Weekly review: market steps back from the abyss

Market steps back abyss ASX May 2022
WEEKLY MARKET REPORT

After a terrible week, the ASX 200 took a step away from the abyss with a strong rally to push the index well above the key 7000-point barrier by Friday’s close of trade.

In a strong rise of 1.9%, all sectors were up, all increasing at least 1%, except for the defensive consumer staples, but the hard-hit technology sector staged a dramatic 7% turnaround.

That boosted the ASX 200 by 134.07 points for a close of 7075.10 points, although even that dramatic recovery was not enough to prevent a fourth consecutive week of losses, with the index down 1.8% for the week and 6.1% since downward slide began.

Market jumps back well above 7000 mark

Still, it could have been much worse with the market falling as much as 9% at its worst.

The rise followed comments from US Federal Reserve chairman Jerome Powell that played down chances of faster US rate hikes, which turned around US sentiment and boosted futures markets.

Among some of the strong performers was Afterpay owner Block (ASX: SQ2) which added a lazy 15%, Life360 (ASX: 360) which gained 14.3% and Polynovo (ASX: PNV) which was up 14%.

Many other heavyweights also had a strong day, including CSL (ASX: CSL) up 3.3%, Woodside (ASX: WPL) 2.7% higher, Wesfarmers (ASX: WES) gaining 2.5% and Telstra (ASX: TLS) rising 1.6%.

After a terrible week for iron ore, even the big miners enjoyed a bit of a recovery as the commodity staged a small turnaround.

BHP (ASX: BHP) was up 1.9%, Rio Tinto (ASX: RIO) increased 2.1% and Fortescue (ASX: FMG) rose 2%.

Small cap stock action

The Small Ords index rose 2.25% this week to close at 3006.4 points.

May 2022 chart ASX 200 vs small ords
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Galileo Mining (ASX: GAL)

Impressing investors was Galileo Mining, which revealed a major palladium-platinum discovery at its Norseman project in Western Australia.

The company announced on Wednesday that drilling at the project had unearthed 33m at 2g/t 3E (1.64g/t palladium, 0.28g/t platinum, and 0.09g/t gold), plus 0.32% copper and 0.3% nickel from 144m, including 1m at 3.21g/t 3E (2.66g/t palladium, 0.41g/t platinum, 0.14g/t gold) plus 0.48% copper and 0.46% nickel from 176m.

Galileo managing director Brad Underwood said every hole drilled at the project so far had hit mineralisation.

“We are hopeful that the initial drill hole will translate into a high-quality resource for mining.”

The Norseman project covers 278sq km of ground and already has a cobalt-nickel laterite resource of 26,000t of contained cobalt and 122,500t of nickel.

Incannex Healthcare (ASX: IHL)

Incannex Healthcare has revealed positive results from a pre-clinical study of its drug candidate IHL-2106A on rat models with replicated injuries associated with sports concussion.

The study confirmed IHL-216A had a neuroprotective effect in traumatic brain injury and expands on results from research conducted in 2020.

Incannex is targeting IHL-216A for treating all forms of concussion and brain trauma, including those caused by sports injuries, falls and vehicle accidents.

Meanwhile, Incannex’s acquisition of APIRx Pharmaceuticals for US$93.3 million worth of scrip is closer to completion after the share sale and purchase agreement was finalised on Thursday.

APIRx has a portfolio of 22 clinical and pre-clinical projects and when combined with Incannex, the companies will hold the “world’s largest portfolio” of patented CBD drugs and psychedelic treatments.

Kalamazoo Resources (ASX: KZR)

Lithium has been confirmed in soil anomalies at Kalamazoo Resources’ Marble Bar project in WA’s Pilbara, with rock chips returning up to 1.6% lithium oxide and 372ppm tantalum.

The rock chips were collected from dykes that trend into Kalamazoo’s neighbouring Dom’s Hill project.

While exploring for lithium, Kalamazoo is also actively advancing its Mallina West gold project, which is also in the Pilbara.

A 2,500m drilling program has begun at the project and is testing the Wattle Plains and Hockey prospects.

Mallina West is directly along strike of De Grey’s 9Moz Hemi discovery.

Frontier Energy (ASX: FHE)

As it progresses its plans to produce green hydrogen near its Bristol Springs solar project in WA, Frontier Energy has identified numerous water sources, which could be a major cost saving.

Water is essential to creating green hydrogen via electrolysis, with 9 litres required for every 1 kilogram of hydrogen produced.

In the green hydrogen study, the Bunbury wastewater treatment plant, the Yarragadee freshwater aquifer and existing desalination facilities were all identified as potential water sources for its project.

Frontier is currently in discussions with key stakeholders at each of the facilities regarding securing future supplies.

Frontier managing director Mike Young said without access to suitable existing water, a desalination plant would be required, which could add hundreds of millions of dollars to a project’s initial capital costs, as well as increasing operating expenses.

92 Energy (ASX: 92E)

Athabasca Basin explorer 92 Energy intersected mineralised zones areas with grades greater than 1% uranium oxide in two of the final drill holes at its GMZ target.

1% uranium oxide is more than 10 times the average grade of mined uranium deposits elsewhere in the world.

92 Energy has now received assays from the four final drill holes of the winter season.

Hole 022 returned 17m of continuous uranium mineralisation, averaging 0.38% with a sub-interval of 1m at 1.06%.

Another hole (Hole 017) hit 20.5m of continuous mineralisation averaging 0.14%, including 1.5m at 0.54% uranium oxide.

Hole 019 returned 19m at 0.22%, including 0.5m at 1.73% uranium oxide.

The fourth hole (Hole 023) went through 12m of mineralisation assaying 0.19% with 1.5m at 0.51% of uranium oxide.

The week ahead

It is a crucial week for new Australian data, with history set to be made by the unemployment rate, which is likely to fall below 4%.

Economists widely expect about 30,000 jobs to have been created during April, which would be enough to push the unemployment rate back to 3.9%, the lowest level since 1974.

The other really crucial bit for information for the week will be the release of the minutes from the May Australian Reserve Bank Board meeting which decided to raise the official cash rate by 0.25% to 0.35%.

Since that meeting, the RBA has increased its estimates for expected inflation and wage rises in its quarterly statement on monetary policy, but there will still be strong interest in examining the RBA Board’s thinking in raising rates without waiting for wage numbers to arrive.

Other local releases to watch for include the fast-wilting level of consumer confidence and the wage price index for the March quarter, which is expected to show that wage pressures are still modest.

Overseas, the most anticipated release comes on Monday with Chinese figures on retail sales, production and investment for April set to show what effect the widespread lockdowns in major cities have been having on the Chinese economy.

This is vital data for Australia, with iron ore having a terrible week as indications grew that Chinese virus restrictions and a worsening property crisis were set to cut demand for the key steel making ingredient.

Price falls of around 9% for iron ore mean that there is plenty of potential for it to weaken further or rally on the back of these figures.

Other international figures to watch out for include US manufacturing, retail sales, housing and business inventories which will illustrate how the US economy is coping with rising interest rates.

This week’s top stocks

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