Weekly review: ASX 200 drops to four-week low as QBE fights back

After another soggy week that brought about a 2.1% market fall and took the ASX 200 to a four-week low, it is hard not to get a little discouraged by the market direction.

The one consolation is that things could have been a lot worse with a rise in the iron ore price to a two-week high keeping interest in the big miners bubbling along and the odd sign of good news also sparking some hope.

In Friday trade it was big international insurer QBE (ASX: QBE) that surprised on the upside, with the stock rising more than 9% at one stage after the company revealed a 15% jump in full-year revenue to $US23.78 billion.

Naturally interest rates and inflation remain the dominant market theme and there was little good news on either front in the past week.

RBA governor Philip Lowe told the Senate that interest rates could come down as early as next year if the economy stays its current course, and whacking banks for failing to pass higher interest rates on to depositors.

He urged depositors to shop around to score a rate above 4%.

US hit by sticky inflation

In the US, the excitement of having seen off the peak of inflation has been tempered by news that wholesale and consumer inflation is cooling much more slowly than many had anticipated, with the investors now concerned they might have celebrated too early during the January rally.

In that context, the rally in QBE was notable on Friday even as the ASX200 dropped 63.50 points, or 0.86%, to 7,346.8 points.

By the end of the day QBE shares had moderated their initial gains a little to 7.4% but at least it showed that some companies could hit their forward guidance and then be rewarded on the market.

The only sector to show a rise for the day was utilities which were up 0.94%, although Rio Tinto (ASX: RIO) and BHP (ASX: BHP) continued to surf the iron ore wave a smidgeon higher.

Also swimming against the tide were Origin Energy (ASX: ORG), Fisher & Paykel Healthcare (ASX: FPH) and A2 Milk (ASX: A2M) on the back of closing in on permission to sell infant formula in China.

Majority of stocks were falling

There were plenty of stocks falling, of course, with IT, real estate and energy stocks all lower while most of the banks were also lower.

Infant goods retailer Baby Bunting shares (ASX: BBN) were down by a hefty 6.1% after news that the company had suffered a 67% profit plunge as rising costs hit its bottom line.

Same store sales were down and long-serving chief executive Matt Spencer will now leave the job by the end of this year, unleashing an executive search.

It was a poor day of trading overall with a few highlights but compared to the 1.4% daily fall in the S&P 500, it could have been a lot worse.

Small cap stock action

The Small Ords index was steady, gaining 0.08% for the week to close on 2897.9 points.

Small cap companies making headlines this week were:

Piedmont Lithium (ASX: PLL)

Piedmont Lithium has announced an agreement with South Korea’s LG Chem, which will add US$75m to its equity base, a stake in the company and a large spodumene deal to its order book.

LG Chem has committed to purchasing 200,000 tonnes of spodumene concentrate over four years from Piedmont’s North American Lithium joint venture.

Beginning in Q3 2023, Piedmont will ship 50,000 tonnes of spodumene concentrate annually to LG Chem, which plans to use the material to produce cathode materials for North American customers.

Piedmont has also agreed to give LG Chem priority negotiation rights for 10,000 tonnes per annum of lithium hydroxide it will produce.

Megado Minerals (ASX: MEG)

Megado Minerals, which also owns the North Fork rare earths project in Idaho, has acquired a 130 sq km lithium property in James Bay, Quebec, adding to its stable of hard-rock mineral projects.

he Cyclone project is close to several lithium discoveries in Quebec, and the company says there is also significant potential for nickel and gold.

The initial work on Cyclone will include identifying pegmatites and choosing drilling targets.

The James Bay region is fast emerging as a premier hard-rock lithium district, the company said. Megado raised $2.7m to finance the acquisition.

Kingston Resources (ASX: KSN)

Kingston Resources’ Mineral Hill development in New South Wales has achieved record-high gold production, with 1,457 ounces of gold generated from the tailings storage facility (TSF) project during January.

The reconciled processing recovery rate also broke records, rising to 64.8% from 58.5% in December. The all-in-sustaining costs for January were $1,611 per ounce and the company sold gold for $2,725 per ounce that month.

Kingston managing director Andrew Corbett praised the operations team’s cost-cutting focus to battle industry inflation and expressed confidence in the plant’s optimisation for the remainder of the TSF project and in the firm’s transition to hard rock mining.

Kingston Resources expects to continue processing Mineral Hill tailings until 2024, followed by moves to Pearse South, Pearse North, and other open pit targets.

Wellnex Life (ASX: WNX)

Health and wellness company Wellnex Life has delivered its first batch of Pharmacy Own over-the-counter products to Clifford Hallam Healthcare, an Australian pharmaceutical and medical consumables company.

The exclusive distributor has a network of over 2,500 pharmacies and will be responsible for selling the products. Wellnex is targeting the launch of up to 20 core products from the range in the first 12 months and more than 50 in the long term.

The Pharmacy Own brand aims to provide consumers with the same quality product as major brands on the market, at a fraction of the price.

The deal is expected to increase Wellnex’s national exposure to the healthcare market.

Venus Metals (ASX: VMC)

Venus Metals Corporation has started a reverse circulation drilling program in Manindi North in the Youanmi lithium project to examine new lithium soil and rock chip anomalies.

The program aims to determine whether the site has pegmatite-hosted lithium-caesium-tantalum mineralisation in the bedrock.

A geochemical soil survey in January identified three east-northeast anomalies in the area, which had not been historically tested.

The Manindi North prospect is located in the Youanmi greenstone belt’s granite-greenstone contact zone, an area considered promising for LCT pegmatite mineralisation.

At the Greenbushes East Exploration project, adjacent to the Greenbushes Lithium Mine in Western Australia, Venus Metals and its partner IGO (ASX: IGO) have started exploration activities.

IGO and its lithium joint venture partner hold a controlling interest in the nearby mine.

A geochemical survey will be conducted, targeting lithium, with approximately 1,350 soil samples to be collected to provide a project-wide framework for further targeting, along with two lines that will be completed across a priority platinum-palladium-nickel-copper target.

The survey is estimated to be completed by March 2023.

The week ahead

So much market action revolves around the inflation rate at the moment and this week we’ll get a really good early look at how Australia is going.

Markets now have renewed concerns about how quickly inflation is tracking down with fears it may be a bit more intractable than feared in the US and no sign of an inflation fall so far in the Australian figures.

The wage price indicator which is released on Wednesday gives a really good read on where inflation is heading in Australia and after a 1% rise in the September quarter that took the annual rate to a decade high of 3.1%, any sign of a reprieve would be a soothing balm for the local market.

Of course, the counter-point is that should there be any sign that wages are continuing to spiral higher, the wages figures would be a kick in the backside for the bulls.

Consensus is that it will probably be somewhere in the middle with a 1% wages outcome for the December quarter taking annual growth to 3.4% – not too far off the old RBA wish list of annual wage growth of 4% to 5% but still bearing the ominous ability to overshoot on the high side.

The other big local indicator which will be examined closely will be the Reserve Bank Board’s minutes from its last meeting, which turned quite hawkish as RBA Governor Philip Lowe increased his determination to crush inflation with further rate rises.

Dr Lowe’s two days of testimony in front of members of parliament did nothing to soothe those fears of an “whatever it takes approach”, even though the Governor showed some degree of empathy with the plight of struggling homeowners, some of whom had taken the desperate step of penning their frustrations in letters to him.

A forest of local company profits will also move stock prices around while offshore developments will also be important.

In the US, economic growth figures and personal income and spending numbers are the main ones to watch for.

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