The new normal is just like before, only different

Investors ASX 200 stock market Australia profits
WEEKLY MARKET REPORT

So the sun is shining, the US share market has had its strongest five day run since 2011 and the Australian market has even briefly poked its head above the 5900 point parapet on the ASX 200 to have a good look around.

So after all of that market fire and fury over the last couple of weeks, have we simply gone back to business as usual?

Maybe, but history tells us that when a market corrects by a full ten per cent like the US did, that will have lingering effects that will be felt in the weeks and months ahead.

The general consensus in the US seems to be that if ten year Treasury yields remain below 4 per cent – and preferably below 3.5 per cent – equities remain fairly cheap relative to bonds as the economy keeps growing.

Of course, that consensus will last until it doesn’t but at least gives traders an excuse to bid up shares after the sharp downward movements of the last couple of weeks.

High tide marks will be watched by many investors

For a start, many traders and investors who were shocked by the size and speed of the initial decline may have decided to lighten off their share market exposure “when things get back to normal’’.

The best way to think of that is to imagine a whole lot of “high tide’’ marks in the sand at certain levels for individual stocks and also for market indices.

When those marks are again reached, those investors are going to make a decision to either sell some shares or perhaps they will be convinced that happy times are here again and hang tight or even do some buying.

It is also worth remembering that the factors that caused such a savage market reaction – rising US interest rates and rising inflation – are still operating.

The US market – and by default the rest of the world – remains susceptible to any shocks in the form of faster interest rate rises or inflation.

Australia is alert but not alarmed as profits are reasonably strong

Here in Australia our market reaction has been more muted on both the downside and the upside.

While we are certainly very alert to changes in the US, we are also marching to the beat of our own drum which is slightly different, particularly as the prospect of rising inflation and interest rates here seems a little more distant.

Australia is also very sensitive to changes in China and commodity prices so some fairly steep rises in iron ore prices on the back of stronger Chinese demand this week were bullish for Australia and our dollar.

Also the profit reporting season in Australia has been reasonably strong considering the fairly muted consumer environment due to our high level of household debt, with the mining sector in particular showing some really strong numbers.

This week will continue on that theme with plenty of large cap companies announcing their profits.

Profits on parade

Profit numbers this week will give some texture to how the Australian economy is travelling with some real bellwether companies sharing their numbers.

On the retail and retail property side, Woolworths, Super Retail Group, Coca Cola, Scentre, Wesfarmers and Westfield will provide a strong indication of whether the already heavily indebted consumer is spending while the media is well represented by Domain, Fairfax Media, Seek, Nine Entertainment and Seven West Media.

Then there is a range of mining, food and industrial companies including Brambles, Beach Energy, NIB Holdings, Northern Star Resources, Bellamys, Fortescue Metals, Flight Centre, Perpetual, Qantas and Perpetual to name just a few.

ASX small caps stocks this week

The bottom end of the market is never short of action, let’s see who made news this week.

Imugene (ASX: IMU)

Immuno-oncology company Imugene has completed the early development of a new mimotope vaccine, aimed at treating a wide variety of cancers in the human body, and targeting the anti-PD-1 immuno-oncology market worth in excess of US$10 billion per year on a sales revenue basis.

Mimotopes are micro-sized molecules that induce antibody-reactions against specified targets in the human body. Biotech scientists are currently split between using synthetic antibodies and mimotope-induced antibodies given their disparities.

Imugene believes its modernised version of creating antibodies using mimotopes, may have overwhelming advantages over synthetic alternatives including improved safety, longer response times and slashed costs of production.

Last week Imugene reported positive results from early stage trials in its HER-Vaxx cancer vaccine being tested on gastric cancer.

Tawana Resources (ASX: TAW)

Tawana Resources is expecting its first spodumene concentrate imminently after dry commissioning activities kicked-off at its 50%-owned Bald Hill project in Western Australia.

Dry commissioning is anticipated to continue till late in the month, with wet commissioning due to begin next week, with first ore fed into the plant scheduled for early next month.

Plant construction started in August last year with mining beginning in the December quarter and ramping up to around 20,000 cubic metres a day by mid-February.

The first lithium shipment is planned for April this year.

Family Zone Cyber Safety (ASX: FZO)

Family Zone has signed a key wholesale deal with Aircel India, a major Asian telecommunications provider with over 90 million subscribers. Aircel selected Family Zone’s after evaluating all available options including globally-known brand names.

The two companies signed a binding term sheet for Aircel to wholesale the “Mobile Zone”, Family Zone’s on-device services package, to its customers.

Under the deal, Aircel may offer Mobile Zone as a value-added or bundled service offering, with the companies agreeing to a revenue-share split and associated service fees also now agreed.

Aircel is expected to take on responsibility for promotion, marketing, provisioning and first-tier support while Family Zone focuses on back-end services and escalated support.

Aircel has over 90 million mobile telcom subscribers in India as of June 2017.

Carnegie Clean Energy (ASX: CCE)

Following on from news last week that it had received a $6.8 million contract from stated-owned Western Power to build a 5MW Battery Energy Storage System facility in Kalbarri, Western Australia, Carnegie Clean Energy has made additional progress this week build its solar business.

Carnegie won a tender to negotiate a lease for 250 hectares within the Buffer Zone of the Mungari Strategic Industrial Area. Carnegie aims to use the land to supply the Eastern Goldfields region with energy.

The third win coming in the space of two weeks for Carnegie was that through one of its subsidiaries, Energy Made Clean, it had won a $7 million contract to design, construct, operate and maintain a 5-megawatt solar photovoltaic solar farm in Newcastle, New South Wales.

Sky and Space Global (ASX: SAS)

Nanosatellite maker Sky and Space Global has struck a 5-year binding deal with Universal Cyberlinks Ltd, a leading telecommunications provider in Ghana.

Universal Cyberlinks provides voice, data and machine-to-machine services in Ghana and has selected SAS’ nanosatellite solution in order to establish a tech-enabled market dominance in Ghana.

As part of the 5-year binding contract, Universal Cyberlinks will harness SAS’s nanosatellite-based coverage and connectivity services to advance several projects within the country spanning both private and public sectors.

The deal is SAS’s first deal in Ghana and will utilise the company’s planned network of 200+ nanosatellites, to be completed by 2020.

SAS successfully launched its first three nanosatellites dubbed ‘the 3 Diamonds’ into orbit in June 2017 and is now adding commercial customers to its books as the network is built-up and implemented.

The week ahead

Unusually, the Lunar New Year celebrations will be one of the core influences on the Australian market with trading limitations in China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia.

Chinese mainland markets are already closed for the New Year celebrations and will stay that way until next Wednesday.

That will leave us guessing about the direction China is heading for an unusually long time, leaving the main leads to come from the US, Europe and Japan.

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