Evening Wrap: ASX 200 recovers to flat as banks lift, AI and lithium stocks tumble

In a nutshell:

• Banks rose 1.8%, led by CBA (+2.3%), helping the index recover from a 0.51% intraday fall while the Small Ords (-1.12%) and Emerging Companies (-1.81%) sank

• AI-linked plays were sold off late after AirTrunk reportedly delayed its Singapore REIT IPO, with SKS Technologies (-20.5%) and Megaport (-9.9%) trading sharply lower

• Lithium stocks tanked, with PLS Group down 8.6% after the EU moved to cap Chinese hybrid imports at 350,000 a year

Let's dive in

• ASX 200 staged a strong reversal from session lows of -0.51% to finish breakeven, with a decent bid for most sectors outside of Tech, Materials and Real Estate

• Today’s session picked up on the trends of recent days, with the large end of town holding up while speculative appetite remains minimal (at best). The ASX 20 and ASX 50 rose 0.44% and 0.27% respectively, while the Small Ords and Emerging Companies indices fell 1.87% and 2.01% respectively. So really, no love for the speculative end

• ASX 200 Banks index rallied 1.8% after nearly breaking down to its May 2025 lows. It’s a little surprising to see CBA up 2.3% in this climate, given it trades on a price-to-earnings ratio of 23x. Meanwhile, ANZ (+1.2%) is looking awfully constructive, up 7.7% year-to-date (including dividends), trading in a very narrow range for the last two months and on the cusp of a 10-month high

• Energy and Utilities continued to catch a bid. Santos (+1.6%) closed at its highest level since September 2014. UBS raised its oil and LNG price forecasts on the view that the US-Iran conflict is deteriorating into a prolonged war of attrition, and named Santos and Origin as its top picks across the ASX energy sector

  • Santos target raised to $9.50 from $8.30 with Buy retained, with the Beetaloo Basin potentially unlocking up to $1.10 a share if proven commercial

  • Origin target raised to $13.35 from $13.25 with Buy retained, with FY27 EPS estimates lifted 21% on higher APLNG distributions

  • Woodside stays at Neutral despite EPS upgrades of 26-32% across 2026-27

• Absolute carnage across the lithium sector, with bellwether PLS Group down 8.6%. It’s now down ~21% over the last three sessions, and its year-to-date return has flipped from a peak of ~60% to -26%. Overnight, the EU moved to cap Chinese hybrid imports at 350,000 a year from as early as 1 December, roughly 45% below this year’s run rate, further stoking lithium demand concerns. Chinese lithium carbonate futures are currently down 2.1% to 106,600 yuan a tonne

• Electrical and engineering names got slammed in the last hour of trade. SKS Technologies was down around 8% at 3pm and finished 20.5% lower, while Southern Cross Electrical Engineering was up around 1% and finished 8.8% lower. Other names like Maas (-6.6%), NWH (-4.7%), SRG (-4.1%) and Symal (-3.7%) also tanked. Around the time these stocks started to roll over, AirTrunk was reported to be delaying its Singapore REIT IPO until next year due to higher rates and market volatility. So now you’ve got Firmus out, AirTrunk pulled and the KOSPI down ~5.5%

• Other AI and tech-related plays were also slammed, including Megaport (-9.9%), Codan (-6.0%) and Dicker Data (-4.9%). It really looks like a fund that was long the whole AI trade just hit the algos to get out in the last hour of trade (only half joking)

• US Treasury yields are lower across the curve, with the 2-year down 3 bps to 4.76%, the 10-year down 6 bps to 5.19% and the 30-year down 6 bps to 5.54%

• Australian bond yields are also lower across the curve, with the 3-year down 3 bps to 4.88%, the 10-year down 5 bps to 5.29% and the 30-year down 6 bps to 5.75%

• Overall, things are holding up well at the index level amid what looks like a flight to safety, defensives and energy. But it remains as volatile as ever beneath the surface, with the Small Ords down 14.5% year-to-date, breaking below its March low to trade at its lowest level since June 2025. Tech copped an absolute beating today, just as things were looking up over the last two sessions. Encouragingly, yields are starting to roll over, though not because inflation expectations are easing, but more likely because the AI trade is starting to show some cracks. That isn’t necessarily a bad thing for our market, which wasn’t priced for much growth in the first place!

• NAB business confidence fell 4pts to -13, now 18pts below its long-run average and in the bottom 5% of readings in the survey’s history

  • Employment index fell 3pts to its lowest level in five years, signalling a risk that labour demand slows from here

  • Capacity utilisation eased 0.2ppts to 82.3% but remains about 1ppt above its long-run average

  • Purchase cost growth edged up to 2.4% in quarterly terms while final price growth held at 0.8%, further squeezing margins

  • Forward orders fell 1pt to -1, around 7pts below pre-conflict levels, even as capex rose above its long-run average

• RBA minutes show inflation being driven by an overheating domestic economy, not just higher oil prices

  • Unanimous decision to lift the cash rate 25bps to 4.60%, with the board ready to increase it further if required

  • July’s inflation surprise more likely reflected domestic capacity pressures than pass-through from the Middle East conflict, staff assessed

  • Staff are questioning whether the unemployment rate consistent with the inflation target is higher than thought, with the jobless rate at 4.6% in August