Weekly review: rising global rates send markets lower
WEEKLY MARKET REPORT
A plethora of central banks trying to outdo each other with interest rate rises finally overwhelmed the Australian share market on Friday, leading to a hefty 1.9% fall.
The drop of 125.52 points to 6574.7 points took the running total to a 2.4% fall for the week and 6% for the month.
A third consecutive 75 basis point rise in the US Federal Reserve cash rate to a range of 3-3.25% was the main influence sending markets lower, but there was plenty of other rises with Sweden’s Risbank going for a full 1% hike, the UK and Norway lifting 0.5% and Switzerland decisively ending its foray into negative interest rates with a 0.75% rise from -0.25% to 0.5%.
In the UK, the Bank of England raised rates by 0.5% at the same time as it acknowledged the country was already in recession.
Developing countries joined the party, too, with hefty increases from Vietnam (1%), Indonesia (0.5%) and South Africa (0.75%) confirming that the fight against inflation has now gone totally global.
Bond yields rising in the US
The raft of rate hikes led to falls on Wall Street as bond yields kept rising to decade highs as investors belatedly realised that not even recessions would stop the climbing interest rates globally as central banks fight stubbornly higher inflation.
Given that atmosphere it would have been a miracle if the Australian market had managed to do anything other than fall and that’s exactly what it did – echoing the US market with technology stocks hit the hardest.
Australian 10-year bond yields also soared 28 basis points to 3.61% as the market implied peak cash rates in Australia will now rise as high as 4.2%.
Consumer, technology and property hit hardest
Consumer, technology and real estate companies were hard hit with some examples including Wesfarmers (ASX: WES) down 4.2%, Woolworths (ASX: WOW) 1.7% lower, Block (ASX: SQ2) plunging 8.9%, accounting software company Xero (ASX: XRO) dropping 7.8%, while Goodman Group (ASX: GMG) shares shed 3.7%.
Many property trusts hit lows for the year as their rental prospects and the differential yield compared to cash both headed south.
The only slight rays of hope came with the iron ore miners on the back of rise in the iron ore price with shares in BHP (ASX: BHP) up 0.6%, Rio Tinto (ASX: RIO) 1.9% higher, and Fortescue Metals (ASX: FMG) shares up 1.3%.
Some coal miners also managed to swim against the tide, with New Hope Corporation (ASX: NHC) gaining 2.8% on a nice set of results.
Small cap stock action
The Small Ords index fell 4.33% for the week to close at 2694.1 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
LiveHire (ASX: LVH)
Human resources technology provider LiveHire secured a $1.3 million deal with US-based company Hiregenics to provide its direct sourcing recruitment platform to an undisclosed Hiregenics client which is also one of the world’s largest oil and gas companies.
The client is a Fortune 500 oil and gas company and spends $743 million in contingent labour across the US, with a further $510 million in pay roll spend.
Hiregenics expects approximately 25% of the client’s contingent labour payrate to be sourced through LiveHire’s platform once fully ramped within the first 24 months of the initial three-year term.
At this rate, LiveHire anticipates the contract will generate about $1.3 million a year.
Ragusa Minerals (ASX: RAS)
Northern Territory mining regulator this week approved Ragusa Minerals’ application for tenement EL33150, which forms part of its lithium project, located 60 kilometres south of Darwin.
The tenement has been granted for a period of six years and adds to four existing exploration licences within the “supergroup” project.
Ragusa identified the tenement as being prospective for lithium from historical geological mapping and the interpreted continuation of geological rock types found at neighbouring lithium projects.
The NT lithium project area sits within the Litchfield Pegmatite Belt, which also hosts projects held by companies including Core Lithium (ASX: CXO), Lithium Plus Minerals (ASX: LPM) and Charger Metals (ASX: CHR).
Avenira (ASX: AEV)
Junior explorer Avenira has signed a non-binding agreement with global lithium iron phosphate (LFP) cathode maker Advanced Lithium Electrochemistry Ltd (Aleees) and the NT Government to work towards the development of a LFP battery cathode production plant in Darwin.
The plant will leverage phosphoric acid from Avenira’s high-grade Wonarah project near Tennant Creek.
It will have a phased production capacity starting at up to 10,000tpa in 2023-2024 and potentially scaling up to 200,000tpa by 2032.
Aleees is one of the few companies outside China with complete LFP cathode material manufacturing capability and patents for electric vehicle and stationary storage batteries.
It co-develops various LFP products (including high-quality, low-cost, long life-cycle cathode materials) with more than 40 global customers.
Tambourah Metals (ASX: TMB)
Tambourah Metals this week confirmed the presence of extensive pegmatite swarms at its Russian Jack lithium project in WA using data compiled from the state’s WAROX (Western Australian Rocks) database.
The company plans to follow this up with mapping and rock chip sampling in the coming weeks.
Additionally, high-grade assays were returned from rock chips collected during sampling and mapping from the Tambourah goldfield during the June quarter.
Four out of 20 samples returned elevated gold with a maximum grade of 16.9g/t gold reported from an area with no previous elevated grade history.
The week ahead
International markets are likely to be the leading factor for Australia in the coming week with only a few local economic releases of note.
One of those is the final release of the federal budget position for 2021-2022, although the punchline has already been delivered by Treasurer Jim Chalmers with a $50 billion improvement on previous estimates foreshadowed.
Along with the better-than-expected budget position has come bucket-loads of cold water on any expectations of any rise in government spending with Mr Chalmers warning that the budget is still locked in a structural deficit and increased takings from booming mining exports can’t be banked on for the future.
Other local things to look out for during the week include consumer confidence figures, retail trade numbers, engineering construction, job vacancies, the monthly CPI indicator and household wealth, which is likely to have fallen a little in line with lower property prices.
Looking offshore, an inflation estimate for the US is probably the main interest, with a few other releases including chain store sales, new home sales, consumer confidence and economic activity indexes.
In an Australian context, Chinese figures will be important with continuing COVID-19 lockdowns expected to put pressure on industrial profits while the purchasing manager’s index is likely to show continued pressure on factory orders.