Weekly review: Australian market dragged down by lower commodity prices

After bravely heading in the opposite direction to Wall Street for most of Friday, the local market finally weakened near the end to close down 0.4% to 6539.90 points.

That loss came on top of a 10.2% fall in the ASX 200 over the financial year which ended on Thursday, with a boom in resources and particularly coal failing to counteract falls in many other sectors – most notably technology.

The only consolation for the Australian market is that it could have been a lot worse, with six monthly returns on the US S&P 500 index among the worst since 1929 and down more than 21% from the market peak.

Central banks keep jacking rates up to fight inflation

Unfortunately, there is not a whole lot to look forward to, with central banks still jacking up interest rates across the world to fight inflation that is running hot and seemingly not slowing down as rates slowly but painfully begin to normalise.

Heavy selling of materials and energy stocks following commodity price falls sent the Australian share market lower on Friday, contributing to a 0.6% fall for the ASX 200 over the week.

Falls in commodity prices did most of the damage on the Australian market on Friday, with materials and energy counteracting broadly stronger share prices in other sectors.

Lithium miners had a bad day with Liontown Resources (ASX: LTR) shares down 5.2% to $1, while fellow lithium miner Mineral Resources (ASX: MIN) shares lost 4.1%.

Lower oil prices hit market leader Woodside (ASX: WDS), with shares falling 4.4% to a one-month low of $30.45.

The picture wasn’t much rosier for the big miners which as a sector fell 2.1%, with BHP (ASX: BHP) shares down 2.9% to $40.05, Fortescue Metals (ASX: FMG) down 3% and Rio Tinto (ASX: RIO) down 2.3% to $100.34.

Real estate was the best performing sector, with Goodman Group (ASX: GMC) shares adding 2.2% typical of the rest of the sector.

Individual company news also played a part with a brave decision to scrap a $1 billion investment in plastic pallets to be used in Costco’s supply chain shoring up Brambles (ASX: BXB) share price by 3.2% to $11.05.

The plastic pallets were judged to offer a poor return on investment due to rapidly rising production costs.

Another stock that jumped on good news was Imugene (ASX: IMU), with shares up 8.3% after it appointed experienced scientist Dr Sharon Yavrom as executive director (clinical scientist) as it gets closer to commercialising its immune-oncology technology.

Ship builder Austal (ASX: ASB) saw its shares fly up 25% to $2.25 after the shipbuilder signed a contract with a potential $4.35 billion for the detail design and construction of up to 11 ships for the United States Coast Guard.

Buy now pay later company Zip (ASX: ZIP) had a rare good day, with shares up 9.1% to $0.48, even if that still means they have fallen by 89% for the year.

Shares in Regis Resources (ASX: RRL) were up 7.7% to $1.40 after iron ore billionaire Andrew Forrest abandoning plans to increase his stake in gold miner.

Small cap stock action

The Small Ords index bounced 1.88% this week to close at 2664.8 points.

Small cap companies making headlines this week were:

Pan Asia Metals (ASX: PAM)

Following 18-months of diamond drilling, an inaugural resource was revealed this week for Pan Asia Metals’ wholly-owned Reung Kiet lithium project in southern Thailand.

The maiden resource totals 10.4Mt grading 0.44% lithium oxide, 0.04% tin, 0.009% tantalum pentoxide, 0.16% rubidium and 0.02% caesium for approximately 113,000t lithium carbonate equivalent.

An upgrade is expected later this year with further drilling underway.

Pan Asia Metals managing director Paul Lock said he expects the upgrades to lead to increases in confidence and tonnage.

Latrobe Magnesium (ASX: LMG)

Latrobe Magnesium has drawn the first $10 million tranche of its $23 million debt facility to secure long-lead items for its magnesium demonstration plant in Victoria.

Construction of the magnesium production plant is on-schedule, with a second $10 million to be drawn down by the start of September.

At this stage, the demonstration plant is expected to be completed by March next year, with commissioning to occur by the end of June.

