The Match Out: ASX up on softer inflation, UBS downgrades the banks, and trends in Uranium

The daily Match Out for Wednesday 30 March with Market Matters' James Gerrish.
James Gerrish

Market Matters

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The market opened on the back foot today down ~20pts at the worst before CPI (inflation) data was released at 11.30am, coming in 6.8% versus 7.2% expected and down from 7.4% last month. Clearly, inflation is cooling and while it is still way too high, it’s heading in the right direction, while today’s result should cement the RBA’s decision to pause in April, the market is actually pricing in no more rate hikes from here.

  • The S&P/ASX 200 added +16pts / +0.23% to close at 7050.
  • Materials (+1.25%) and Energy (+1.24%) battled it out for the top spot on the sectors as resources continued to rally
  • REITs (-0.77%), Financials (-0.46%) and Healthcare (-0.43%) were the biggest drag.
  • Paul Bloxham from HSBC on today’s inflation read, “Today’s data also followed further signs that economic activity is slowing. Our central case – held since late January – is that the RBA will pause at 3.6 per cent in April.
  • UBS said… “The Feb CPI indicator is still tracking below the RBA’s Q1 forecast and adds to case for an RBA pause in April.”
  • UBS downgraded the banks today, cutting price targets across the board, more on that below. The only bank Big 4 bank they have a buy on is ANZ (ASX: ANZ).
  • A heap of rating changes from brokers today – full list down below with a focus on calls towards Lithium stocks.
  • Alibaba (NASDAQ: BABA) +13% rallied in Asia on plans to split into 6 units and explore separate listings.
  • Shaw held a Uranium Conference yesterday, some feedback from TradeTech is interesting and outlined below.
  • Iron Ore rose ~1% in Asia, helping support the Materials sector
  • Gold was subdued, -US$8 / -0.43% to $US1965 at our close.
  • Asian stocks mostly higher with the Hang Seng up +2%, the Nikkei in Japan put on +0.91%
  • US Futures are all higher, both the S&P and the Nasdaq futures adding +0.5%.


UBS Downgrades Banks

Banks were under pressure today following a UBS downgrade this morning from John Story, who we rate as a very good banking analyst following in the footsteps of Jono Mott who moved to Barrenjoey. He talked to recent events in the US and Europe reducing appetite for banks globally, sighting the local bank index which has fallen 6.5% this year versus the market which is off 1.5%. In short, they think a confluence of factors will combine to hurt earnings which he cut by 6-8% across the board. Higher funding costs, more competition for deposits to reduce the need to tap wholesale markets (our words not his), an uptick in bad debts and tighter regulation as all things that weigh on earnings. From a strategy perspective, they join MM as now having an underweight call on the banks (which means a portfolio weighting less than the market and for the big 4 banks that means a portfolio weight less than ~20%). We agree and hold 12% in the Big 4 in our Growth Portfolio and 10% in our Income Portfolio (we have exposure via Hybrids as well).

UBS downgrades banks

Uranium Conference – Some Feedback on the market.

Shaw and Partners hosted its 3rd annual Uranium Conference yesterday with presentations from TradeTech, Peninsula Energy (ASX: PEN), NexGen Energy (ASX: NXG), Paladin Energy (ASX: PDN), Boss Energy (ASX: BOE), Okapi Resources (ASX: OKR), Lotus Resources (ASX: LOT), Silex Systems (ASX: SLX) and Bannerman (ASX: BMN).

TradeTech is a globally recognised (independent) expert on uranium pricing and the nuclear fuel market so their comments are worth rehashing here. These follow on from Harry’s coverage in this morning’s Portfolio Positioning Report – well worth a read for those interested in Paladin (ASX: PDN)
  • See long-term uranium pricing trending upwards as a result of looming supply deficits, lengthy development timeframes, increased spot market activity and geopolitical uncertainties.
  • The Russia/ Ukraine conflict will amplify supply deficits with western utilities reluctant to take on Russian supply, even before the imposition of sanctions.
  • Western uranium markets are bifurcating: the gap between established production and utility requirements will widen out to 2040.
  • Contrary to market perception, the term market exhibited its 3rd busiest year since 2001 in 2022, with 120mlbs sold, the highest since 2012.
  • 2023 is set to exceed that level with 50mlb already contracted in the MarQ.
  • The cost of new production exceeds the current term price ~US$55/lb. New projects need prices at least US$60/lb.
  • Utilities are extracting value by retaining the ability to increase quantities by up to 20% without impacting price.

ALS Ltd ( ASX: ALQ) $12.10

ALQ +4.76%: the technical testing company rallied on upgraded guidance today, and confirmed a strong liquidity position post the sell-down of their Asset Care business to SRG Global (SRG). Underlying NPAT was upgraded ~2.5% at the midpoint, while just a small number, it does confirm they have managed cost pressures well and continue to see organic growth coming through the business. ALS, which tests commodities and bio-substances, received $80m in the sale of their non-core asset services business and said leverage had fallen to 1.8x while they have liquidity of $400m.


Broker Moves

  • Aristocrat Reinstated Neutral at Credit Suisse; PT A$36.50
  • Star Entertainment Reinstated Neutral at Credit Suisse
  • SkyCity Reinstated Outperform at Credit Suisse; PT NZ$3.11
  • Pact Group Reinstated Outperform at Credit Suisse; PT A$3.70
  • PointsBet Reinstated Neutral at Credit Suisse; PT A$1.30
  • Bank of Queensland Cut to Sell at UBS; PT A$6
  • Bendigo & Adelaide Cut to Sell at UBS; PT A$8
  • NAB Cut to Sell at UBS; PT A$25
  • Westpac Cut to Neutral at UBS; PT A$22.50
  • Champion Iron Raised to Outperform at Macquarie; PT A$8
  • South32 Raised to Outperform at Macquarie; PT A$5.10
  • New Hope Cut to Neutral at Macquarie; PT A$5.50
  • Capricorn Metals Cut to Neutral at Macquarie; PT A$4.90
  • 29Metals Raised to Neutral at Macquarie; PT A$1.20
  • Deterra Raised to Outperform at Macquarie; PT A$5
  • Treasury Wine Reinstated Neutral at Credit Suisse; PT A$13.80
  • Tabcorp Reinstated Outperform at Credit Suisse; PT A$1.30
  • Qube Cut to Sector Perform at RBC; PT A$3.30
  • Liontown Resources Cut to Hold at Morgans Financial Limited
  • United Malt Raised to Accumulate at CLSA; PT A$5
  • Pilbara Minerals Rated New Outperform at RBC; PT A$5.65
  • Pharmaxis Reinstated Speculative Buy at Bell Potter
  • United Malt Cut to Hold at Bell Potter; PT A$5
  • Paladin Energy Rated New Buy at Jefferies

Major Movers Today

Have a great weekend

The Market Matters Team

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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