's intervention resolve (Reuters)
• Iron ore falls to four-month low on weak China steel demand (Bloomberg)
• Oil prices gain 1% on Russian sanctions and possibly shipping disruptions (Reuters)
• Jefferies notes that of the 90 S&P 500 companies that provided Q1 EPS guidance adjustments this earnings season, just 14 or 16% of them have been positive
• FactSet says bottom-up estimate for Q1 S&P EPS has fallen by approximately 2% over the first two months of 2024
• Bitcoin hits its highest level in more than two years (Bloomberg)

STOCKS

• Google to relaunch Gemini image-generation tool (CNBC)
• Microsoft strikes deal with French AI startup Mistral (FT)
• Traders bet big on Nvidia, Super Micro Computer options (WSJ)

CENTRAL BANKS

• ECB's Makhlouf in no rush to cut rates as vigilance on wages needed (Bloomberg)
• RBNZ shadow board says cash rate should remain at 5.50% citing easing in labour market, inflation and GDP growth (NZIER)

GEOPOLITICS

• Israeli media reports progress on reaching a temporary truce in Gaza and a hostage-prisoner exchange (Independent)
• US hopeful for 'firm and final agreement' on temporary Gaza ceasefire (FT)
• Netanyahu says a cease-fire deal would only delay 'somewhat' an Israeli military offensive in Rafah (AP)
• G7 leaders vow support for Ukraine on 2nd anniversary of Russian invasion (Nippon)
• Libya protests halt Wafa oil exports, gas pipeline to Italy (Bloomberg)

ECONOMY

• German IFO survey shows export sentiment improved slightly in February (Reuters)
• Global house prices rebound as economists predict turning point (FT)
  
  

Two Big Dividend Beats

Adairs (ASX: ADH) and Kogan (ASX: KGN) were two stocks that reported a dividend surprise on Monday – And as we all know, the market loves a higher than expected dividend.

At face value, the first half was relatively weak for Adairs, with net profit down 23% year-on-year to $17.6 million. Previously, Adairs surprised the market in August by cancelling its final dividend and outlined plans to resume payouts at the 1H24 result.

Adairs surprised the market with a interim dividend of 5 cents per share, a 20% beat against Morgans expectations of 4 cents per share. The net profit figure was also 35% ahead of UBS expectations. The stock briefly opened -1.9% lower and finished the session up 15%.

Kogan's results had a similar showing, weak at face value but packed with surprises. Adjusted net profit for the first half was $10.2 million vs. UBS expectations of just $5.1 million. Interestingly, Kogan decided to embed its maiden dividend announcement on the fourth (and very last page) of its results announcement. A 7.5 cents per share interim dividend was declared vs. market expectations of 0. The stock opened 5.2% higher and finished up 23.7%.

Iron Ore Pains

Singapore iron ore futures have slumped 16% in the past month as hopes for a rebound in Chinese steel demand following the Lunar New Year holidays failed to live up to expectations.

Bloomberg flagged this as a worrying sign as March and April typically represent the busy months for construction in China. A China-based commodity trading firm noted that steel production remains weak and has not fully recovered after the New Year break.

From an inventory perspective, inventories at major Chinese steel mills jumped 25.7% in mid-February compared to early in the month.

All-in-all, it's a triple whammy of poor steel demand, high Chinese port inventories as well as easing supply concerns (cycling threatening WA ports moving out).

Lynas Earnings Call Highlights

Lynas (ASX: LYC) reported a 74% drop in net profit after tax for the first-half of FY24 on Monday. Although most of its numbers were in-line with market expectations. The stock finished the session up 1.0%. Numbers aside, here are the key nuggets from its earnings call.

• Management is assessing all opportunities for M&A, including early-stage rare earth exploration projects and companies currently producing rare earth concentrate or carbonate
• Despite weak pricing, the company remains a low-cost producer and can be successful in a market where prices are weaker than they are today
• The company expects to see the market move back into balance with an increase in demand from EVs and industrial recovery, along with modest increases in Chinese production quotas
• Lynas has more inquiries than it can serve today and can sell everything that it produces. The company seeks high-value contracts where they can provide guarantees on supply for a three to five-year period
• Lynas will break ground on its US facility later this year. The timeline depends on finalizing one particular piece of technology that will be introduced as a new mechanism in the plant

KEY EVENTS

• Trading ex-div: IPH (IPH) – $0.16, Bega Cheese (BGA) – $0.04, Evolution Mining (EVN) – $0.02, Tabcorp (TAH) – $0.01, Amcor (AMC) – $0.19, BSP Financial (BFL) – $0.364, Peter Warren Automotive (PWR) – $0.085, MA Financial (MAF) – $0.14
• Dividends paid: GQG Partners (GQG) – $0.028
• Listing: None

• 10:30 am: Japan Inflation (Jan)
• 6:00 pm: Germany Consumer Confidence (Feb)
• 12:30 am: US Durable Goods Orders (Jan)

This Morning Wrap was written by Kerry Sun.