Market wrap: Australia ignores Wall Street record on faltering miners

The Australian share market once again ignored a rally on Wall Street to a fresh record high and closed down 0.3% thanks to a broad-based slump on Friday.

It was yet another reminder of how the Australian bourse with its heavy concentration of miners and banks has disconnected from the Artificial Intelligence rally that is consuming Wall Street, with small parts of our fledgling tech sector becoming just a lonely bullish outlier.

The Australian market action was a far cry from the Wall Street excitement which saw stocks like Nvidia, Apple, Broadcom and Adobe rise strongly during and after market trade.

Tesla shares were also higher after shareholders approved Elon Musk’s controversial US$56 billion pay package.

Life 360 adds to tech dreams

The best local example of such tech exuberance was the recently Nasdaq listed tech business Life360 (ASX: 360) which impressed with a 5.5% price rise to $15.07 as investors continued to warm to the family location safety app.

It was also a good day for the uranium miners, with shares in Boss Energy (ASX: BOE) up 1.5% and Deep Yellow (ASX: DYL) shares up 1%, with both falling back a little after stronger early gains of around 3%.

Shares in gambling giant Tabcorp (ASX: TAH) also had a good day, up 10.1% to 66c after it asked the NSW Government to change wagering laws in a move that could lead to increases in the amount of tax paid by rivals such as Sportsbet and Entain.

Shares in the Australian float of strategic metals float Resouro Strategic Metals (ASX: RAU) were strong too, rising 34% on debut to 67c as investors warmed to the company’s Brazilian rare earths projects.

Part of that rise was explained because the offer price of 50c was well below its latest price on the Toronto Stock Exchange of CAD$0.56 (A$0.615), although even that target was overshot.

Having the backing of Gina Rinehart hasn’t hurt plus the $66 million raised should help propel the company towards production.

Most sectors lower

Apart from these exceptions, it was hard to find too many stocks ready to drag the ASX 200 higher, with a slight rise to consumer discretionary stocks one of the few sectors to show positive signs as the ASX 200 slipped 25.4 points to 7724.3 points.

That marks a 1.7% loss for the week after falling commodity prices caused mining stocks to wilt.

Banks and miners were mainly lower and even new deals were poorly received.

Shares in mining royalties business Deterra Royalties (ASX: DRR) fell 7% to $4.15 after it made an all-cash offer for AIM-listed British lithium mining group Trident Royalties worth £144 million ($276 million).

While the move was sold as a pivot into lithium and green metals by Deterra, many analysts were sceptical that diluting the royalties from ownership rights to BHP’s iron ore streams and reducing dividends was anything but a bad idea for shareholders.

In other news, the Bank of Japan held its interest rates at just zero to 0.1% at a meeting on Friday afternoon, but failed to provide specific guidance on the rate of future decreases in bond purchases.

Small cap stock action

The Small Ords index slipped 2.16% for the week to close at 2954.3 points.

Small cap companies making headlines this week were:

Kingsland Minerals (ASX: KNG)

Kingsland Minerals has achieved a commercial grade of +94% total graphitic carbon from initial metallurgical testing of concentrate from the Leliyn project in the Northern Territory.

The company plans to optimise flotation parameters to further improve this grade while maintaining its saleability.

Testing is also underway to assess the production of spherical graphite for battery anode materials in electric vehicles.

Kingsland’s managing director Richard Maddock highlighted the milestone as a key step towards a project feasibility study, focusing on cost-efficient production and market securing for graphite products.

Positive test results position Leliyn to meet US and European demand for non-Chinese graphite sources, bolstered by new export controls from China.

Biome Australia (ASX: BIO)

Biome Australia is set to surpass its FY2024 earnings forecast of $12.5 million after strong revenue in April and May.

The company had initially estimated $11.5 million in October 2023, which was later upgraded in January.

Managing director Blair Vega Norfolk stated that the June quarter, traditionally the strongest for Biome, has continued to show exceptional sales growth, especially in pharmacy and practitioner channels.

The company also enjoyed its first positive cashflow and EBITDA positive quarter in Q3 FY24, which is expected to continue into Q4.

