Market wrap: good news on jobs turns to bad news for shares
WEEKLY MARKET REPORT
Once again, the Australian share market turned good economic news into a bad share performance as the ASX 200 index slumped to a three-month low of just 7042.3 points.
Hot US jobs figures from ADP Research found that employers added 497,000 jobs in June – nearly double what was expected – driving most traders to conclude that the US Federal Reserve is now almost a certainty to raise official interest rates on 26 July.
Simultaneous falls for bonds and shares brought back bad memories from last year with the growing consensus being that there is a lot more work to do to slow down the US economy and that interest rates will go higher and stay that way for longer than expected to get inflation under control.
Yield inversions still pointing to recession
Continuing yield inversions across the world led to renewed worries about the world economy entering a recession as the euphoria of the Artificial Intelligence (AI) rally started to lose steam rapidly.
That pessimism spilled over into Australian and Asian trade, with the ASX 200 dropping 1.7% or 121.1 points – representing a 2.2% fall for the week.
Similar falls were felt in South Korea, Japan, China, and Hong Kong, topped up by concerns about slowing activity in China’s services and manufacturing sectors.
Defensive shares provide some relief
As expected, Australian defensive shares showed the smallest losses, with utilities the best performers, with the sector down just 0.7%.
Technology, real estate and consumer discretionary sectors fell the most – all more than 2% with real estate down a whopping 2.6%.
One of the worst hit stocks was Afterpay-owner Block (ASX: SQ2), which shed 5.5% of its value to $96.32.
Pinnacle slips
Shares in Pinnacle Investments (ASX: PNI) also fell a chunky 5% to $9.26 after its trading update was below market expectations.
In an echo of the US situation, Australian bond yields rose in anticipation of rising official rates with Australian one-year government bonds adding 9 basis points of yield to 4.49% while Australian 10-year bond yields added 10 basis points to 4.22%.
Damage to the share prices of the leading companies was around expectations with Commonwealth Bank (ASX: CBA) shares losing 1.7% to $98.73 and Westpac (ASX: WBC) shares down 1.4% to $20.85.
Miners were also weaker with BHP (ASX: BHP) shares down 1.8% and Rio Tinto (ASX: RIO) shares losing 0.7% to $111.75.
Small cap stock action
The Small Ords index slid 1.26% for the week to close at 2759.1 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Tambourah Metals (ASX: TMB)
Tambourah Metals and Chilean lithium producer Sociedad Quimica y Minera de Chile S.A. (SQM) have partnered to explore new lithium targets in Western Australia.
SQM’s Australian subsidiary will gain exploration rights in six of Tambourah’s projects located north of Perth.
SQM will fund $1.5 to $3 million of exploration and development activities, earning it a 50-70% interest in the Julimar Nth project and will also reimburse $350,000 of Tambourah’s past expenditure.
SQM, a leading global lithium producer with a market cap of around $30 billion, is known for its Western Australian activities and joint ventures.
The partnership with Tambourah is expected to bring both lithium exploration expertise and additional resources for Tambourah’s exploration of nickel, copper, gold and platinum group elements.
Additionally this week, Tambourah acquired six projects from Minrex Resources (ASX: MRR), expanding its lithium portfolio in Western Australia’s Pilbara region.
The $150,000 deal, paid in cash and shares, includes 337 square kilometres of exploration licences in Tambourah, Shaw River and Coondina, with site inspections confirming pegmatite swarms at all projects.
Pacific Edge (ASX: PEB)
Pacific Edge, a New Zealand company specialising in non-invasive genomic urine tests for bladder cancer, has revised its US billing policies.
Effective from 17 July, patients will bear more financial responsibility for the cost of tests if their health insurer does not cover them.
Doctors will need to inform patients of this financial obligation, particularly if the patient’s insurance does not cover the test.
The changes follow a recent decision by Medicare administrative contractor Novitas that may end Medicare coverage for Cxbladder tests, considering them not ‘medically reasonable and necessary’.
Medicare and Medicare Advantage tests accounted for 77.7% of Pacific Edge’s operating revenue in the year ending March.
Investigator Resources (ASX: IVR)
Investigator Resources has upgraded its mineral resource estimate for the Paris silver project in South Australia to 57 million ounces of silver and 99 kilotons of lead.
The increase comes after the completion of a recent Paris South drill program and multiple exploration phases. With this update, 72% of the Paris resource is now classified as indicated.
The upgraded mineral resource estimate will be included in the company’s ongoing work for a definitive feasibility study due in early 2024.
The company also notes the current trade price of silver and projected rise, as well as Australia’s position as the 8th largest producer of silver.
Lumos Diagnostics (ASX: LDX)
Lumos Diagnostics has received FDA clearance to market its FebriDx rapid point-of-care test in the US.
The test can diagnose bacterial acute respiratory infections and differentiate them from non-bacterial causes, assisting in decision making at the point of care.
Results are available within 10 minutes and the test already has registration in multiple countries including the UK, Europe, Canada and Australia.
Lumos chief executive officer Doug Ward anticipates securing the first US commercial orders for FebriDx before the year’s end.
The test is considered important for antibiotic stewardship amid the growing issue of antibiotic resistance.
Beam Communications (ASX: BCC)
Beam Communications has secured around $2.5 million in new orders from Iridium Communications for the Iridium GO! devices, set to be fulfilled within FY24 and FY25.
Despite the launch of the next-generation Iridium GO! exec, the company expects the original Iridium GO! product to remain popular among its customer base due to its size, functionality, and affordability.
Beam’s managing director, Michael Capocchi, anticipates both devices to be key growth drivers for the company.
Beam is also on track to deliver record highs of around $4 million EBITDA in FY23 following strong Q3 results, including substantial growth in sales.
The company’s financial position remains robust with a cash holding of $3.6 million and access to a further $1.2 million in undrawn debt.
The week ahead
Once again, future movements in inflation and interest rates will be the focus of the coming week.
Reserve Bank of Australian Governor Dr Philip Lowe is giving a speech on Wednesday which will be under the microscope for any indications that the July pause in interest rate rises will be followed by an August increase.
Local data on consumer inflation expectations may shed some further light on that and inflation data will be released in China and the US.
The US numbers will almost certainly reinforce the chances of an official interest rate rise in late July, given the bullish jobs numbers.
A swag of local consumer confidence surveys are likely to continue to show a lack of confidence to spend while the start of the US June quarter earnings season should produce some stock specific news for some of the big banks plus Delta Air Lines, PepsiCo and United Health.