Weekly review: interest rates continue to rise as iron ore slumps
WEEKLY MARKET REPORT
The Aussie market made gains this week with the ASX200 up 1.57% to 6892.5 points.
The index crept above 7000 points mid week, however was unable to hold onto the important psychological level.
Interest rate rises have only just begun
Also this week, the Reserve Bank of Australia raised rates for seventh consecutive month to 2.85%.
The hike came as no surprise after September inflation hit 7.3%. Many analysts were also tipping a 0.50% increase over the 0.25% the RBA implemented.
RBA governor Philip Lowe attributed the increase to “global factors” and “strong domestic demand”.
Mr Lowe also expects inflation to continue rising and peak at about 8% later this year.
The big four banks in Australia passed on the rate raise to consumers.
Over in the US, the Federal Reserve raised rates by 0.75% with Fed chairman Jerome Powell saying it would be “very premature” to think about pausing any interest rate rises.
“The committee is strongly committed to returning inflation to its 2% objective,” he added.
With US inflation currently at 8.2% it may be some time before we see a return to 2%, meaning rates will likely continue their upward momentum.
However, some market participants are anticipating a pivot from the Fed that has talked tough in the past and failed to act.
This time may well be different as central banks have clearly created asset bubbles around the world with their artificially low interest rates for many years and excessive money printing.
Iron ore prices continue to plunge
Iron ore’s downward spiral is expected to continue, as the commodity’s largest buyer, China’s steel industry, continues to remain sluggish.
China’s economy, overall, has continued to wane amid ongoing COVID-19 lockdowns and global inflationary pressures.
The China Iron and Steel Association (CISA) this week spoke of the “difficulties and situations” the country’s steel sector has been facing this year, and this is not anticipated to improve in the near-term.
Iron ore has been dragged down by subdued Chinese demand – plunging from US$160 a tonne in April this year to hover around US$80/t this week.
The price of iron ore continues to slide.
It’s no surprise the ongoing lack-lustre outlook for iron ore is pulling on Australia’s iron ore plays, with majors BHP (ASX: BHP) falling 4% this month – down almost 9% over the last six months. However, the major regained ground this week up 3.99%, closing trade on Friday at $38.56.
Australia’s other major iron ore miner Rio Tinto (ASX: RIO) followed a similar trajectory to BHP, and is 3.3% lower this month – shedding just under 17% over the last six months. This week, the miner rebounded 4.8% to close trade at $92.80.
It was a similar story for Fortescue Metals Group (ASX: FMG), which is down 7.79% over the last month – losing 21% over the last six. Fortescue bounced back 8.4% to $15.87.
Small cap stock action
The Small Ords index rose 1.87% to 2783.9 points by close of trade Friday.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
PropTech Group (ASX: PTG)
PropTech Group directors this week recommended shareholders vote in favour of a proposed takeover by MRI Software LLC subsidiary, BidCo.
BidCo has offered a cash consideration of $0.60 per share, which values PropTech at approximately $93.4 million on a fully diluted basis.
The acquisition is expected to benefit the company by expanding its product offerings, providing greater value to customers and rewarding investors with a return substantially above the current market price.
Shareholders will vote on the takeover in January.
Scout Security (ASX: SCT)
Scout Security has reported an annualised recurring revenue of $1.1 million for the three months to end September, reflecting the sell-through and activation of security systems through its own sales channels and those of its white label partners.
The news adds to the company’s recent announcement that it had secured US telco giant Lumen Technologies as its largest white label partner to date.
Under the terms of the Lumen deal, Scout will develop a motion sensor home security app as part of a smart security platform build-out leveraging leverage whole-of-home WiFi equipment from Lumen, fibre internet, Scout video products and Lumen technology licenses.
The smart security and control platform will be launched under Lumen’s branding in the first half of the new calendar year, with recurring revenues to follow.
Heavy Minerals (ASX: HVY)
Perth-based explorer Heavy Minerals has confirmed the start of drilling this month at its Port Gregory garnet project its Red Hill prospect in WA.
Bostech Drilling will complete the work, which seeks to extend the Port Gregory mineral resource estimate of 135 million tonnes at 4% total heavy minerals (THM) at a 2% cut-off grade.
The company also aims to increase the total resource based on extension drilling to the east, north and south prior to the start of a pre-feasibility study next year.
Drilling at Red Hill follows on from positive auger sampling results earlier this year and will feed into a mineral resource estimate expected in April.
The Hydration Pharmaceuticals Company (ASX: HPC)
The Hydration Pharmaceuticals Company, which trades as Hydralyte North America, has delivered a September quarter of “beyond seasonable” sales fuelled by a prolonged heatwave during Canada’s 2021 summer.
Revenue of US$2.44 million for the three-month period was also attributed to strong growth from e-commerce channels including Amazon US, as well as strong product uptake through retail outlets in the US and Canada.
The company continued to invest in marketing activities including advancing a China distribution partnership; an e-commerce website relaunch; and networking events with celebrity ambassador Shay Mitchell.
Norfolk Metals (ASX: NFL)
Diversified explorer Norfolk Metals has hit native copper and sulphide mineralisation in a maiden hole at the Roger River gold project in Tasmania.
Visual logging of drill core identified the mineralisation in discrete zones from 58.5m to 145.4m, comprised of disseminated to blebby copper.
Chalcopyrite (or copper-iron-sulphide) was also observed at 86.5m from surface.
Roger River lies south of Smithton and covers 261sq km, including 30km of strike along the Roger River Fault zone.
The week ahead
Here in Australia, consumer and business confidence numbers will be out midweek.
Earnings are out from the following companies: James Hardie (ASX: JHX), Westpac (ASX: WBC), NAB (ASX: NAB), Orica (ASX: ORI), Amcor (ASX: AMC), Perseus Mining (ASX: PRU), Ramsay Health Care (ASX: RHC), Sonic Healthcare (ASX: SHL) and Xero (ASX: XRO).
Other than the election midterms the biggest piece of news to look out for next week in the US will be inflation data for October at the end of the week.
It’s a similar story with China, which will release its inflation numbers, along with balance of trade and industrial production data to give clues as to just how well the economy is holding up.