Free trade a defining Aussie share market issue for the rest of this year and beyond

Australian share market free trade

International trade is not only one of the core components of Australia’s economic performance – it is vital for our share market as well.

Which is why our market rallied a little on Friday on news that President Trump’s hefty tariffs on US aluminium and steel imports are not as widespread as widely feared, with Canada and Mexico most likely exempt and Australia and other security allies potentially in line for an exemption as well.

However, as an open trading nation and a very big exporter of iron ore, coal, bauxite and alumina – all major ingredients in steel and aluminium – Australia will very much still have a front row seat for any potential trade war between the US and the rest of the world, even if we are lucky enough to avoid the tariffs.

So if you own Australian shares – which almost every Australian with a superannuation account does – you had better hope that President Trump’s 25 per cent steel tariff and ten per cent aluminium tariff don’t result in a trade war, because we are almost certain to be a major casualty.

We simply don’t have the firepower to join in any trade war and even if we did, the memory of how ineffective decades of tariff and other forms of protection were for the now departed Australian car industry should be enough of an incentive not to go there anyway.

Reserve governor unusually blunt in opposing tariffs

As our Reserve Bank Governor Philip Lowe said this week: “History’s very clear here: protectionism is costly.”

“It’s costly to the country that implements the protectionism, it’s costly to everyone else. It’s just not the right thing to do.”

“We’ve been down that route before, many other countries have been down that route and I don’t know a single country that’s built sustainable comparative advantage and growth through protectionism,” he said.

“The evidence is exactly the reverse.”

Those unusually blunt words should be enough to set out the stakes here and this week our economic growth figures were also a sobering reading.

Australian economy already running below trend

Australia’s annual economic growth rate actually trended down slightly to 2.4 per cent over the year, well behind the long-term average of 2.9 per cent.

Even that figure relied on a rise in consumer spending to offset slowing construction and net exports.

And while total wage growth was up 1.1 per cent in the latest quarter, average earnings continued to be flat, showing that jobs are growing but wages and productivity are not.

Average compensation per employee actually fell to zero for the quarter, the worst performance in two years.

While quarterly figures can be revised, the current read shows that the Reserve Bank’s target of three per cent growth this year is highly unlikely to be achieved.

With consumers already heavily in debt and with their savings rate slumping still further to 2.7 per cent, the prospect of consumers continuing to spend to prop up even the current below trend rate of economic growth appears dim.

Given the Reserve Bank’s board finding that official interest rates should stay steady on 1.5 per cent last week and continuing low inflation, we can probably now expect a lot of future monthly meetings to arrive at exactly the same conclusion.

Myer out of the ASX 200

It is not just the consumer that is struggling, our only listed department store Myer continued its epic fall from grace by dropping out of the ASX 200.

Myer is now the second-worst performer on the ASX 200 over the past year, and will be officially cut from the index on March 19.

Shares in the retailer are now down 88 per cent since it re-listed in November 2009 and it is difficult to see how the once dominant retail empire can climb back into the ASX 200 index from here.

Chief executive Richard Umbers stepped down in February after nearly three years at the helm and has been replaced by Chairman Garry Hounsell, who now faces falling sales, weak trading conditions and heightened competition from Amazon among many well run bricks and mortar stores.

Falling out of the ASX 200 index will cause a wave of selling of Myer shares as funds that can only hold shares in the ASX 200 get out.

Small cap stocks this week

This week, the sector that shone brightest was biotechnology.

Several biotech stocks have made the headlines this week including cancer-combative Immuron and BARD1 Life Sciences, both of whom have published updated clinical studies regarding their respective technologies.

From a top-down view, the NASDAQ-listed Biotechnology Index was up around 7% over the course of this week.

So in market-led fashion, we start our round-up with the ASX biotech sector.

BARD1 Life Sciences (ASX: BD1)

This week brought with it highly encouraging independent test results for BARD1 Life Sciences. The company’s non-invasive diagnostic tool displayed “high accuracy” in detecting ovarian cancer with 89% sensitivity and 82% specificity.

The news sent BARD1 shares as high as $0.024 per share (140% higher on the day), with the stock finding strong buyer support since the announcement and closing the week at $0.026 per share.

Following its share-boosting results, BARD1 Life Sciences is in discussions with several laboratory companies to transition the BARD1 research assay towards a commercially viable platform.

Admedus (ASX: AHZ)

Admedus management may just be receiving early Easter gifts from shareholders, having delivered on last year’s promise of establishing a significant presence in the US.

Admedus has signed a 3-year agreement meaning it will gain direct access to promote ADAPT, its flagship technology suite containing products such as CardioCel and VascuCel. The deal also Admedus products will be provided to more than 1,500 hospitals as members of a major group purchasing organisation.

The company’s North American momentum was further boosted by regulatory approval from Canadian regulators this week to market CardioCel 3D and VascuCel, in Canada, alongside its flagship product CardioCel which is already available nationwide.