The plant will process industrial fly ash waste from burning brown coal into magnesium.

4DMedical (ASX: 4DX)

Making headlines this week was 4DMedical, which inked a deal with I-MED Radiology Network (I-MED) to supply its lung imaging technology to more than 250 Australian clinics.

Under the three-year agreement, 4DMedicals patented XV technology and Lung Ventilation Analysis Software (XV LVAS) will be rolled-out to I-MED’s clinics in Sydney, Melbourne, Adelaide and Perth.

The industry-first lung imaging technology enables physicians to better understand airflow and identify respiratory deficiencies.

“This deal represents a significant opportunity to drive revenue for our company creates a framework for the rapid commercialisation of future 4DMedical products,” 4DMedical managing director and chief executive officer Dr Andreas Fouras said.

Propell Holdings (ASX: PHL)

Record growth for small-to-medium business loan provider Propell Holdings has continued with lending volumes for the June quarter expanding to $3.4 million – up 35% on the March period and 320% compared to the same time last year.

This was driven by the highest lending on record during May and June, which was underpinned by a new credit product along with improvements in platform customer financials and sentiment.

Adding to this was a 40% quarter-on-quarter increase in the average loan size for Q4 FY2022. Propell says increasing loan size is a key indicator of customer quality and is critical in scaling the business.

Customer numbers were also up with more than 2,150 small-to-medium business customers on its platform for the period.

Wellnex Life (ASX: WNX)

FY2022 revenue rose 6.6% for Wellnex Life and the company expects this growth to accelerate in FY2023.

For FY2022, Wellnex’s unaudited revenue reached $19.5 million, with around $3 million in purchase orders to be recognised in FY2023.

In FY2023, revenue is expected to rise 49% on FY2022 levels along with boosted margins for its in-house brands.

Wellnex chief executive officer George Karafotias said the company’s progress had been strong in FY2022 despite global supply chain issues.

“We look forward to continuing to expand our pipeline of new product offerings into FY2023 and beyond – to serve the growing health and wellness market,” he added.

92 Energy (ASX: 92E)

Drilling at the Gemini Mineralised Zone (GMZ) discovery within 92 Energy’s Gemini project has intersected what the company says is the best interval of uranium mineralisation at the discovery so far.

A calibrated gamma probe returned 41.8m at 0.5% uranium, including 6.4m at 2% uranium. Other holes returned readings of 34.4m at 0.2% uranium and 9.9m at 0.3% uranium.

“As we suspected, mineralisation is becoming stronger and thicker in the up-dip direction towards the southwest,” 92 Energy managing director Siobhan Lancaster explained.

Drilling is continuing at the project with 6,000m planned. Drill core samples have been sent for analysis with these results pending.

The week ahead

The really big news in the coming week will be announced on Tuesday when the Reserve Bank Board is widely expected to announce another official interest rate rise.

After raising rates by 0.75% at the last two meetings to 0.85%, the tip is that rates will rise by another 0.5%, taking them to 1.35%.

Mortgages set to rise

That will mean a fresh round of rate rises on mortgages being announced this week too, which will set the most indebted home buyers off to their calculators to check how bad the damage to their weekly budget will be.

If the rate rise is 0.5% it will mark the biggest back-to-back RBA rate rises since the RBA first set rates in this way in 1990.

Rising rates naturally depress demand as they tighten household and corporate budgets and will particularly hit the property market, which has been propelled upwards in recent years by consistently low fixed rate loans.

Recession risk is real

The risk, of course, is that central banks are too successful at suppressing demand and tip the Australian and other economies into recession, instead of the hoped-for soft landing.

The other big indicator to watch out for in the coming week is local and global estimates for inflation, which has so far shown no sign of retreating from a strong growth path.

Locally, the Melbourne Institute will publish its monthly inflation gauge for June, which will be a good indicator of the size of the task ahead of the RBA in its quest to tackle inflation.

In the US, the Independence Day Holiday on Monday will see the close of financial markets there on Monday.

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