The Match Out: Stocks lose steam, ASX gives back early gains

The ASX lost some steam today, peaking up +52 points early only to taper off into the afternoon session, plus it was hit hard in ‘the match out’ between 4pm and 4.10pm. That sort of trading action is indicative of a short-term top / pending consolidation, which is easy to comprehend after the market has rallied nearly 9% from the January low sub 6900. The Material stocks were “best on the ground” today, while the IT sector was buffeted from bond yields, which continue to storm higher.

• The S&P/ASX 200 added +6points / +0.08% to close at 7412.
• Materials (+1.29%) and Consumer Staples (+0.58%) led the line, while the IT sector (-2.67%) and Communications (-1.22%) dragged.
• Bond yields were up again, Aussie 2-year yields +0.19% to 1.77%, 3-years +0.15% to 2.37%, 10-years +0.12% to 2.90% - We held the view that 2% would cap the 3-years, but we’ve certainly underestimated that.
• We’ll see the Federal Budget tomorrow night at 7.30 pm – this is simply a fascinating backdrop in which to deliver a budget, as we discuss below.
• BHP +2.31% traded back up through $50 to close today at $50.92 – Iron Ore was up and the leads were positive from overseas however BHP Group (ASX: BHP) was a clear outperformer.
• UBS actually upgraded both Fortescue (ASX: FMG) +0.78% and Rio Tinto (ASX: RIO) +1.37% today, both from sell equivalent to neutral. We have the UBS resource team in next Monday for a deeper dive into their resource calls.
• Shanghai will go into lockdown using a two-phased approach as COVID case numbers spike – they hit 3500 on Sunday from a population of 25 million! It seems more supply chain issues are on the cards.
• Iron ore futures were up around 5% today, Coal Futures fell -4%.
• Gold was down around US$19 to US$1939 at our close.
• Asian markets are mixed, Japan off -0.53%, Hong Kong up +1.4% & China off -0.92%.
• US Futures are all lower, down around 0.40%.

ASX 200 chart

Budget Time – Tomorrow at 7:30pm

When you see pictures of the Treasurer trotting through the park, barely breaking a sweat, you know Budget time is near. You need a fit Treasurer to run a healthy economy and JFB is our man! I don’t usually get that excited about the budget, and the word excited is way too strong here, but I am interested this year simply because the backdrop is an extraordinary one. Australia was the fourth-biggest pandemic spender, so there is a heap of money already in the system, a war is putting upward pressure on resources and other stuff which is stoking inflation, unemployment is super low and heading to levels not seen since the 1970s. And of the seven top pandemic spenders, only two have not raised rates yet - Australia is one of them. Throw in a Federal election in less than eight weeks’ time and we get one of the most fascinating Budget backdrops that I can remember.

For the record, the government will announce a deficit of $76.9 billion for fiscal 2023, narrowing to $50 billion by fiscal 2025, economists have predicted ahead of the Budget’s release tomorrow night.

Australian 3-year bond yield

BHP and Woodside – a refresher

We’ve covered this before, but this is a quick refresher after a few questions from clients. Expect documents in early April on the Woodside (ASX: WPL) vote at the AGM in mid-May, complete early June. BHP holders will own 48% of WPL after the deal and will receive around 0.1768 WPL shares for each BHP share held, around 1 WPL for each 5.65 BHP share. These WPL shares will have franking attached at the price of the prior close. We would expect BHP shares to fall by around the value of the WPL shares that are received on day 1 (the same as when a dividend is paid out), we wouldn’t expect WPL to move based on the deal (new shares issued but new assets taken on).

BHP Group

Broker moves

• Incitec Raised to Buy at Goldman; PT A$4.40
• Fortescue Raised to Neutral at UBS; PT A$17.10

Major movers today

Enjoy your night,
The Market Matters team

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