ASX200 Afternoon Report May 6th 2022

The ASX200 has plunged by 173 pts (2.36%) to be trading at 7191 at 1.15 pm Sydney time, following a night of carnage on Wall Street. All Sectors are trading lower.

The latest turmoil comes as the Bank of England became the third developed market central bank to raise rates this week but painted a bleak outlook of high inflation and slowing growth, aka stagflation. 

The BoE's appraisal appears to have caused the market to have second thoughts after Fed Chair Powell stated yesterday that he could tighten rates and still engineer a soft landing for the U.S economy.

The reality is that given the uncertain macro backdrop, Fed Chair Powell is attempting the Central Banker equivalent of landing an Airbus 380 at Bankstown airport, and there is considerable risk of policy error.

Fuelling the flames of uncertainty locally, the RBA today provided updated economic forecasts in its Statement of Monetary Policy. The bank expects the unemployment rate to fall to 3.5% in early 2023, the lowest level in almost 50 years. Growth forecasts were revised higher to 4 ½% over 2022.

Worryingly for households struggling to digest this week's RBA interest rate hike and surging prices, headline inflation is forecast to rise to around 6% in the second half of this year and isn't expected to return to the top of the 2 to 3% target band until 2024. 

Once again, the IT sector has felt the full force of the market's concern over higher rates and growth concerns. Life 360 (360) fell 10.4% to $3.28, Xero (XRO) fell 7.8% to $87.77, Megaport (MP1) fell 7.5% to $7.86, Tyro Payments fell 6.44% to $1.05, Seek fell 6.2% to $25.43 and Wisetech Payments fell 6.14% to $41.13.

Resource stocks are also under fire as growth concerns deepen, and China's covid lockdowns continue. Rio Tinto (Rio) fell 2.54% to $108.75. BHP Group (BHP) fell 2.4% to $46.31, Fortescue Metals (FMG) fell 1.73% to $20.47, Mineral Resources (MIN) fell 2.28% to $54.90. 

Coronado Coal has dropped by 7.93% t0 $2.27 as it confirmed its merger talks with Arch Resources had broken down. Whitehaven Coal (WHC) fell by 3.16% to $4.91; New Hope Coal (NHC) fell by 2.42% to $3.63. Lynas Rare Earths (LYC) fell by 4.9% to $8.85.

Chunky losses also for the Healthcare Sector. Cochlear fell 5.4% to $216.60, Sonic Health (SHL) fell 2.7% to $35.48, bloods company CSL fell 2.59% to $269.09 while Ramsay Health Care (RHC) fell 1.4% to $77.37.

Crude oil is trading higher at $108.73 p/b after OPEC+, as expected, approved only a modest increase in production for June at its monthly meeting. The higher crude oil price has provided no buffer for energy stocks on the ASX200. 

Beach Energy (BPT) dropped 5.1% to $1.63; Woodside Energy (WPL) fell 2.73% to $30.95. Origin Energy (ORG) fell 2.25% to $6.95, Santos (STO) fell 1.71% to $8.04.

In a trading update, Macquarie's FY2022 results have beaten expectations. However, its shares fell 8% to $186.48 after providing a cautious outlook. National Australia Bank (NAB) fell 2.23% to $31.53. Commonwealth Bank (CBA) fell 1.76% to $101.88. Westpac (WBC) fell 1.465 to $23.66, and ANZ fell 0.63% to $26.74.

Stocks in the Lithium space have been poleaxed, led by Lake Resources (LKE), which fell 7.08% to $1.64, Pilbara Minerals (PLS) fell 7.07% to $2.63, AVZ Minerals (AVZ) fell 6.55% to .79c, and Liontown (LTR) resources fell 6.5% to $1.37.

After today's selloff, the ASX200 has broken below the uptrend support and recent lows 7230ish. If the break is confirmed on Monday, it would warn that a deeper correction is underway, initially towards 7000.

The AUDUSD is trading at .7110 after trading to a high of .7266 post yesterday's FOMC meeting.

Source Tradingview. The figures stated are as of May 6th, 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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