Market wrap: bull market and stronger commodities drive rise
WEEKLY MARKET REPORT
A combination of a surprising bull market on Wall Street and stronger commodity prices on the back of rumoured Chinese stimulus was enough to drag the Australian market out of a three-day funk on Friday.
While that was enough to drag the ASX 200 up 22.8 points or 0.3% to 7122.5 points, that still brought up a third weekly loss of 0.3%.
It seems remarkable that the S&P 500 has now rallied 20% above the lows it hit back in October last year which shows that you don’t need a perfectly functioning economy to get a solid market rise, although it should be remembered that the S&P 500 fell 25.4% in the previous nine months.
Even so, a rash of punishing interest rates rises, a trio of bank collapses and the worst inflation outbreak for a generation hardly seem to be the ideal formula for a strong and confident investing environment.
Gloom pushed stocks higher
Even the latest US rise to bring up the 20% rally was essentially a negative, with higher-than-expected jobless claims leading to a fall in bond yields, although perhaps perversely the economy’s resilience to falling into recession in the face of so many headwinds is remarkable enough to spark a bull market.
Naturally, things have not been as strong here in Australia which is only a whisker above a 10% rise since the October lows but a whiff of Chinese stimulus to help its spluttering economy come back to life combined with an Artificial Intelligence inspired 1% rise on the tech heavy Nasdaq exchange was all that was needed for the Australian miners and tech companies to rally into the long weekend.
Miners push higher
The big miners responded well to rises in iron ore and other commodities with BHP (ASX: BHP) shares up 1.3%, Rio Tinto (ASX: RIO) shares were up 0.5% and Fortescue (ASX: FMG) shares rallied 1.4%.
Gold also rallied 2.2% with stocks including Evolution Mining (ASX: EVN) shares up 1.5% and Northern Star (ASX: NST) shares added 1.6%.
Lithium stocks were also higher Pilbara Minerals (ASX: PLS) shares up 0.6%, Liontown Resources (ASX: LTR) shares up 2.2% and shares in Allkem (ASX: AKE) up 1.2%.
While Australia might not have the big technology guns such as Nvidia Corp. and Advanced Micro Devices riding the Artificial Technology wave ever higher in the US, we nevertheless joined in the technology party with shares in WiseTech (ASX: WTC) up 2.6%, Xero (ASX: XRO) up 2.7% while shares in data centre operator NEXTDC (ASX: NXT) were up 0.3%.
The big banks had a mixed day with ANZ (ASX: ANZ) shares up 0.8% to $22.85, Commonwealth Bank (ASX: CBA) shares down 0.1% to $95.80, Westpac (ASX: WBC) shares were up 0.3% to $20.25 while National Australia Bank (ASX: NAB) shares were up 0.2% to $25.20.
After another rise in official interest rates during the week that was promptly added to most bank mortgage rates, it is hard to get a read on whether the banks are about to see loan impairments rise.
Things were more uniform in the energy and industrial sectors, with most players lower on the back of sliding oil and coal prices.
Small cap stock action
The Small Ords index fell 1.16% for the week to close on 2798.7 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Limeade (ASX: LME)
Employee well-being firm Limeade has received a significant takeover bid from US online health news publisher WebMD.
Shareholders are being offered a new share price of A$0.425, valuing Limeade at $112 million, a 325% increase from its last closing price.
The merger will allow WebMD to acquire all outstanding shares of Limeade, including those underlying Limeade’s outstanding CHESS Depositary Interest.
Major shareholders holding 42% of Limeade’s stock, including chief executive officer Henry Albrecht, have given binding approval for the deal.
The transaction, including all official approvals, is expected to conclude in the third quarter of 2023.
Battery Minerals (ASX: BAT)
Battery Minerals has reported visible gold in a diamond hole at its White Rabbit project on the Stawell Gold Corridor of Victoria.
The company, which diversified into gold in 2020, believes the drilling results indicate the presence of an intrusion-related gold (IRG) system.
The project is located near the 6 million ounce Wonga IRG deposit and the 8Moz Pogo IRG deposit in Alaska.
Battery Minerals’ exploration program will focus on understanding the underlying geology to generate drill targets.
The company also has a $7.4 million investment in Tirupati Graphite, a graphite and graphene producer with operations in Madagascar and India.
Blue Energy (ASX: BLU) + Queensland Pacific Metals (ASX: QPM)
Blue Energy and Queensland Pacific Metals (QPM) have signed a non-binding MOU to fuel new projects with gas currently being flared off in a pilot well program.
The gas will be supplied to QPM’s recently acquired Moranbah Gas Project from Blue Energy’s nearby Sapphire Block.
The gas could also potentially fuel QPM’s TECH battery metals development project in Townsville.
This collaboration is seen as the first step in the development of gas reserves in the North Bowen Basin.
The deal provides Blue Energy with a strategic opportunity to earn from the pilot campaign at Sapphire Block permit ATP 814.
Iceni Gold (ASX: ICL)
Iceni Gold continues to explore the potential mineral wealth of the Christmas Gift prospect at its Everleigh Well target area in Western Australia.
Recent exploration activities have yielded very high-grade gold rock chip assays from an outcropping vein at the Christmas Gift anomaly, with samples returning grades as high as 18,207 grams per tonne gold.
The vein, initially identified by a UFF technology survey, is located within a cluster of gold prospectivity indicators.
Iceni has also found in-situ gold bearing rock chips and a significant number of gold nuggets in its ongoing fieldwork at Christmas Gift.
The information gathered will be used to develop prime targets for future exploration drilling.
ReNu Energy (ASX: RNE)
Australia’s leading superannuation firm HESTA has partnered with ReNu Energy to co-invest in hydrogen projects.
The agreement will see the two companies evaluate and potentially invest in projects developed by ReNu Energy.
The deal follows due diligence studies undertaken by HESTA and will involve the creation of a project-specific trust for joint acquisition of the Green Hydrogen Project from the RNE Group.
HESTA’s chief investment officer, Sonya Sawtell-Rickson, stated that the firm aims to support the development of projects that can deliver strong long-term investment returns while accelerating the transition to a more sustainable future.
The agreement is a significant step in Australia’s plans to develop a world-class “green hydrogen” sector.
The week ahead
Inflation is the chief bugbear in the world economy and this week we get to see whether the most influential central banks of all – the US Federal Reserve – is still determined to wrestle it lower.
Most economists are tipping a pause but they were doing that for Australia too last week and we all know how that ended up.
Interestingly, the Bank of Canada increased rates as well and the tone of central bankers generally is becoming increasingly hawkish.
One of the forgotten influences on inflation is the long-running war in Ukraine which once again sent shivers down many spines with the catastrophic destruction of the Kakhovka dam sending wheat prices much higher.
Conflicts help to drive inflation and this long running one shows no signs of winding down as we approach 470 days of conflict and is seems unlikely that the main players will be paying much attention to central bankers trying to force inflation lower through interest rate rises.
Jerome Powell might pause the rate hikes for a month or he might join the rate rise party after the Fed meets on Tuesday and Wednesday but with every increase the chances of recession grow and the pathway to avoid a recession narrows.
This is a really big week for central banks with decisions also from the European Central Bank and Bank of Japan in addition to the Fed.
By the end of the week, we should know whether the majority of central banks remain hawkish or whether some cracks begin to appear in the uniform rate raising fight against inflation.