Biome is anticipating further growth with the launch of its Cholesterol Probiotic in Q1 FY25, aimed at supporting healthy cholesterol levels.

Pacific Nickel Mines (ASX: PNM)

Pacific Nickel Mines has achieved two shipments per month from the Kolosori nickel project in the Solomon Islands, with the MV Servette and MV Eaubonne carrying a combined total of 120,000 tonnes of ore.

A third vessel, coordinated with Glencore International, is scheduled to arrive next week, as the focus remains on increasing ore production and lowering operating costs.

Despite heavier than expected rainfall since March, the company anticipates improved production rates as the dry season approaches and aims for a full production ramp-up to 1.5Mtpa, equivalent to three ships per month.

Additional dump trucks from HBS Machinery are expected to arrive by July and August to facilitate this ramp-up.

The stockpile area at the mine is being expanded to accommodate 180,000 tonnes of ore, with nameplate production expected to start in August, maintaining an average grade of 1.7% nickel.

EDU Holdings (ASX: EDU)

EDU Holdings has cautioned that its future earnings may be affected by the federal government’s new migration reduction strategy, which aims to return net migration to around 250,000 per year, down from 518,000 in 2023.

Despite a 244% increase in new student enrolments in term 2, non-executive chair Gary Burg expressed concerns about the strategy’s impact on international student numbers and the education sector’s integrity.

EDU expects 2024 to be challenging, especially in vocational education.

Ikon, EDU’s institute of higher education, contributed to a strong start in 2024 with first-quarter revenue of $7.8 million, potentially leading to a 44% year-on-year revenue increase.

EDU plans to focus on expanding Ikon’s course offerings and integrating its operations to support growth and efficiency.

Bubs Australia (ASX: BUB)

Bubs Australia has reported robust performance in the US market, with weekly scan revenue exceeding US$1 million and over 24,000 tins sold, up from US$750,000 the previous quarter.

The company retained its position as the best-selling infant formula on Amazon USA in May.

Managing director Reg Weine highlighted sustained demand from over 5,800 retail stores and strong online sales as drivers of this growth.

Bubs has also increased its US inventory levels to meet rising demand.

In China, the company rebounded from past distribution issues, with new management and improved online-to-offline sales expected to drive sustainable growth into the 2025 financial year.

The week ahead

Last week the focus was all on the path of interest rate cuts, with the result being a pullback by the US Federal Reserve to just one projected cut this year compared to the previous three.

The reduction in dot points, however, doesn’t seem to have left too much of a dent in the market perception though, with a bit of moderation rather than the sort of taper tantrum we used to get during the low-rate days of the pandemic.

Rates might come down more slowly than expected due to sticky inflation but that remains dependent on how lingering the price shock is, with plenty of adventurous investors still prepared to take a punt on faster cuts than currently indicated.

Cuts by Europe and Canada add to rates optimism

Actual cuts by the European Central Bank and Canada add weight to this analysis and even countries like Australia that have more stubborn inflation might get cuts earlier should the economy show further signs of deteriorating.

Central banks are just as susceptible to following the crowd as the rest of us and while there will be some regional variations, the global move to lower rates now seems inevitable.

This week there will be some valuable indicators to illustrate that with the Reserve Bank Board meeting on Monday and Tuesday before announcing a decision at 2.30pm on Tuesday, followed by a press conference.

Little chance of lower Australian rates – for now

There is almost no chance of a change in Australian interest rates despite our economic growth rate stalling and a consensus position of analysts being that Governor Michele Bullock won’t be moving from the RBA’s current “neutral” policy stance on rates.

However, while nothing is likely to be ruled in or out, the data is starting to back up the next move by the RBA being a cut, with the slim chance of one last rise close to being extinguished by slowing inflation and a weakening economy.

The Bank of England is also due to bring down an interest rate decision on Thursday, with no change expected until after the general election on July 4.

The other main feature to watch out for during the week will be a swag of Chinese economic reports, with industrial production expected to slow a little after accelerating strongly after the pandemic.

Chinese retail spending is also expected to have remained subdued.

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