Weekly review: Aussie market muted after strong offshore rises

After a roller-coaster week in which world share markets gyrated rapidly, the Australian market was understandably cautious on Friday – rising 0.4% as measured by the ASX 200 to 6994.8 points, but still falling 2.1% for the week.

Instead of following the strong bounce in European and US markets after some solid support for struggling banks such as Credit Suisse in Europe and First Republic Bank in the US, Australian investors instead occupied some middle ground.

They bid up the price of energy stocks but were predominantly cautious about the outlook in other sectors.

Energy stocks the heroes

That saw stocks like oil and gas major Woodside (ASX: WDS) rise 2.7% to $31.94 and Santos’ (ASX: STO) shares up 1.6% to $6.93.

The energy sector as a whole rose 2.3%, but elsewhere the bounce was much more muted than what occurred on offshore markets.

While eight of 11 sectors were up, tech (1.2%), financials (up 0.9%), discretionary retail (up 0.8%) and staples (up 0.7%) were less convincing than their offshore cousins.

Property shares were the biggest drag on the Australian index with some down by as much as 3%.

Weekly figures look sick

The weaker performance in Australia drove our market’s weekly loss to 2.1% which is the worst week for six months while the now six-week losing streak is the longest since the worst of the GFC more than 14 years ago.

All of this is a long way away from the S&P 500 which recorded its best day in almost two months with a 1.8% jump after a group of big banks announced plans to deposit US$30 billion into the troubled First Republic Bank.

Similarly, the Dow Jones overcame an initial loss of more than 300 points to eventually climb by 371 points and record a 1.2% rise while the tech heavy Nasdaq was up an impressive 2.5%.

All of this global volatility came after the collapse of Silicon Valley Bank late last week in the second-largest bank failure in US history, which has swung market attention on to banks with similar traits such as a high level of uninsured deposits or a big store of unhedged bonds with falling values.

First Republic becomes the next target

First Republic Bank was one target that suffered a 36% share market rout before bouncing back hard after a group of 11 major banks announced they would deposit US$30 billion in the Californian bank.

In Europe, long troubled Credit Suisse was an obvious candidate for another round of selling and reached a record low price, but that has now been fought off by a 19.2% bounce after an announcement that Credit Suisse will borrow up to 50 billion Swiss francs from the Swiss National Bank.

The coming week is still highly uncertain with nervous trading to be expected as investors look far and wide for banks and financial institutions that should be subjected to a blowtorch test to see if they wilt or not.

Small cap stock action

The Small Ords index fell 2.59% this week to close on 2737.3 points.

Small cap companies making headlines this week were:

Pure Hydrogen (ASX: PH2)

Australian clean energy company, Pure Hydrogen, reported a significant increase in revenue and net profit for the first half of its financial year ending December 2022.

Revenue for the period surged to $6.13m, up from $206,000 in the same period the previous year, driving NPAT up to nearly $4.3m, compared to a loss of $808,000 in the same period of the previous year.

The company has an estimated $14.7m in cash to pursue growth plans. Pure Hydrogen’s strategy is to develop a hydrogen ecosystem to capitalise on the growing demand for hydrogen in Australia.

Among other initiatives, the company is building and delivering hydrogen-powered trucks to global brands such as PepsiCo and developing hydrogen fuel cell city buses in collaboration with HDrive.

Wellnex Life (ASX: WNX)

Also making news this week was Wellnex Life, which announced its intention to launch medicinal cannabis products into Australia’s rapidly emerging Special Access Scheme Category B (SAS-B) market.

The launch will be conducted in collaboration with OneLife Botanicals, and the company has added national pharmacy retailer Chemist Warehouse to its joint venture.

Five co-branded medicinal cannabis products will be introduced before year-end, and the national pharmacy retailer will retain a 10% equity in the joint venture.

Wellnex will also distribute the products through other pharmaceutical channels, in addition to Chemist Warehouse.

To facilitate market penetration, Wellnex has reached an exclusive agreement with Australian data collection company OnTracka to develop a telehealth application for SAS-B customers.

Frontier Energy (ASX: FHE)

A critical milestone was achieved for Frontier Energy this week after it announced it had secured a binding water supply agreement with Western Australian Government-owned Water Corporation for its Bristol Springs renewable energy project.

The agreement allows Frontier to use up to 1,250 kilolitres of water per day – providing enough water for a 150MW electrolyser to produce green hydrogen.

This contract is planned to take effect at the end of 2024 and has an initial 15-year term. Frontier aims to be an early mover and low-cost renewable energy and green hydrogen producer.

Also this week, WA Government publicly threw its support behind Bristol Springs with Hydrogen Industry Minister Roger Cook saying the project was a “fantastic example” in leading the way to becoming a low cost producer of Australian-made renewable hydrogen.

Recharge Metals (ASX: REC)

Explorer Recharge Metals has acquired the Express pegmatite project in Quebec’s James Bay region, which is emerging as a world-class lithium province.

Express is located just 12km south of Allkem’s James Bay deposit and 15km east of Cygnus Metals’ Pontax asset, and surrounded by significant lithium resources and discoveries.

Recharge is acquiring Express from DG Resource Management in a deal that includes the payment of C$250,000 cash, 22.5 million ordinary shares and almost 6.19 million options.

The company will issue further shares upon meeting various milestones at Express.

To fund the acquisition, Recharge revealed on Friday its initial $2.5 million placement to sophisticated and professional investors had been upscaled to $3 million following significant interest.

Neurotech International (ASX: NTI)

Neurotech International reported positive results from phase I/II clinical trials of its drug candidate NTI-164 for treating children with Autism Spectrum Disorder (ASD).

The drug, derived from cannabinoid combinations with low levels of THC, showed significant benefits in clinically validated assessments at 52 weeks.

Conducted at Melbourne’s Monash Children’s Hospital, the trial observed improvements in severity of illness, social responsiveness and adaptive behaviour.

Neurotech plans to conduct a larger phase II/III double-blind, placebo-controlled study at the same hospital, commencing in the 2023 December quarter.

Besides ASD, NTI-164 is also being tested for difficult-to-treat conditions PANDAS and PANS.

The week ahead

There is no contest for the biggest economic event of the coming week with the US Federal Reserve’s interest rate decision on Wednesday a vital point for world trading.

The emerging consensus is that given the apparent fragility of parts of the US and global banking system, that a planned rise of 50 basis points will instead be replaced by a 25-basis point rise.

Obviously, that leads to a potential wide variety of market moving announcements from a very dovish “no change” through the expected 25-basis points right through to the previous hawkish target of 50-basis points.

Inflation is still too high, which is why the European Central bank opted for a 50-basis point hike but a couple of rapid-fire bank failures and a deposit bailout should have a sobering influence on US Fed chair Jerome Powell and his US Federal Reserve Open Market Committee colleagues.

In the usual perplexing market reaction, surprise will be the big enemy with the outlying expectations of no change and 50-basis points holding the potential to create the most volatility compared to the expected 25-basis point rise.

Other US data to watch for includes existing homes sales, jobless claims, new home sales, the current account and durable goods orders.

Here in Australia, there may be some hints about the future direction of interest rates in a speech by Reserve Bank Assistant Governor Christopher Kent, while other highlights include consumer confidence measures, the release of minutes from the last RBA board meeting which hiked rates by 25 basis points, labour force numbers and purchasing manager intentions.

Also of interest will be the finance and wealth measures which are expected to show that wealth has shrunk as property and share markets have subsided and interest rates have risen.

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