ASX 200 falls 1.1pc as interest rate jitters hit Wall Street. Wesfarmers hit by downgrade

Rio faces investor pressure on London delisting. Analyst downgrades hit Wesfarmers, Nufarm. Perpetual's $20m Star buy-in. Appen revenue 'stabilising' post Google loss. A2 Milk hits 16-month high. 

A rollercoaster week for the sharemarket due to earnings and economic updates. Picture: Gaye Gerard

That's all from the  Trading Day blog for Friday, May 24. The ASX 200 index closed down 1.1 per cent at 77727.6 points with all sectors in the red. Wall Street retreated sharply from a record high despite a 9.3 per cent rise in Nvidia, as stronger-than-expected US economic data fuelled interest rate jitters.

The Aussie dollar was trading around US66c.

Updates

4:37 pm May 24, 2024

ASX 200 ends down 1pc after US reversal

David Rogers

Australia's share market suffered its biggest one-day fall in the past three weeks as interest rate jitters caused a sharp reversal of strength in the US market.

The S&P/ASX 200 index closed down 1.1 per cent at 7727.6 points after hitting an eight-day low of 7716.9, increasing potential for a Double Top pattern.

Consumer discretionary, property, consumer staples, and tech sectors led broad-based falls. Wesfarmers dived 3.8 per cent as Morgan Stanley downgraded.

CBA fell 1.5 per cent leading falls among major banks amid concerns over valuations after Goldman Sachs cut NAB and Westpac this week.

ResMed fell 3.2 per cent on offshore peer declines.

Xero fell 2.7 per cent after surging on strong results this week.

Treasury Wine Dived 4.4 per cent.

Challenger rose 2.8 per cent as UBS upgraded.

Woodside closed up 0.7 per cent after an early fall.

After almost retesting its record high at 7910 points last week, the index fell four days in a row this week, its first four-day fall in five weeks.

A 1.1 per cent fall this week was its first weekly loss in five weeks.

3:22 pm May 24, 2024

Challenger upgraded on 'generational shift in wealth'

David Rogers

An upgrade from UBS lifts Challenger shares shares to a three-week high of $6.62 in a down market, up from a five month low of $6.15 on Wednesday.

The broker upgraded to Buy and boosted its target price 13 per cent to $8.00, implying over 20 per cent upside from the current level, after looking at the impact of an expected 33 per cent jump in Australia's retiree population over the next decade amid higher retirement savings on average than ever before.

UBS analyst Scott Russel says this "generational shift" in wealth is driving the retirement pool of super assets under management to grow by almost a 6 per cent compound annual growth rate over the next decade versus system 4.6 per cent, triggering a rapid response from policymakers and super funds to provide more sophisticated options at retirement.

He expects this to underpin wealth and annuity funds flows, and sees Challenger as the key exposure to this theme.

CGF shares were last up 2.7 per cent at $6.62.

1:29 pm May 24, 2024

Loan sharks banned for money trap

Angelica Snowden

Two men behind a money trap that took $70m in loan fees from 100,000 people have been permanently banned from the industry.

The Australian Securities and Investments Commission won their case against loan sharks Cigno and BSF and their directors, former super rugby player Mark Swanepoel and Brenton Harrison.

Swanepoel and Harrison were found to be running schemes without credit licences where customers loaned in total $30m ended up paying huge default fees and interest charges.

Full report here

1:10 pm May 24, 2024 Highlight

Energy sector's keeping the lights on

Valerina Changarathil

Gains among energy producers Woodside and Santos are underpinning the sector's 0.8 per cent lift in afternoon trade on a forgettable day for most other ASX investors.

Just after 1pm AEST, Woodside is up 1.4 per cent to $28.14 and Santos has risen 1.2 per cent to $7.76. Smaller player Beach Energy is also 0.4 per cent higher to $1.69.

All the other sharemarket sectors are down between 0.4 per cent and 2.4 per cent. Consumer discretionary stocks are the worst performers, led by Wesfarmers, which is now down nearly 4 per cent to $63.78.

1:10 pm May 24, 2024

Could Wesfarmers have a look at M&A?

David Rogers

One thing highlighted by Morgan Stanley in its downgrade note on Wesfarmers today was the company's "peak cycle" multiples potentially fuelling M&A.

Morgan Stanley saw that as a "key upside risk" – given Wesfarmers' strong track record of value-adding acquisitions – along with the possibility of a more resilient than expected consumer and/or property market.

But in the short-term it could be negative as speculation that Wesfarmers could use its expensive scrip for M&A just highlights the overvaluation.

Morgan Stanley cut its rating to underweight as it sees limited avenues for earnings upgrades, peak cycle multiples, and a cautious domestic consumer.

After hitting a record high of $71.11 earlier this month, Wesfarmers shares have dived 3.8 per cent to a three-month low of $63.75 so far Friday.

$63.80 is support from the 100-day moving average and April low.

But if that breaks traders will target the 200-DMA now at $58.30.

12:16 pm May 24, 2024 Highlight

Glencore's Qld carbon project rejected

Sarah Elks

Queensland's environmental regulator has killed off Swiss mining giant Glencore's proposal to dump carbon dioxide waste in the aquifers of the Great Artesian Basin.