After a topsy-turvy week, its shares closed at $0.27 per share, up around 4% on the week.

Immuron (ASX: IMC)

Immuron revealed keenly anticipated results for its phase 2 non-alcoholic steatohepatitis clinical study. The results indicate that the outcome of the trial is an important milestone toward commercialisation of IMM-124E suggesting further clinical trials and eventual commercialisation of the therapy are now a step closer for the company.

The now concluded study found that Immuron’s first-in-class, oral antibody therapy IMM-124E, resulted in a “statistically significant reduction of serum LPS levels in patients with non-alcoholic steatohepatitis,” clearly demonstrate a statistically significant reduction of serum LPS levels in the treatment groups when compared to a placebo group.

Given its strong start to the year and encouraging lab results, Immuron has scheduled several investor roadshow presentations over the coming months in Australia and the US, to showcase its technology and unveil “other exciting developments.”

OBJ Limited (ASX: OBJ)

Trailblazing OBJ has published strong results from a recent study indicating that OBJ can successfully administer ibuprofen for patients with painful knee osteoarthritis, with significant scope to widen its array-back hydrogel technology towards other applications.

More specifically, 92% of participants experienced improvement following its novel “physical science rather than chemistry” approach to developing new medical products.

One of OBJ’s business objectives is to forego all reformulation costs and new ingredient approvals, simply because they are surplus to requirements given OBJ’s non-chemical approach.

OBJ revealed that it is using magnetic arrays, electromagnetic inductors and microarrays utilising diamagnetic repulsion, induced permeation and energy redirection as a means to delivering active ingredients into various parts of the human body.

OBJ closed the week with its share price largely unchanged.

Linius Technologies (ASX: LNU)

An emergent technology company with a speciality “video virtual search engine” secured a high-profile partnership with Oklahoma State University in the United States to test Linius’ cognitive search technology in a proof of concept study.

As part of the study, the university’s 10,000-hour video library will be migrated into virtual data. The video virtualisation engine converts static videos into an interactive virtual video that can be manipulated to create seamless videos with only relevant information included.

Linius says it wants to change how video content will be created in multiple sectors such as education, recruitment, marketing, research, fundraising and media.

Following the agreed partnership with Oklahoma State University, Linius is already looking to target the remaining 4,724 universities and colleges throughout the US.

Gold Mountain (ASX: GMN)

As a junior gold explorer, Gold Mountain is working its way up to obtaining defined gold resources over the coming months. To help it along the way, Gold Mountain discovered “bonanza-grade type gold” nuggets at its Crown Ridge project in Papua New Guinea this week.

The explorer is seeking to establish a bulk gold mining operation and said it was now fully funded for the current drilling and bulk sampling program. The ultimate short-term aim is to define a maiden mineral resource estimate, as well as, identifying new drill targets.

Gold Mountain shares closed the week at $0.13 per share, up around 30% on the week.

AVZ Minerals (ASX: AVZ)

AVZ Minerals continues to go from strength to strength by making progress on both the geological and corporate fronts.

On the corporate side, AVZ Minerals secured a potential lithium offtake deal with the world’s largest lithium-ion battery electrolyte manufacturer Guangzhou Tinci Materials Technology Co (Tinci).

The memorandum of understanding between the parties paves the way to advance negotiations and formalise offtake and investment agreements.

Meanwhile, on the geological side, AVZ hit another thick intersection with visible spodumene from the Manono lithium project in the Democratic Republic of Congo.

AVZ is currently conducting a 20,000m drilling program with AVZ saying it is targeting 1.2 billion tonnes grading 1.5% lithium as a conceptual target.

In its latest drill hole, AVZ struck 282.95m of spodumene bearing pegmatite in similar proportions to previous holes including the whopping 295.05m thick intersection reported late last month.

AVZ shares closed the week largely unchanged at $0.24 per share.

The week ahead

One of the exciting things to look forward to this week is an occasional event known as Quadruple Witching, which can be just as ominous and Halloween-like as it sounds.

In simple terms stock index futures, stock index options, stock options and single stock futures all expire on the US exchanges on this coming Friday, which often leads to massive trading volumes.

This year quadruple witching will only happen on the third Friday of March, June, September and December.

Volumes rise because there will be a lot of automatic share transactions between both sides of put and call option holders, even though many of these transactions are avoided due to the earlier closing out of contracts.

It is also a massive day for opportunistic traders who often swoop in to buy and sell stocks that may have been pushed up or down due to large blocks of contracts rolling over.

This is known as an arbitrage opportunity when traders can take advantage of temporary price distortions, leading to an unusually hectic day of helter skelter trading, particularly in the final hour.

Here in Australia we will have finished trading for the week but the echoes of quadruple witching can often be felt here at the open on Monday.

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