Weekly review: banks bounce back as lending laws relaxed

Bank lending laws household debt Australia economy stimulus
WEEKLY MARKET REPORT

It only took one stroke of the pen from Treasurer Josh Frydenberg and the big banks were back in business, once again dominating the share market and adding an almost instant $15 billion of valuation.

The decision by the Treasurer to greatly relax responsible lending rules for the banks quickly caused a stampede of investors back into the banks as they factored in much larger than expected credit growth across mortgages, personal loans and credit cards.

Consumer groups were not so happy given Australia’s already world leading household debt levels but under the new rules instead of the banks needing to beware of lending too much, it is a case of the “borrower beware” as the responsible lending laws are watered down.

Mr Frydenberg said the change was needed because the banks had clammed up too much on lending.

Record $85.3 billion Federal Budget deficit “lost in the wash’’

Investors got the message instantly and bought the banks from the opening bell, kicking the ASX 200 1.6% higher as the other announcement of the day – the biggest Federal Government deficit on record of $85.3 billion or 4.3% of GDP for 2019-20 – was absolutely lost in the wash.

The Australian market outperformed its Asian peers and by the close at Friday the ASX 200 was up 89 points or 1.5% to finish at 5964.9 points.

Westpac (ASX: WBC) was the pick of the bunch – quite a surprise given the monster $1.3 billion fine it has just agreed to pay after committing 23 million anti-money laundering breaches.

Still, the bank added a stellar 7.4% to $17.58, following up a terrible day of banking shame with a red-letter day for its investors.

Not far behind was National Australia Bank (ASX: NAB) which jumped 6.9% to $18.37, ANZ (ASX: ANZ) which was up 6.3% to $17.93 and Commonwealth (ASX: CBA) which was up 3% to $66.13.

Perhaps Commonwealth, as the largest lender, was deemed to have the lowest growth potential.

Bendigo and Adelaide Bank (ASX: BEN) jumped 4.8% to $6.38 while Bank of Queensland (ASX: BOQ) added 2.5% and Suncorp (ASX: SUN) 2.3%.

Slump turned into a strong week

It was an unlikely end to a week which started badly as the September slump continued but that was all forgotten by Friday once the changes to the National Consumer Credit Act were foreshadowed, helping to lift the index to a weekly gain of 100 points or 1.7%, making it the best week since August.

It was a fairly bright result across all other sectors bar the defensive health stocks, with the big miners following the rebound in iron ore and gold prices upwards.

BHP (ASX: BHP) lifted 1.9% while Rio Tinto (ASX: RIO) was up 0.8% while the gold miners such as Newcrest Mining (ASX: NCM) and Northern Star (ASX: NST) were up around 3%.

Always one to hog the limelight, Premier Investments chairman and billionaire retailer Solomon Lew claimed that Myer was heading for administration and that efforts to restructure its board were futile.

Premier Investments (ASX: PMV) shares dipped 0.7% as the retail group reported a dip in FY20 sales due to the impact of COVID-19 restrictions.

Total sales fell 4.3% to $1.22 billion as a number of stores were closed but the company enjoyed a massive jump in online sales to a record $220 million and net profit also rose 29% to $138 million.

Small cap stock action

The Small Ords index fell 1.79% this week to close on 2730.3 points.

September 2020 ASX 200 XJO Small Ords chart
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Incannex Healthcare (ASX: IHL)

Clinical-stage cannabinoid development company Incannex Healthcare this week received ethics approval for the first in-human clinical trial of its lead drug IHL-42X for the treatment of obstructive sleep apnoea.

The crossover study will give patients three doses of the drug plus a placebo over four one-week treatment periods, each separated by a “washout” week.

If successful, Incannex said the drug could help meet a market need currently only served by conventional CPAP machines which have a low compliance record among patients.

Davenport Resources (ASX: DAV)

Davenport has confirmed a large JORC resource of magnesium sulphate at its Nohra-Elenda potash project in Germany.

The project is believed to contain 72Mt of the mineral kieserite which contains the fertiliser nutrient.

Davenport now has the potential to produce significant amounts of attractively priced sulphate salts as well as muriate of potash from Nohra-Elende.

Kalamazoo Resources (ASX: KZR)

Australian gold and base metals explorer Kalamazoo Resources has granted Canadian company Novo Resources an option to earn up to 70% of its Queens project in Victoria.

Queens surrounds part of the Malmsbury goldfield, which contains numerous historical gold mine workings.

Novo can earn 50% equity by granting $2 million in shares to Kalamazoo, and 70% equity by spending $5 million on exploration over five years.

