Weekly review: market closing in on a record despite negative news
WEEKLY MARKET REPORT
Australia’s share market has continued to push through a raft of negative news to bring the ASX 200 index within reach of an all-time record high.
In Friday trade, a positive lead from Wall Street saw the ASX 200 grind 0.3% higher to close at 7493.80 points – not too far from the all-time high of 7,632.8 points recorded in the middle of August last year.
That is some achievement given that it was only this week that it was confirmed that the Reserve Bank has a long task ahead of it in reeling back inflation that has reached 7.8%.
Even the US news was mixed, with investors cheered by the slowing of economic growth to an annualised 2.95% in the latest quarter – still slightly stronger than an expected 2.3%.
While the stronger growth is good news for how the US economy is coping with the current economic shocks, the idea that slowing growth could lead the US Federal Reserve to go easy on future interest rate rises seems to be a case of a lot of wishful thinking.
Whatever the logic, market participants are in a bullish mood and think the US and Australian economies are weathering the storm well and could both stick a soft landing once the current inflationary surge begins to ebb.
Longest winning streak for months
Here in Australia the market is now enjoying its longest streak of weekly rises for five months with the important financials sector also showing some strength.
All told, eight of the 11 index sectors were higher with impressive rises for consumer staples and technology.
Shares in retail giants Woolworths (ASX: WOW) and Coles (ASX: COL) were both up 1.2% and banking heavyweight Commonwealth Bank (ASX: CBA) saw its shares rise 0.9% to $109.85 – zeroing in on its all-time high of $110.19.
The other banks mirrored that rise, all up at least 1% as the financial sector as a whole has enjoyed a 6% rise so far this year.
Wisetech jumps on acquisition
There were some other strong individual rises backed by corporate moves with a positive reaction to its US acquisition buoying shares in WiseTech (ASX: WTC) by 2.6% to reach to $57.58.
The decision by the board of Tyro Payments (ASX: TYR) to give takeover suitor Potentia a four-week period to undertake due diligence and develop a ‘significantly improved’ takeover proposal was welcomed by the market, which marked up Tyro shares by 4% to $1.55.
Earlier offers for Tyro by Potentia of $1.27 and $1.60 a share have both been rebuffed by the board, saying they undervalued the company.
Origin shares overcome sector weakness
Shares in Origin Energy (ASX: ORG) also pulled in the opposite direction to the dipping energy sector, rising 0.7% to $7.37 after the company sharply lifted its profit forecast, courtesy of higher profits from selling electricity and natural gas.
Sleep apnoea device company ResMed (ASX: RMD) advanced 2.1% to $33.65 after it reported a 16% rise in December quarter revenue and appointed its chief executive Mick Farrell as its next chairman, taking over from his father Peter.
Coal stocks hit hard
It wasn’t all good news with widespread losses among energy companies with coal stocks particularly hard hit.
Elsewhere in the mining sector though, trading remained firm with BHP (ASX: BHP) shares up 0.6% and Rio Tinto (ASX: RIO) shares 0.4% higher on the back of continuing optimism about iron ore and other commodities.
Small cap stock action
The Small Ords index rose 0.88% this week to close on 3012.0 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Unith (ASX: UNT)
Unith, formerly known as Crowd Media Holdings, signed a binding agreement with NVISO Japan to integrate behavioural analytics into digital humans for deployment in digital kiosks in Japan.
Unith will provide NVISO with access to its talking head technology for the purpose of building integrations into its own platform.
The agreement is being assisted by a $117,000 grant from the European Union’s BonsAPPs program and will be rolled out in three phases: technical integrations, market entry and scaled commercialisation.
The integrations will be designed to deliver interactive digital avatars capable of understanding various behavioural and emotional facets of users through eye tracking and facial detection.
Boss Energy (ASX: BOE)
Emerging uranium producer Boss Energy announced it has reached the halfway mark in committed expenditure for the redevelopment of its flagship Honeymoon uranium project in South Australia.
