THE MARCUS TODAY MORNING MEETING - Thursday 2nd June

Anyone who has been in broking will tell you that the Morning Meeting is how all brokers start the day.  The format is to have a quick look at the overnight markets, consider what's coming up in the day ahead, hear from the analysts, share ideas and get set up for the day's stock market activity

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Transcript

DISCLAIMER:

Marcus Today offers information that is only general in nature. It does not take into account your personal financial situation, needs or objectives. Nor does it take into account the financial needs of any specific person. You should consider your own personal financial situation and needs or seek financial advice before making any decisions based on this information. For more information please see our Financial Services Guide.

*PLEASE NOTE: Transcripts are autogenerated and may contain errors, especially Stock Codes and Names.

SPEAKERS

Chris Conway, Ben O'Leary, Henry Jennings, Layton Membrey, Marcus Padley

Ben O'Leary  00:00

Good morning, everyone. It is Thursday the second of June. Plenty happening as always, Chris, you've got overnight Chris. Good morning.

Chris Conway  00:20

Thanks, Ben. The Dow was down at 177 points overnight. It was a second losing session in a row for US markets. He brought s&p 500 down 75 basis points the NASDAQ down 72 basis points European markets all weaker. It was a little bit of an absurd situation overnight US economic data. In particular, the manufacturing PMI numbers came in better than expected economists were expecting them to go backwards. They came in ahead of expectations and the market took it as a negative. Why did they do that? Because everyone's believing that it increases the probability that the Fed will hike rates faster. And that of course is not necessarily a good thing for equity markets. The feds Beige Book also showed slight to modest growth in May, although the labour and supplies were the hurt points and inflation is rising rapidly. In other news CEO of JP Morgan, Jamie Dimon shed a warning about the US economy saying that there is a hurricane coming in. We're all sitting here in its path. So some glass half empty sort of sentiment on the street overnight. There are a number of other analysts out also saying that the recent gains on the s&p were nothing more than a bear market rally and that further declines are coming. So like I said more negative than positive locally. I'm sure Ben you're talking about this in just a moment. But locally materials plays are actually holding up reasonably well. It was up 1.4% overnight, and that's off the back of some positive sentiment around the lockdowns in Shanghai coming to an end.

Ben O'Leary  01:46

Thank you, Chris. Yes, as you mentioned, the materials are the top end of the market energy and gold are the only two sectors in the green energy is the big performer up 2.3% materials is the best of those underwater down just 0.4% We've got a whole range of sectors down 1% Or worse. The very bottom end of that is technology down 2.4% healthcare industrials, financials the next worst all down around 1.3%. In the news this morning, we had credit risk adjusting forecasts for lithium market. We know lithium had a big day yesterday with all of the major names getting sold off fairly heavily Credit Suisse now expects lithium supply will meet demand in 2023 to 2024 and exceed demand creating a surplus in 2025, which is pretty catastrophic if true for the lithium market, which is so built up on that future demand outstripping supply prospects on the stock front raa group which is the IRA ticker has an invested day headline there is they're still targeting double digit EBIT da growth through the cycle meaning core ticker MCR has reported that they have further significant results at its Golden Mile project that down 0.8% on that on that ra group was down 3.2% I should mention Wesfarmers hasn't invested day key messages out of that include retail their retail division being well equipped to manage inflationary pressures and the Wesfarmers portfolio continuing to evolve and develop a large scale differentiated retail ecosystem. They're down 0.6% on that and there is a report in the Australian this morning that Tabcorp p h shareholders are not happy with the prospect of an equity raise. If it is successful in the AWA tab auction keep an eye on that they're down 0.3%. On the back of that we also have technology one TNA ex dividend, not a particularly large dividend there. So again, not one that income investors is going to be getting up and about four on the economic front. We have balance of trade for April and retail sales for April. And in the us tonight. We have first quarter unit labour costs and non farm productivity initial jobless claims from my factory orders for April and fed speeches from Logan and Mr. And that's all we've got today. As Chris said, we are down fairly hard this morning. 69 points down on the open almost a percent worse than the 55.4 futures were pointing to and that's about that Layton What have you got for brokers this morning?

