Macro trends worth watching even for micro caps

Macro trends micro caps
WEEKLY MARKET REPORT

When you are following the share market, it is always wise to look at some of the wider macro trends as well as burrowing into the finer details of individual companies.

One particularly important trend is interest rates and it is here that the release of the Reserve Bank’s latest minutes next Tuesday will be keenly watched.

After many years of super low official interest rates, the much awaited return to more normal rates will bring with it more challenging times for share market investors as safe and higher returns on cash deposits attract money away from risk assets.

Of particular interest is what is happening in Canada which is a very similar market to Australia, being an economy with a large export resource base and a rocketing property market – both of which have been coming off the boil a little.

Canada has been lifting official interest rates sharply, with two 0.25 per cent rises in July and September, taking their official rates to 1 per cent while here in Australia, rates have been stuck on 1.5 per cent for 13 months.

China versus the US

There are differences between the economies of course – Canada is heavily exposed to the thriving US economy while our main exposure is to China which is still growing but with slower growth forecast for the coming year.

Both the Australian and Canadian economies struggle with strong currencies at times but Canada is arguably performing better than Australia, which is hamstrung by record levels of personal debts and glacial wages growth.

Sooner or later though, we should expect Australian interest rates to begin the long climb back to more normal levels and this Tuesday’s minutes will be scrutinised heavily for any clues about when that might happen.

Small caps – and missiles – firing

For small cap investors it has been the usual very active week, even as the broader market started the week in a risk-on mood and ended it risk-off as the troublesome North Koreans let rip with another missile over Japan.

Empire expanding

Gold miner Empire Resources (ASX: ERL) has been enjoying a run of company news, this week releasing some excellent gold grades from an ongoing grade control drilling campaign at the bottom of the existing Penny’s Find open pit mine.

Longer term the results from some deeper diamond core drill holes will be a key stock mover for Empire, with good results greatly enhancing the chance the mine will justify underground development.

Wisdom of Solomon

Patience is really paying off for shareholders in Axiom Mining (ASX: AVQ), which for the past five years has been locked in court battles with Japanese group Sumitomo.

Now Sumitomo has announced it is licking its wounds and leaving the Solomon Islands, leaving Axiom in the box seat to develop its Isabel laterite nickel project.

There have been some positive political noises on the Solomon Islands about the need to get moving on nickel mining to take advantage of slowing laterite production in other Pacific countries, notably the Phillipines.

The appointment of a new Minister of Mines augurs well and Axiom is now moving ahead quickly, particularly on its San Jorge deposit.

Paradigm shift in arthritis treatment?

Paradigm Biopharmaceuticals (ASX: PAR) is another small cap in the news after its repurposed drug Pentosan Polysulfate Sodium (PPS) produced positive results in treating osteoarthritis.

While those results were only achieved in a one person case study, another 30 people have since been treated with similar clinical outcomes, showing the potential for PPS to become a new treatment for a largely unmet medical market worth US$5 billion a year.

Paradigm now intends to undertake a phase 2B clinical study starting later this year.

Cancer killer?

A largely forgotten small cap company Patrys (ASX: PAB) caught my eye this week with a stellar 400 per cent rise in one day.

While Patrys has had a long and some people would say rather disappointing share market history, news that its lead drug candidate PAT-DX1 caused cancer cell death in laboratory tests was certainly a jolt to the arm for Patrys shareholders.

The drug candidate is a novel and first in class therapeutic antibody that is being developed to treat a range of different cancers.

There is still a long way to go but it is certainly worth keeping an eye on developments.

The week ahead

Looking ahead, apart from the RBA minutes being released on Tuesday, there are a range of other RBA events this coming week including a speech by Assistant Governor Luci Ellis on Wednesday and by Governor Philip Lowe in Perth on Thursday.

A range of statistics will also be released including numbers on residential property, consumer confidence, new car sales and jobs.