The company confirmed $55.1 million of the budgeted $105.4 million capex, excluding a $7.6 million contingency, has been committed for the project to date, putting the project on time and budget.
The company is now positioned to capitalise on the growing demand for uranium, especially from western countries, as leading utilities look to lock in new long-term contracts and diversify from Russia as a supplier.
Altech Chemicals (ASX: ATC)
Altech Chemicals announced its CERENERGY battery joint venture with Fraunhofer IKTS is progressing rapidly.
The joint venture, established in September 2022, aims to commercialise Fraunhofer’s CERENERGY Sodium Alumina Solid State (SAS) battery.
Altech has made significant progress since then, including the completion of the design base for the 100MWh battery, selection of key equipment suppliers, and finalisation of the battery plant and site’s preliminary layouts.
Altech’s business development team is also in contact with prospective clients, including a major German energy producer, and is preparing for the funding stage of the project.
Spacetalk (ASX: SPA)
Australian child safety technology company Spacetalk reported a $3.3 million improvement in free cash flow for Q2 of FY2023 compared to Q1 FY2021. This is the first time the company has had positive cash flow since Q3 2021.
The improvement comes after the company cancelled a less profitable product line and replaced it with a more viable alternative later this year. It also completed a significant cost reduction program that realized $2 million in annualised savings.
In addition, the company implemented changes to working capital management and introduced new mobile network service JumpySIM which allows for deferred revenues as users pay annually in advance.
The company also raised funds through a non-renounceable rights issue to raise up to $4 million to fund inventory purchases, working capital and loan restructure expenses.
Southern Cross Gold (ASX: SXG)
Southern Cross Gold has extended the strike of mineralisation at its Sunday Creek project in Victoria, intersecting high gold and antimony grades in a step-out hole from the Apollo prospect.
The hole hit three separate vein sets with higher grade zones, including 10.7m at 4.8 grams per tonne gold equivalent, 19.5m at 1.9g/t, and 11.6m at 7.5g/t.
This latest hole brings Sunday Creek’s tally of drill holes with cumulative intersections of more than 100g/t gold equivalent by meter to 21.
Dreadnought Resources (ASX: DRE)
Surface sampling at Dreadnought Resources’ Mangaroon project in Western Australia has extended the rare earth elements mineralisation to 43km.
The strike increased by 13km at the Yin zone with the inclusion of two new ironstone trends, Y9 and Y42.
The news followed encouraging drilling results revealed earlier in the week from a reverse circulation program at the C3 carbonatite, where a 600m by 550m mineralised zone was confirmed.
Dreadnought plans to restart drilling in February/March at the C2-C7 carbonatites.
The week ahead
One of the really interesting developments over the next week and a bit will be the battle to work out what central banks will do in the wake of inflation reports – particularly in the US and Australia.
The Federal Reserve meets on January 31 and February 1 to make their decision, which will be particularly difficult due to the mixed signals being given off by the economy.
The good news for them is that inflation seems to be dropping quite successfully – especially compared to Australia which still seems to be peaking – and the US labour market still seems quite strong despite facing higher interest rates.
The issue with this is that it could be that the inflation falls coming through now in the US might be due more to transitory factors such as oil prices easing than the rash of interest rate rises, which only really started in March 2022.
Even that rise was just 0.25% so it seems unlikely that the current inflation falls showing up were due to an effective upward squeeze on interest rates, which normally takes a long while to impact on inflation.
Still, falling inflation may be enough to moderate the interest rate rises from the Fed if they conclude that the numbers will keep falling as higher interest rates start to really bite.
The picture in Australia is probably a little clearer in that our inflation rate may have peaked but is not yet dropping, which could give the Reserve Bank Board plenty of reasons to keep up the interest rate rises when it meets on February 7.
The question then is whether to go for a 0.25% rise or a bigger 0.5% rise – with the no rise scenario the least likely.
The picture for both the US and Australian economies is complicated by the fact that China is now coming back online and could have a very deflationary impact as a wave of cheaper export products come back on to global markets.