The CTSCo project – in which Glencore partnered with Low Emissions Technology Australia, a $700m fund established by the Australian black coal industry – proposed to inject captured carbon dioxide from a coal-fired power station into the underground water source in southern Queensland and was vehemently opposed by farmers.

On Friday, Queensland's environment department announced it had determined the carbon capture and storage project was "not suitable to proceed due to potential impacts on groundwater resources in the Great Artesian Basin".

"The assessment found that the Precipice Sandstone aquifer in the Great Artesian Basin, where the project had proposed to inject captured CO2 for storage, is not a confined aquifer, which is a strict requirement of the regulation. The assessment also found that CO2 injected into the aquifer could migrate, likely causing irreversible or long-term change to groundwater quality and environmental values if the project were to proceed."

The project was given federal approval by the Morrison government in 2022.

12:15 pm May 24, 2024

ASX 200 down 1.1pc after US reversal

David Rogers

Australia's share market remains deep in the red at midday after a sharp reversal of intraday strength on Wall Street and lingering weakness in commodities.

The S&P/ASX 200 index is down 1.1 per cent at 7728.2 after hitting a nine-day low of 7716.9 in early trading. S&P 500 futures point to a 0.2 per cent rise in the US when trading resumes Friday but it's not helping the ASX much.

The consumer discretionary sector leads broad-based falls with Wesfarmers down 3.6 per cent after Morgan Stanley downgraded.

Other lagging sectors include financials, real estate and consumer staples.

CBA falls 1.8 per cent, Scentre drops 1.7 per cent and Woolworths slips 1.3 per cent. ResMed is down 3.1 per cent on offshore peer falls.

Energy turns up with Woodside up 1.4 per cent and Santos up 0.7 per cent.

11:50 am May 24, 2024

NZ exports data positive for A2 Milk: Citi

David Rogers

A2 Milk shares hit a 16-month high of $7.13 despite a broad share market selloff.

Citi says NZ exports data are positive for A2's high-margin English label product.

"Buy-rated a2 continues to do a commendable job executing in a challenging market," says Citi analyst Sam Teeger.

"New product development in English label may lead to market share gains, and the supply chain partnership with Yashili could lead to broader collaboration down the track.

"We are more positive on the outlook for the birth rate than we have been previously and based on survey data we no longer consider domestic brands as a headwind to a2’s growth."

Mr Teeger notes that growth in export volumes to Hong Kong for January to April 2024 rose 145 per cent versus 116 per cent in 1H24.

He says this could suggest further improvement in a2’s English label sales as Chinese consumers may be trading down to lower-cost formula.

"We note faster rates of English label growth relative to China label growth would be positive for A2’s margins," Teeger says.

A2M last up 1.2 per cent at $7.11.

11:12 am May 24, 2024

Rents set to underpin inflation: Jarden

David Rogers

Australia's housing affordability crisis is fuelling a rapid rise in rental costs that's set to underpin inflation, making it a "challenge" for the Reserve Bank to bring inflation back to its 2-3 per cent target band, according to Jarden Securities.

Jarden expects the rental market to remain tight in the near term and forecast rents to grow 8.5 per cent year-on-year in 2024 and 4.3 per cent in 2025.

Because of the lag between market rents and CPI rents, the broker expects CPI rents will remain elevated into 2026.

A combination of factors including rebounding migration, record low rental vacancies, subdued dwelling investment and strong income growth has seen market rents rise at the fastest pace in decades, and more than 30 per cent since 2019.

"With rents the second largest item in the CPI basket, this is likely to maintain upward pressure on inflation and will likely remain a challenge for the RBA as its seeks to bring inflation back to its 2-3 per cent target.," says Jarden chief economist, Carlos Cacho.

"While the government has introduced further rental assistance for FY25, we expect the underlying drivers of rents to persist, keeping rental growth elevated.

"Ultimately, we see the strong rise in rents, along with broader services inflation, as the main drivers of inflation over the next two years. "

Jarden sees the RBA remaining on hold until May 2025.

It sees a total of three rate cuts over 2025 with the cash rate expected to hit 3.6 per cent by the end of 2025, in line with its forecast of the "neutral" policy rate.

10:58 am May 24, 2024

Nufarm declines on downgrades

Valerina Changarathil

Agribusiness Nufarm is suffering more losses on Friday, down 2.5 per cent to $4.61 at 10.50am AEST, after multiple analyst downgrades.

Nufarm closed 7 per cent lower at $4.73 on Thursday after reporting after-tax net profit to the end of March 31 fell 67 per cent to $49.2m. Full year guidance is for underlying EBITDA of between $350m and $390m due to tough market conditions in its crop protection business. That also triggered a warning from ratings agency S&P Global about the next six months being "critical" for Nufarm's earnings and ratings stability.

Analysts at Bell Potter, Citi, JP Morgan and Macquarie revised down their ratings or target prices for Nufarm.

Macquarie analysts expect "challenging conditions to continue in 2H24 with global peers not expecting recovery until FY25". "Nufarm's FY26 revenue aspiration (of $4.6bn) for crop protection business requires a circa 20 per cent lift in pricing back to LTA (long term average) levels. We view this as challenging given overhang of Chinese capacity and benefit from COVID agchem price spike," Macquarie says. It expects revenue will be more around the $3.9bn mark.