ASX200 Afternoon Report May 18th 2022

The ASX200 is trading 60 points higher at 7173 at 3.15 pm, looking to lock in a fourth straight day of gains after a wicked rebound on Wall Street overnight.

The rally on Wall Street came after robust retail sales data helped ease fears of a growth slowdown. Despite hawkish comments from Fed Chair Powell, who noted that inflation is the priority and that financial conditions have already "tightened quite a bit".

In recent weeks this type of hawkish Fed speak would have knocked the lights out of the market; however, after its sharp repricing lower, valuations now reflect an expectation that U.S yields will be in the 3.0-3.25% range by March 2023.

Shaking off news of fresh Covid-19 outbreaks around key Chinese cities, the Materials sector has helped drive the index higher.

South 32 (S32) added 5.26% to $4.71, Mineral Resources (MIN) added 2.5% to $60.66, Oz Minerals (OZL) added 3.5% to $22.80, Lynas Rare Earths (LYC) added 3.13% to $972. BHP Group (BHP) added 3.07% to $46.97, Rio Tinto (Rio) added 2% to $108.91. Fortescue Metals (FMG) added 1.70% to $19.72.

A strong rally in the Nasdaq overnight has helped the local IT sector higher. Seek (SEK) added 4.4% to $25.39, Life 360 (360) added 3.14% to $3.61, Megaport (MP1) added 2.56% to $7.23, Wisetech Global (WTC) added 2% to $41.21, Altium (ALU) added 1.9% to $28.10 and Afterpay owner Block (SQ2) added 1.94% to $117.50. BNPL stock Zip (ZIP) fell 1.9% to fresh cycle lows at $0.90c.

Consumer Discretionary stocks have climbed despite a tepid Q1 2022 Wages print which rose to 2.4% for the year, significantly below the inflation rate of 5.1%. Real wages - adjusted by headline inflation - are down 2.6% over the past year.

Flight Centre (FLT) added 4.55% to $21.16, Dominoes Pizzas (DMP) added 2.86% to $70.19, Webjet (WEB) added 1.95% to $5.76, and Harvey Norman (HVN) added 1% to $4.59.

The ASX200 Financial Sector has edged sideways. ANZ added 1.09% to $25.89, Macquarie (MQG) added 0.84% to $182.01. Westpac (WBC) added 0.1% to $24.48. Commonwealth Bank (CBA) added 0.05% to $105.17. National Australia Bank (NAB) fell by 0.57% to $31.30.

The rebound in Lithium names has extended again today. Lake Resources (LKE) added 3.1 % to $1.51. Galan Lithium (GLN) added 3.5% to $1.48. Pilbara Minerals (PLS) added 2.4% to $2.80. Allkem (AKE) added 2.16% to $12.32. Iluka Resources (ILU) added 1.7% to $10.16.

Brambles (BXB) shares have bounced by 3.7% to $11.12 after CVC walked away from the pallet and distribution company yesterday.

Boral (BOR) has fallen by 3.12% to $3.11 after it warned of a $45m hit to FY22 earnings due to heavy rain in NSW and Queensland as well as rising energy costs.

Turning to the charts, after the ASX200 reached our 7000/6950ish downside target last week, we called for a recovery towards 7200. From broadly within the 7200/7300 region, we would ideally like to see one more leg lower towards range lows 6950/6750. But let's see what this weekend's Federal Election brings before making any new calls.

Source Tradingview. The figures stated are as of May 18th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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