Montem Resources (ASX: MR1)

Newly-listed company Montem Resources has started drilling at the Chinook Vicary area within its Chinook coal project in Canada, where a historic JORC resource has estimated a total of 149.1Mt of coal (103.8Mt indicated and 45.3Mt inferred).

Drilling aims to confirm the coal quality and intersect and define areas of structurally-thickened coal seams identified by previous drilling.

The program has been considered an important step in Montem’s strategy of building multiple coking coal mines in the Crowsnest Pass region of Alberta.

Respiri (ASX: RSH)

Health technology company Respiri has partnered with Australian-based Entech Electronics to help manufacture its revolutionary wheezo device at a factory in Shenzhen, China.

The agreement is expected to “significantly improve” production costs and reduce Respiri’s cost of goods by 85%.

Respiri has already commissioned 12,000 units for delivery in the new year.

Entech has confirmed it can accommodate monthly volume requirements in excess of 10,000 devices.

AD1 Holdings (ASX: AD1)

AD1 will contract its customer interface platform and related managed services to energy retailer Powerhub as part of a three-year master services agreement.

The agreement was signed this week with its subsidiary Utility Software Services and will commence almost immediately, with revenue expected to rise “materially” over the contract term.

Powerclub provides competitive energy prices in Australia – claiming it can cut small business and household energy bills by giving customers access to wholesale electricity.

This is usually priced between $0.03-$0.01 per kWh.

PharmAust (ASX: PAA)

PharmAust has been awarded a hefty grant by charity group FightMND for a phase 1 trial to examine if lead drug monepantel can have a positive effect on motor neurone disease.

The trial is expected to begin next year and will recruit MND patients at sites in Melbourne and Sydney.

The oncology company believes monepantel could help regulate problems associated with misprocessed and excessive intracellular proteins within patient neural cells which trigger MND-associated symptoms.

PharmAust also announced this week it had executed an agreement with a Netherlands university to test monepantel and monepantel sulfone for their ability to inhibit coronavirus infection.

Leiden University Medical Centre will be paid a fee to carry out the study and PharmAust will retain the intellectual property.

Navarre Minerals (ASX: NML)

Advanced gold explorer Navarre Minerals has uncovered more high-grade gold at its Resolution Lode target within the Stawell Corridor project in Victoria.

New results from an ongoing 10,000m diamond drilling program are believed to extend the known limits of the gold lode system by a further 200m south, and confirm a second mineralised structure 50m west of the main gold zone.

Assay highlights included a 5m intersection grading at 10 grams per tonne gold and 9.4m at 5.3g/t gold including 3.4m at 9.2g/t.

Navarre managing director Ian Holland said the company is “becoming more confident” that the geometry and style of gold mineralisation encountered to date has the potential to grow into a large deposit, on par with the nearby 4-million-ounce Magdala gold mine.

The current drilling program is designed to scope the depth potential of the 1.9km-long Resolution Lode discovery with ambitions to deliver a maiden mineral resource in early 2021.

Interviews

Chief economist at As Good As Gold Australia, John Adams, joins Small Caps to share his views on where he believes the Australian economy is headed.

Tony Locantro, investment manager at Alto Capital, share his views on what’s taking place in the stock market, where opportunity may lay and what might come next.

E2 Metals (ASX: E2M) managing director Todd Williams discusses the company’s gold-silver projects in Argentina.

The explorer has resumed drilling at its Conserrat project, following up on an earlier high-grade intercept at its Mia prospect of 8m at 7.64g/t gold and 216g/t silver. Drilling began last Friday as E2 Metals mobilised two drilling rigs.

Blue Energy (ASX: BLU) managing director John Phillips to discusses the news of Prime Minister Scott Morrison’s plan to boost gas production and supply within Australia.

The federal government identifying the North Bowen and Galilee basins in Queensland and the Beetaloo Basin in the Northern Territory as sources of gas to be prioritised by the federal government.

Blue Energy has positions in all the three nominated basins with certified gas reserves and resources in North Bowen (3,000 petajoules resources, 298 PJ reserves), and Galilee (838 PJ resources).

The week ahead

Other than continuing COVID-19 pandemic news from around the world – and particularly hard-hit Europe – there is a big array of possible market moving information around.

Importantly, we are in the lead up to the Federal Budget on October 6 so the amount of speculation around what is likely to be a highly stimulatory document will ramp up, along with guesstimates of the size of the Budget deficit which is sure to be our biggest ever by a massive margin.

Locally, there are plenty of statistics to watch out for including consumer confidence, building approvals, home values, job vacancies and retail trade.

Offshore, there are some big US numbers to watch out for including GDP and employment, consumer confidence, home prices and personal incomes and spending.

Chinese industrial profits and manufacturing numbers are also worth checking to see how the world’s second biggest economy is recovering.

This week’s top stocks

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