Layton Membrey  04:07

Thank you, Ben. Just following on with that Credit Suisse with your market forecast adjustment Oh, leave all the details to Henry as I'm sure it will go into that but all cam and Pilbara minerals have both been downgraded to neutral from outperform the code for all candidates aka and the code for Pilbara minerals is pls and the target price for Pilbara minerals falls 19% to $3 implying a 30% upside and the target price for all cam has fallen 10% $14.70 Which implies a 27% upside but on the other hand, McQuarrie says that the sell off maybe over done and with Lion town resources expected to secure the binding offtake agreement with Tesla Roca has retained its outperform recommendation and target price of $2.50 implying a 117% upside and just noting that lion town was Down 19.1% Yesterday Culebra was down 22% yesterday and all cam was down 15.4% Yesterday. Thank you, Ben.

Ben O'Leary  05:08

Great stuff. Thank you. Layton.Henry, what have you got in Henry's Take today?

Henry Jennings  05:12

Thanks, guys. Just following on, I guess from the whole lithium crash yesterday, it was a meeting of a perfect storm. There was three events that crashed the lithium market yesterday, not least of which was open sacks and Credit Suisse downgrading, but also there was reports coming out of Argentina about a cap on pricing coming out of their export market. It looks like some people were what they call under invoicing, which to me sounds like they were calling the price a bit lower to avoid royalties and tax payments to the broke Argentinian government. So that just came on the back of those downgrades from those brokers. Also, we saw yesterday reports coming out of a thing called the paper which is a Chinese media backed outlet. And that was suggesting that b y d, which is one of the behemoths in battery manufacturer and a carmaker in China had bought six African lithium mines and was going to become self sufficient in lithium for decades to come. Well, yeah. Okay. Well, that's, that's fine and dandy, but we'll see how that one works out. There were very few details without sketchy at best. But say it's not easy just to turn on a lithium mine, you can't there's lots of lithium around the place. Some of it is an economic to say the least. So just writing today about what to do with lithium stocks. I have been a fan of the stocks. And to me yesterday was a bit of an opportunity not to say that that opportunity has passed yet because sentiment, as Mark has rightly pointed out this morning when it turns against you it does turn against you big time. And that can last for a little while the last time the lithium sector was imploded was back in 2017, where it got well ahead of itself and as a result of that market peaked and then fell into oblivion for three or four years as demand caught up. So I don't think that's going to happen this time. Everybody in the world apart from Goldman Sachs and Credit Suisse believes that prices will stay elevated until 2324, or at least 2425. Because there is no new supply coming on stream and the demand is just getting bigger and bigger Goldmans actually thinks the opposite they think the prices will weaken, and then they will strengthen after that, which I don't know most people think they're deluded. But anyway, we'll see how it all pans out. Apart from that. So read that if you're interested in the lithium space. As I say to me, it looked like a bit of a bargains yesterday, but I'm not leaping just yet. I want to see some more signs that maybe we are seeing some stability. Interestingly, the Macquarie piece this morning Pilbara is valuation at the moment is implying a 80% price fall in the price of lithium from where it is now. So that's a pretty big drop thing as lithium actually hasn't fallen. But anyway, and yesterday was in with the hospice team at doing the Investment Committee, which is an interesting exercise in who shouts loudest for their stock gets the stock in the portfolio. Do interesting exercise that will be on next week.

Chris Conway  07:57

How loud did you shout Henry?

Henry Jennings  07:59

I was well there. Julia Lee is away she's taking a sabbatical for a few months. Maybe that's a sign of the market. But I shouted relatively loud for some stocks not to be put in. But the problem with this process is that the game changes very rapidly. And you know, you record television on one day, and something changes that evening. And for instance, in Woodside where we were saying no no, no, don't go to Woodside there's a big overhang and wet still complicated, so we won't put it in the portfolio will last night after market cause that overhang was cleared and Woodside is up 4%. So timing is everything but with television recorded programmes when they put them out five days later. You can look at goose.

Chris Conway  08:38

Yes, unfortunate.

Ben O'Leary  08:40

That's very good. Lots of good stuff. As always. Thanks, Henry. And, Chris, what do you got in your trading session today?

