The Match Out: ASX knocked 1.6% an broad-based selling, JLG shows a soft underbelly, shares slide

A dose of reality today with some broad-based selling right across the market, as aggressive selling knocked the ASX back from seven-week highs, the recently hot IT sector in the cross-hairs however over 90% of the market finished in the red. Asian markets were down as well, but not by as much while US Futures remained resilient, only trading marginally lower. That implies an Australian-centric issue that prompts the obvious question, why?

• The ASX 200 lost -119pts/ -1.63% at 7195
• The Utilities sector was the best relative performer (-0.20%) while Healthcare (-0.83%) & Energy (-0.89%) did better than the market.
• On the flipside, IT (-3.94%) was whacked while Property (-2.47%) & Communications (-2.21%) also underperformed.
• Bitcoin rallied more than 6% trading back up above $US30k – a sign liquidity is still about or buying as a safe haven – two very different reasons that offer readers no real value!
• TD Securities now expects cash rates to peak at 4.85% and flagged the risk of cash rate above 5% - they are an outlier.
• CBA (ASX: CBA) -1.57%, the country’s biggest mortgage provider joined Westpac (ASX: WBC) -0.85% in cutting the serviceability buffers they apply to refinance applications from 3% to 1%
• That could be taken as a sign of concern ahead of the impending ‘mortgage cliff’ i.e. are they worried that borrowers will struggle to refinance under the current regime?
• It could also be taken as a sign the economy is heading towards peak interest rates or that competition in the mortgage market remains intense, and they need to be more competitive.
• We doubt the latter given all banks will likely follow suit with our first point perhaps being the more obvious conclusion – which is not bullish.
• It also seemed like some de-weighting towards Australia, there looked to be some decent portfolios being sold through the market in index influential stocks, the obvious catalyst being that the US Federal Reserve is closer to the peak in rates than our own central bank.
• Futures markets are pricing in another 22bps of tightening in the US while traders have a further 46bps priced in locally.
• John Lyng (ASX: JLG) -11.93% fell after they downgraded commercial construction revenue and EBITDA expectations – more on this below.
• Helloworld (ASX: HLO) -2.65% announced that it will acquire 100% of Express Travel Group for $70 million – looks a full price to MM.
• Fleetwood (ASX: FWD) +11.28% won a good contract extension with Rio Tinto (RIO) to supply more accommodation at Searipple Village in Karratha.
• Magellan (ASX: MFG) -6.15% back to earth after a good couple of days.
• Iron Ore was ~0.5% lower in Asia providing a headwind for the miners.
• Gold was up overnight to ~US$1945 before tracking down -US$13 in Asian trade today, settled $US1932 at out close.
• Asian stocks were down Hong Kong the worst of them off -1.98%, Japan -1.19% and China fell -1.31%
• US Futures are all down, but not be a lot, around 0.30%

ASX 200 Today

ASX 200 Daily

Johns Lyng Group (JLG) $5.24

JLG -11.93%: The builder was out with a downgrade that read like an upgrade today. The construction company now expects an extra 10% in both revenue to $1.25b and EBITDA to $133m. Despite it being an upgrade, it was considered of poor quality as the bulk of the improvement came from the catastrophe activity, usually a very lumpy earner for the company. 

The company also excluded higher losses from commercial construction and a $2.3m EBITDA write-off for debts with the now liquidated Porter Davis business which, when added back, would see the company miss consensus by ~5% at the EBITDA line. Shares fell to a ~12-month low on the news.

Broker Moves

• Pro Medicus Cut to Reduce at Morgans Financial Limited
• Regis Resources Raised to Overweight at Morgan Stanley
• IGO Raised to Equal-Weight at Morgan Stanley; PT A$14.70
• Northern Star Cut to Equal-Weight at Morgan Stanley; PT A$13.15
• TPG Telecom Cut to Neutral at JPMorgan; PT A$5.50
• MLG OZ Rated New Buy at Euroz; PT A$1.21

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