Weekly review: is the taper tantrum starting?
WEEKLY MARKET REPORT
Are we seeing the beginnings of a taper tantrum here in Australia?
It is becoming clearer by the minute that central banks, including the US Federal Reserve and even our own Reserve Bank, are getting ready to act to control inflation by reducing bond purchases and raising interest rates, so investors are starting to get skittish about holding shares.
There are also real-world negative business effects coming through from the latest punishing and extensive round of COVID-19 infections and isolations, with Qantas the latest to confirm flights have been scaled back by a third due to a lack of demand.
Winning three-week streak snapped
Whatever the reason – worries about the present or the future – the Australian market snapped a positive three week rise in comprehensive fashion on Friday with the ASX 200 index closing down 1.1%, or 81 points to 7394 points.
That marked a 0.8% fall for the week.
Following on from some tough falls in the US technology sector, the Australian tech stocks were the worst hit, falling 3.9%.
After sharp falls in US trade for Square Inc and a negative broker report from Macquarie on the buy now, pay later sector (BNPL), Afterpay shares (ASX: APT) were down 9.2%, Zip (ASX: Z1P) by 5% and even business software supplier Xero (ASX: XRO) dropped 5.1%.
There was no good news for the miners either with falling prices for oil, gold and iron ore sending the materials sector down 0.4%.
Consumer stocks fall all week
Consumer staple stocks were particularly hit hard by the crumbling supply chains that have caused empty supermarket shelves and fell every day of the week – losing more than 5.5%.
Not even the banks and other financials could stop the rot with significant fund outflows sending Pendal (ASX: PDL) shares down 16% while shares in the biggest bank, Commonwealth Bank (ASX: CBA) also fell 1.2%.
Pendal’s 2.5% fund outflow of $6.8 billion in the final quarter of 2021 adds to subsequent redemptions by British clients of $5.1 billion.
It remains to be seen if Australian bond purchases will be cut when the RBA Board reconvenes on February 1 but US Federal Reserve chair Jerome Powell left no room for doubt that he will tackle inflation hard after the US Consumer Price Index (CPI) for December came in at an annualised 7% – the highest number for almost 40 years.
“If we have to raise interest rates more over time, we will,” Powell told a Senate Banking Committee under questioning at his confirmation hearing for a second term as central bank chief. “We will use our tools to get inflation back.”
So, it would not be a surprise if a taper tantrum was on.
Small cap stock action
The Small Ords index fell 1.27% this week to close at 3414.4 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Complii FinTech Solutions (ASX: CF1)
Financial tech company Complii FinTech Solutions achieved a significant jump in revenue for the December quarter 2021, resulting in positive cash flow for the period.
Group gross revenue rocketed 370% to $2.58 million compared to the previous quarter.
Driving the massive rise was the acquisition of PrimaryMarkets, which began contributing to revenue one-third of the way into the reporting period.
According to Complii, acquiring PrimaryMarkets provides it with “an opportunity for growth” with no other “significant” competitor in the Australasian region.
ECS Botanics (ASX: ECS)
The December 2021 quarter heralded another record period for medicinal cannabis and hemp company ECS Botanics.
For the period, ECS reported $1.5 million in revenue, which was 65% higher than the September quarter and an increase of 325% on the December 2020 quarter.
The record growth has been attributed to ongoing demand for ECS’ GMP manufactured medicinal cannabis and hemp product sales.
ECS managing director Alex Keach said the company was “very well positioned” for this growth momentum to continue throughout 2022.
Kingfisher Mining (ASX: KFM)
Drilling at Kingfisher Mining’s Mick Well prospect within its wider Gascoyne project in WA has confirmed rare earth elements are present.
The company received assays from three holes at Mick Well and one at the Kingfisher prospect, with a best intercept of 12m at 1.12% TREO, with 0.21% neodymium and praesidium from 40m, including 4m at 1.73% TREO with 0.31% neodymium and praesidium from 40m.
Kingfisher chief executive officer James Farrell said the discovery of rare earths has highlighted the area’s potential and may indicate the presence of larger-scale mineralised zones.
Tesoro Resources (ASX: TSO)
Chile-focused Tesoro Resources had continued to expand its flagship Ternera deposit, which has a current contained gold resource of 660,000oz.
Infill and extensional drilling returned further wide and high-grade gold intercepts at Ternera and other targets within the wider El Zorro project in Chile.
Highlight results were 71m at 1.58g/t gold from 225m, including 17.1m at 5.1g/t gold from 243.9m and 9.66m at 7.58g/t gold.
Assays are pending for 36 holes drilled at El Zorro.
Zenith Minerals (ASX: ZNC)
In an unexpected transition, Zenith Minerals revealed it is focusing on lithium under a joint venture with Saudi Arabia’s EV Metals Group (EVM).
The shift towards lithium will see EVM earn 60% of the lithium rights at Zenith’s WA projects Split Rocks and Waratah Well by sole funding the completion of a feasibility study within 24 months. EVM will subscribe for $6 million of Zenith’s shares and is required to spend $7 million on exploring the projects within the 24-month period.
Zenith will demerge its non-electric vehicle assets including base metals and gold into one or more companies that will seek an ASX listing.
iCandy Interactive (ASX: ICI)
iCandy Interactive is a step closer to realising its global gaming power-house ambitions after revealing it was acquiring 60% of South East Asia-based Gameconomy for $497,297 in cash and shares.
Gameconomy specialises in gaming technology such as real-time in-game analytics and player-versus-player mechanics.
As part of the deal, iCandy will support Gameconomy in launching a new metaverse-related person-versus-player game in the first half of this year.
The move to acquire a majority interest in Gameconomy follows iCandy securing shareholder approval to purchase Lemon Sky Studios.
Critical Resources (ASX: CRR)
Critical Resources has unearthed high grade base and precious metals in the first hole drilled at its wholly-owned Gibsons prospect within its Halls Peak polymetallic project near Armidale in NSW.
The company received assays from the hole which returned 12.45m at 10.91% zinc, 5.73% lead, 1.15% copper, 331.63g/t silver and 1.5g/t gold, including a higher-grade interval of 4.05m at 19.31% zinc, 10.23% lead, 2.12% copper, 549.68g/t silver and 1.89g/t gold.
Within the hole, was a 1.24m interval grading 1,750g/t silver.
Critical managing director Alex Biggs said the results was “exceptional” and proved the project warranted “significant exploration”.
The company followed up the assay results with news it had hit visual massive and base metal sulphides within the sixth hole of its drilling program at Gibsons.
The week ahead
There are some interesting statistical releases on the coming week which will headlined in Australia by the employment figures for December that follow on from the massive 366,100 jobs created in November.
It wouldn’t surprise to see a cool off in jobs given that December was a tougher month than expected with plenty of vacancies but also more viral outbreaks than expected.
Other local releases to watch out for include consumer confidence numbers, housing starts, payroll jobs and wages, skilled job vacancies and business turnover.
Overseas there is plenty to look out for with Chinese economic growth figures and figures on retail sales, production and investment.
While US markets are closed on Monday for the Martin Luther King Jr day, there is no shortage of US releases on manufacturing, housing, home sales, and the leading index.
There are also some US companies reporting this week, including Charles Schwab, Goldman Sachs, Alcoa, United Airlines, Bank of America, Morgan Stanley, American Airlines and Netflix – companies that should give a good indication of how strongly business profit growth is.