Chris Conway  08:46

Thanks, Ben. I'm taking a look at Fortescue as a play on the Chinese reopening now I know the lockdown in Shanghai officially ended earlier in the week, we began to see a bit more positive sentiment coming through the iron ore price has been on the rise the past couple of sessions on the back of this immediate hopes of a recovery in demand. So we mustn't forget the Chinese metal producers, they were not able to cash in on the traditional peak season for construction projects. Of course, they were in lockdown. And there is an expectation from quite a few analysts that production and therefore iron ore demand will snap back aggressively as they play catch up. Now, I think I may be so bold, a lot of that sentiment is reflected in the forest view chart which has been grinding sideways and the range has been narrowing. And it's formed a pennant pattern on the chart but doesn't mean a lot to a lot of you. But typically these sorts of patterns precede a sharp break and it looks like that break is going to be higher and then even on a day like today where the market is down 60 or 70 Odd points Fortescue at last check was higher on the day so for anyone interested in playing this one at home, I suggest you wait towards the end of the day around 330 for holding on to those gains and might be one that you have a bit of a nibble at at the end of the day and add it to your portfolio but Fortescue is the chart of the day. Thanks, Ben.

Ben O'Leary  09:55

Great work. Thank you, Chris and Marcus. What's happening in strategy?

Marcus Padley  09:59

Yeah, morning, Ben. I've written about the bounce running out of puff two days going nowhere on Wall Street. We had hoped over the weekend and over their whole day that they were going to follow through on the 9% bounce in the s&p 500. But it's not to be no big sell off, though. And the market last night closed, I think couple of 100 points off its lows, but it does look like the uncertainty over what the or whether the Fed can manage a slowdown and inflation without a recession is unknown, and is going to continue to kill the cat until it's sorted out. You might have seen or heard mentioned already of the JP Morgan CEO who has been picked up by the media because he used the word Hurrican, saying the US the challenges facing the US economy are akin to a hurricane down the road. His quote is right now it's kind of sunny, things are doing fine. Everyone thinks the Fed can handle this, that hurricane is right out there down the road coming our way. We don't know if it's a minor one or a superstorm and point about that is this is one of the most in tune or tuned financial brains in the world. And he is making the point that they just don't know whether the Fed can handle this and whether they are going to manage it properly. And I would just point out the reason he's making it fast, I assume is because the JP Morgan share price has dropped by a third since November. So when interest rates ripped up, the JP Morgan share price started coming off quite heavily. And it bounced heavily when the market bounced just recently. So he is trying to encourage the Fed to not raise rates too rapidly. And the issue we all have, we just don't know whether they'll handle that. So whilst the market US market runs out of steam, the uncertainty remains it looks like we're probably not going anywhere until we have you know a couple of months of numbers and we get a handle on whether growth is going to be knocked off its trajectory by interest rates or not. Meanwhile, in our market things going okay, I've got charts for the ASX 200. And now we're in a sideways trading range. So the middle of that range at the moment the banks are holding up quite nicely. The iron ore price as Chris talked about has turned in the last week or so. And the resources sector is in a fairly long term big uptrend and you'd feel pretty comfortable I think with this Chinese reopening trade holding on to resources at the moment. And Macquarie had a bit of research out yesterday. I'm not sure I mentioned it in the podcast yesterday but of research out yesterday saying that the sector should remain supported ahead of the results season coming up in August with the dividends coming up as well. So happy with resources but just on the banks. I would also point out that CoreLogic house price numbers yesterday ended a 20 month run of gains national house prices fell point 1% In May Sydney down quite a savage 1% and Melbourne fell point 7% Most other capital cities were up obviously the problems are higher interest rates they are coming along official rates haven't really moved much yet but they are set to rise and inflation. We thought inflation wouldn't matter. But when you're paying $200 to fill up your four wheel drive at a petrol station at the moment especially when it's your kids car let me tell you if you do start to think maybe I can't go out spending money so inflation and higher interest rates hurting the property market at the moment and those problems are going to be with us for a while until the Russian Ukraine war ends energy prices are going to stay out the inflation trend is not transitory by the looks of it. It's quite hard set and the housing markets are unlikely to fire for some time. And although you might suggest oh maybe we should sell domain group or raa or housing related stocks there's a good one McGraw remember McGraw listing and it was all a disaster real estate agent mea is the code small tiny stock and only a few cents box that's down 49% since November last year, domain Holdings is down 46% Reo is down 42%. The message on that is housing related stocks have already been built into the only end of that sector that's holding up of course is the banks and you sort of wonder with the CBA. He's got a dividend coming up in August but the other banks, you've got five months to wait for your next dividend pay. You sort of think maybe that's wasted money at the moment sitting around waiting for things to quieten down, especially if the housing market falls over. I wouldn't scare anyone out of the banks. They're doing pretty nicely compared to the rest of the world and certainly wouldn't scare any income focused retirees out of it. But you do sort of think well, that sector has held up quite well housing markets coming off the top maybe I'm not going to make money in that sector for a while. Otherwise, I've also commented on the lithium stocks right or wrong and I know that there are going to be some lithium disciples who are going to be the last shags on the rock defending the lithium space but you do have to respect the fact that sell off yesterday, whether it was Goldman Sachs or the BYD thing, it doesn't really matter. That was a significant sell off corrections often start fast and when you've got what I called NOGs. I think that should be negs, no earnings, good story stocks, no earnings. There are no foundations and sentiments everything. So sentiments turned the top yesterday. And you might just wonder whether you should be buying. I know we can retain a long term faith but short term lot of profits and a lot of traders will be saying stand aside. So you're going to end up being a long term investor if you don't do something about it now. Anyway, lots of views on lithium, obviously shores I don't know whether Henry mentioned shores had a piece of research out today, which was a very good write up on the lithium sector and they're essentially positive. There are some good Australian hard rock developers they call them in WA, they mentioned igvault, Pilbara minerals pls mineral resources mi n global lithium resources G L one line town resources ltr and Lipitor co have I pronounced that right? LPD. Anyway, they have a piece of research out talking about that and suggesting long term outlook for lithium is still very good. And that is Oh, I did have an article I wrote called Money isn't everything which I've had in the newsletter this week. I put it up on Live Wire, I've now got more likes than anybody else, which will irritate all the other writers and it's Top of the Pops on the trending front and lots of comments worth a read there. Also, I put in today as I promised yesterday, that article why it's better to be a small investor. That's a good article should give you a warm glow about being an at home investor rather than a fund manager. There are advantages of being a fund manager but plenty advantages from being independent, free to do what you want and avoiding the issues fund managers have, particularly with regard to liquid and Mike just mentioned, did you see the Tesla comment today, Elon Musk saying get into the office or don't work Tesla, you can pretend to be working for someone else good quote. Anyway, that's, that's it for me.

