Weekly review: Aussie market catches a dose of optimism from US rises

Aussie market optimism US rise July 2022 ASX
WEEKLY MARKET REPORT

The Australian share market enjoyed its best week since March, marking up a 2.8% gain for the week despite a slightly lower result on Friday.

While a 2.8-point fall in the ASX 200 to 6791.5 points might have been a slightly disappointing end, it was still a very strong week as the local bourse tracked a 5.4% rise in the S&P 500 since last Thursday.

The positive tone was even more remarkable when you consider that the European Central Bank (ECB) has just raised its interest rates by 50 basis points – the biggest rate hike since 2000, and the first since 2011.

The key to the resilience – apart from some lower commodity prices, which dragged down the big miners and energy stocks – was US corporate earnings, which were surprisingly strong in the face of strongly rising inflation and interest rate hikes.

It might be a pipe dream but traders began to believe that a Cinderella ending was possible with less need to hike US interest rates as weaker US economic data, coupled with stronger than expected corporate profits, led to speculation that interest rate rises could be more moderate than expected.

Back in Australia that led to falls in most sectors in Friday, with the exceptions being gains in financials, real estate and also IT.

Banks on the rise

Banks were generally stronger with Commonwealth Bank (ASX: CBA) up 0.2% to $97.80, Westpac (ASX: WBC) 1.1% higher to $21.07, National Australia Bank (ASX: NAB) rising 0.7% to $29.88 and ANZ (ASX: ANZ) surging 3% to $22.59.

Property trusts also basked in a rare moment in the sun, shown by a 1.8% rise in Scentre (ASX: SCG) shares to $2.84 and a 1.8% rally in GPT (ASX: GPT) shares to $4.50.

In the IT sector, Xero (ASX: XRO) rose 0.8% and Block (ASX: SQ2) was up 0.6% to $107.71 after the tech heavy Nasdaq jumped higher courtesy of lower bond yields.

Energy stocks in particular were weaker as oil fell below US$100 a barrel and communications fell too, with Telstra (ASX: TLS) down 1.3% to $3.96.

Of particular note was a stunning 5.8% weekly rise in the ASX Small Ords, with small companies enjoying their best week since October 2020.

ZIP races higher

Another individual stock that really did well was buy now pay later company Zip Co (ASX: ZIP), with shares climbing 54.4% for the week and doubling this month.

The share price rise followed the announcement of a 27% lift in its revenue to $160.1 million and plans to reduce cash burn to speed up the company’s quest for profitability.

IAG loses ground

In other individual stock moves, Insurance Australia Group (ASX: IAG) saw its shares fall 1.4% to $4.21 after it announced its preliminary results for the financial year of a $347 million profit, up from a $427 million loss the previous year.

Gross written premiums grew 5.7% but the company’s insurance profit margin of 7.4% ($586 million) was a big fall from the previous year.

Another stock suffering from individual circumstances was Coronado Global Resources (ASX: CRN) with its shares down 8.1% after the coal miner revealed its average mining costs per tonne sold grew to $79-81 per tonne, due to cost pressures, plus a 22.5% reduction in saleable coal due to wet weather in Queensland.

Small cap stock action

The Small Ords index jumped a whopping 5.84% to close the week at 2869.4 points.

July ASX 200 chart 2022
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

ioneer (ASX: INR)

Emerging lithium-boron producer ioneer reached a huge milestone this week after it announced a binding offtake deal with motor vehicle giant Ford.

Ford has agreed to purchase 7,000tpa of the lithium produced from Rhyolite Ridge from 2025. This represents 34% of ioneer’s planned 20,600tpa lithium carbonate output for the project.

The price will be set quarterly via an agreed market-based formula.

ioneer executive chairman James Calaway said the agreement with Ford was a “significant milestone” for the company and that it highlights the mature stage of Rhyolite Ridge and its “ideal position” to serve the US domestic market with critical battery materials.

Credit Clear (ASX: CCR)

The June quarter heralded record revenue of $8.63 million for receivables management technology provider Credit Clear.

Q4 FY2022 revenue was 41% higher than Q3 FY2022 and up 160% on the previous corresponding period.

