The Match Out: RBA hikes again, Discretionary and Financials struggle the most

The local market was on the back foot for most of the session today thanks to softer US markets overnight before yet another hike by the RBA resigned shares to a drop of more than 1%. The latest hike takes Australian interest rates to an 11-year high while Governor Lowe’s commentary seems to suggest he’s not done yet. Discretionary stocks took a hit as a result with a downgrade in the sector not helping the already negative market view of the space being squeezed by tighter household budgets. Financials another notable slider today with fears that the unprecedented hiking cycle will soon lead to spiking bad debts for borrowers.

• The ASX 200 finished down -86pts/ -1.20% at 7129
• The Utilities sector was best on ground by default, the only sector to close higher today (+0.54%)
• Discretionary (-2.16%) was the worst of the sectors today with Industrials (-1.56%), Financials (-1.46%) and Healthcare (-1.39%) the other notable detractors.
• The RBA hiked rates by 25bps to 4.10%, the highest level in 11 years. We wrote in the morning report that the market was pricing in around a 1 in 4 chance of a hike today so the move was somewhat of a surprise. The ASX200 fell around ~50pts at the time before some support kicked in, though a weak close had the index back new the intraday lows.
• The media release that followed showed that the RBA remains fairly hawkish, taking up the chances of more hikes to come. Cash rate futures are currently pricing a ~75% chance of a hike by the September meeting and peak rates around 4.3%.
• Sigma Healthcare (ASX: SIG) +22.05% win a $3b contract to supply Chemist Warehouse with both medicines and consumer goods, winning the medicines portion off EBOS (EBO). Chemist Warehouse receives a 10.7% stake in Sigma on the back of the deal which will closely align both parties – good for a long-term relationship.
• ASX Ltd (ASX: ASX) -10.22% investor day today disappointed on a lot of fronts – more on that below.
• Baby Bunting (NYSE: BBN) -16.85% another retailer cuts guidance, this time Baby Bunting by more than 30%.
• Bowen Coal (ASX: BCB) -22.73% back online after raising $40m. A disappointing raise in our view, one we will cover in the Morning Report
• A2 Milk (ASX: A2M) +1.87% received registration for their Chinese-labelled infant milk formula.
• Iron Ore jumped 3% in Asia today but the major miners were all lower.
• Gold was flat in Asian trade, hanging around $US1960/oz, most gold stocks struggled though, Evolution (NYSE: EVN) -3.85%.
• Asian stocks were strong, the best was Japan’s Nikkei +0.9%, followed by the Hang Seng +0.4%.
• US Futures are trading slightly lower at our close.

ASX 200 Chart

ASX Ltd (ASX: ASX) $60.64

ASX -10.22%: the share market operator hosted an investor day today with the company facing continued delays to the replacement of the aging CHESS system which handles trade settlements. The 29-year-old system is the main driver of a ~12% increase in costs in FY23 and 12-15% growth in FY24 with the company also planning on spending $110-140m in capex next year on technology and regulatory concerns, likely above the previous peak of ~$110m in FY21. Further squeezing the ASX is falling market volumes and listing numbers largely on the back of cautious investors and one of the worst IPO runs in history. The soft update, which included lowering payout guidance, drove shares to a 4 year low today.

Baby Bunting (ASX: BBN) $1.48

BBN -16.85%: the latest retailer to downgrade guidance as we approach the end of the financial year, sighting a significant slowdown in sales in recent months which will see earnings hit this year. They downgraded NPAT guidance by 37% to $13.5-14m with margins expected below previous guidance and sales now expected to fall 4-5% on a LFL basis. Total sales are expected the marginally higher than FY22, but ~5% below consensus. The company may also be facing an obsolete inventory position with around $100m worth of stock expected to be held by year-end. Stocktake sales numbers have been “unprecedently low,” the announcement said, with sales -21% since the launch of the promotional event. Shares hit a 5 year low today.

Broker Moves

• Capitol Health Rated New Buy at Goldman; PT 33 Australian cents
• REA Group Cut to Neutral at Citi; PT A$145.20
• Goodman Group Rated New Add at Morgans Financial Limited

Major Movers Today

Have a great night

The Market Matters Team

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