Ben O'Leary  16:52

Lots of interesting stuff there. Thank you, Marcus. And we'll finish with our question of the day as always, and today it is what is your favourite quote Layton?

Layton Membrey  17:00

Thank you, Ben. I am a sucker for Matthew McConaughey. And if you haven't listened to his book, I highly recommend it. So you kind of need to picture this in his voice. But the man who invented the hamburger was smart. The man who invented the cheeseburger was a genius.

Ben O'Leary  17:15

I'm glad you didn't try it on him his voice.

Marcus Padley  17:17

No. Right, right, right.

Ben O'Leary  17:22

Anyway, Henry favourite quote,

Henry Jennings  17:23

My favourite quote comes from the great Derek Trotter, also known as Dell boy, and it is Who Dares Wins rodders is that also your favourite TV show from the mid 2000s as my favourite t shirt is one of the classics of British television. Who Dares Wins is also as you will probably know, the motto of the SAS.

Ben O'Leary  17:42

Very good. Chris?

Chris Conway  17:43

Luck is what happens when preparation meets opportunity. 

Ben O'Leary  17:46

Thanks, Chris. You're welcome, Marcus?

Marcus Padley  17:47

If you've got enemies, it means you've stood up for something after all. Anyway, Winston Churchill. He also made a comment, which I've rather liked about some people's idea of free speech is they can say what they won't. But if anybody says anything in reply, that's outrageous, which is sort of a pre social media analysis of social media, say what you want. But don't anybody say anything that you don't want to hear?

Ben O'Leary  18:13

Very good. And I'll put mine forward. I'm not sure where the origin is. But it is if you can do something about a situation, why worry? And if you can't do something about a situation, why worry too. Basically, everything is in our control and your control. If it's in your control, go fix it. And otherwise, don't worry,

Marcus Padley  18:28

When we're on motorcycle tour. That was my brother in law's constant quote to me, if we can't do anything about it. Let's not worry about it.

Ben O'Leary  18:34

Minimise unnecessary stress. Very good. We'll wrap that up. Thanks, guys.