Market wrap: ASX falls as Bank of Japan flexes its muscles
WEEKLY MARKET REPORT
The Australian share market shed 0.7% in Friday trade as the Bank of Japan shook up markets with a pledge to be more flexible in managing interest rates.
The 52.3-point fall to 7403.6 points on the ASX 200 was a solid fall but still left the Australian market up 1.2% for the week after it had followed Wall Street higher on the back of some very resilient economic numbers.
Indeed, Australian shares were also following US shares lower as Wall Street’s remarkable 13-day rally took a break despite, or perhaps because of, more resilient US numbers.
Company profit reports were better than expected and the jobs market remained really strong but it was this very strength that led to worries that inflation might stage a comeback.
Rally withers due to economic strength
While the 13-day rally was fed on the idea that the US Federal Reserve had managed to conquer inflation without putting the economy into recession, the latest fear is that the strong jobs market will keep household spending up and encourage companies to keep raising prices, adding a leg to the inflation story and leading to interest rates staying higher for longer.
It may only be a hypothesis at this stage but after running hard for a while on the previous soft-landing theory it was inevitable that eventually a new theory would replace the old one.
Broad-based falls
In Australia, the share price falls were broad, with property, materials and discretionary underperforming and only the utilities sector closing up, as investors turned defensive.
Energy stocks were not too bad though, staying flay after shares in sector leader Woodside Energy (ASX: WDS) adding 0.3%.
The Bank of Japan decision to keep its policy targets but allow greater flexibility on its 10-year government bond target of 0%, by offering to buy bonds at 1.0% rather than the previous 0.5% sending Australia’s 10-year bond yield up significantly to 4.09%.
Rates set to peak?
The fall in June retail trade figures led some economists to change their estimates of when Australian rates would peak.
J.P. Morgan said it now expects the next RBA rate hike to be in November rather than August after the lower-than-expected June quarter inflation and June retail sales data.
UBS is still expecting the RBA to hike rates in August, but says it is now a “closer call” and if there is no hike in August, then the peak in the cash rate may have been reached as the lagged impact of earlier rate rises come through.
The banks were all lower, led down by Commonwealth Bank (ASX: CBA) down 0.9%, NAB (ASX: NAB) down 0.3%, Westpac (ASX: WBC) down 0.3% and ANZ (ASX: ANZ) down 0.08%.
It was a similar situation for the gold miners and iron ore giants – particularly Fortescue Metals (ASX: FMG) which was down 5.4% – and pretty much everything else.
Small cap stock action
The Small Ords index rose 0.5% for the week to close on 2889.1 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Beam Communications (ASX: BCC)
Satellite solutions provider Beam Communications ended its 2023 fiscal year with record earnings, due to a series of contract wins and a 75% surge in operating cash flow to $2.5 million.
It also saw a 39% increase in its cash balance, achieving a record $5 million by the end of the June quarter.
Beam’s management credits this growth to the successful launch of the Iridium GO! exec device, as well as effective management of trade working capital and lower capex requirements.
The company also benefited from a 5-year, $18 million contract with Iridium Communications and a 53.1% revenue increase in its wholly owned SatPhone Shop business.
Beam expects to continue this trend of positive operating cash flows.
Pointerra (ASX: 3DP)
AI-driven technology developer Pointerra is set to participate in a $22.6 billion, 10-year electric grid resilience program by Fortune 500 company Entergy, building on an existing relationship.
The program will use Pointerra’s 3D platform to build a digital twin of Entergy’s network, helping to assess and prioritise tasks in a cost-effective manner.
It is expected that up to 4 million poles will be inspected and analysed using Pointerra’s software, with the company previously being paid between $30 and $60 per pole for similar work.
The project comes as US energy utilities invest billions in modernising and expanding electric networks.
Despite challenges including labour and material shortages, Pointerra anticipates securing more work due to its unique cloud platform and the advocacy of existing customers.
Envirosuite (ASX: EVS)
Envirosuite achieved record quarterly sales of $6.8 million in Q4 FY23, driven by new contracts and a 13% jump in Personal Contract Purchases.
The company’s EVS Industrial division was a significant contributor, comprising 55% of the new accounting rate of return (ARR), amid changing US legislation around environmental impact.
Envirosuite also secured a 10-year contract with Egyptian Airports Company, valued at $9.8 million, and saw increased interest in its carbon emissions modelling product.
Notably, the company’s EVS Water software was selected for use in the NEOM major city development in Saudi Arabia. Envirosuite chief executive officer Jason Cooper stated that the company enters FY24 with a strong pipeline and growing interest from major industry participants.
Living Cell Technologies (ASX: LCT)
Living Cell Technologies (LCT) has filed a provisional patent application for AI-116, a drug candidate combining cannabidiol (CBD) and an off-patent pharmaceutical ingredient to treat dementia.
The application is the start of a second R&D project for LCT and positions it ahead of potential competitors.
The company plans to conduct pre-clinical studies with an Australian university to assess AI-116.
LCT recently proposed a name change to Algorae Pharmaceuticals, reflecting its shift towards incorporating artificial intelligence (AI) in drug discovery and development.
The global dementia drugs market, valued at over $12.87 billion in 2021, is projected to reach $29.3 billion by 2031.
Tambourah Metals (ASX: TMB)
Tambourah Metals discovered 1% grade lithium from rock chip sampling at the Russian Jack project in the Pilbara, located 1km from previously reported lithium-bearing pegmatites.
The company is boosting exploration for lithium-caesium-tantalum pegmatites at newly acquired prospects, including Haystack Well.
Tambourah has partnered with CSIRO to define first-pass exploration targets across the Russian Jack project, which encompasses five exploration licenses and three applications.
The company confirmed lithium presence at its Bonney South project and returned up to 589 parts per million lithium soil sampling at Haystack Well.
Tambourah is planning heritage surveys and will work with the Palyku people to clear priority areas.
The week ahead
As mentioned earlier, the biggest decision to be made this week is by the Reserve Bank Board, which is still something of a flip of a coin decision despite the better-than-expected inflation data for the June quarter.
Other economic data to watch out for includes the retail trade release on Thursday, inflation figures, consumer sentiment, building approvals, lending figures and car sales.
The Reserve Bank statement on monetary policy out on Friday will also include updated economic forecasts which will make for interesting reading, given the uncertainty surrounding almost every measure you care to mention.
Offshore releases for the week include purchasing managers’ indexes in most of the major economies.
Just in case the Australian RBA sits on its hands this week, the Bank of England hands down its rate decision on Thursday and a quarter point rate hike is expected.
For the US, Friday’s job figures will be the biggest news with the jobless rate expected to be steady at 3.6% with a lift in jobs of about 180,000.
This week will also usher in the Australian profit season with some of the companies reporting including Credit Corp (ASX: CCP), Pinnacle Investment Management (ASX: PNI), BWP Trust (ASX: BWP), Resmed (ASX: RMD) and Block Inc (ASX: SQ2).
The US profit-reporting season continues with some of the companies to report being Merck, Caterpillar, Yum! Brands, Amazon, Apple and Atlassian.