Credit Clear noted the record Q4 FY2022 had been underpinned by an all-time monthly high of $3.12 million in June.

This took the company’s annualised revenue run rate to $37.44 million.

The record growth has been attributed to Credit Clear’s “disciplined approach to ongoing investment in technology”.

Blue Energy (ASX: BLU)

The second well of Blue Energy’s pilot appraisal program has been spudded at the Sapphire Block in ATP 814.

Located in Queensland’s north Bowen basin, Blue’s Sapphire Block is only 2km from the Arrow Energy’s Moranbah operation, which is one of the oldest gas fields in Australia and geographically, the country’s largest.

It is expected the second well Sapphire 6V will take three days to complete and reach a total depth of 900m.

The first well of the program Sapphire 5V was completed earlier in the week and hit a total depth of 850m. It intersected 45m of net coal across the coal measure target formations, which was 20% thicker than anticipated.

TNG Ltd (ASX: TNG)

TNG Ltd now has $600 million in conditional letters of support for financing its Mount Peake integrated mining and downstream processing operation.

The company revealed on Tuesday that German export credit agency Euler Hermes had provided indicative key terms for a $300 million financing package for developing the project which would produce vanadium, titanium dioxide and iron products for global markets.

This letter of support follows one issued to TNG earlier this month from Export Finance Australia for $300 million.

TNG managing director and chief executive officer Paul Burton said the Euler Hermes commitment marks a “significant and exciting milestone” in a multi-source funding strategy for Mount Peake.

The company chased up the financing news with an agreement with Ultra Power Systems to explore opportunities for vanadium redox flow batteries in Australia.

TNG and Ultra will collaborate on the identification, development and deployment of a combined renewable power generation and VRFB storage system for the Australian market, which includes producing Ultra’s high-performing mixed-acid vanadium electrolyte.

iTech Minerals (ASX: ITM)

The REE potential continues to increase at iTech Minerals’ Caralue Bluff prospect, which is part of the company’s Eyre Peninsula tenement package in South Australia.

On Friday, iTech reported it had received assays from 27 holes at the prospect, with 12 of those containing “significant” REE with grades exceeding 350ppm TREO.

From this assay batch, highlight results were 12m at 2,343pm TREO from 9m; 17m at 1,774ppm TREO from 4m; 12m at 1,326ppm TREO from 6m; and 16m at 776ppm TREO from 2m.

iTech managing director Mike Schwarz said REE has now been identified across a 10km by 9km area at Caralue Bluff.

Friday’s results followed positive assays reported earlier in the week of 18m at 2,050ppm TREO from 4m; 32m at 1,223ppm TREO from 4m; 13m at 1,027ppm TREO from 23m; and 4m at 1,810ppm TREO from 18m.

Drilling to-date at the prospect has intercepted numerous wide and high-grade zones of mineralisation.

The week ahead

The major events this week that will move markets are the decision of the US Federal Reserve on interest rates and inflation figures.

Following a two-day meeting, the US Fed decision is due on Wednesday with most observers expecting a 0.75% rise, which would take official interest rates up to a range of 2.25% to 2.5%.

The rise is to counter mounting inflation and in an interesting counter-point the June personal income and spending data is out on Friday, with the widely watched personal consumption deflator (PCE) expected to rise by 0.5% in July.

Inflation set to jump in Australia

In Australia, the inflation numbers out on Wednesday are expected to be very important with the June quarter CPI expected to rise by 1.9% to 6.2% annualised – the highest since 1990.

These inflation numbers are forecast to cause the local Reserve Bank board to raise the cash rate by 0.5% to 1.85% on 2 August.

Apart from an update on the federal budget from Treasurer Jim Chalmers on Thursday, the other major market moving news is expected to be corporate profit reports with a start of the season featuring a lot of well-known names.

Prominent among them will be lots of miners including Oz Minerals, South 32, Rio Tinto, Regis Resources, St Barbara, Fortescue Metals and Mineral Resources, with other companies reporting including Cogstate, Janus Henderson, Unibail-Rodamco-Westfield, Origin Energy and Insignia Holdings.

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