Weekly review: rising interest rates continue to weaken share market

Rising interest rates weak share market ASX March 2021

The continuing tug of war on the bond market between central banks and investors is continuing to cause weakness on the Australian share market.

By close of trade on Friday the market had shed 50 points or 0.75% to 6711 points on the ASX200 index, but, at one stage, the index was as much as 1.5% lower, so a late rally flattered what was a fairly weak day.

So far it is hard to find a winner in the battle of the global bond market – which at more than $130 trillion is larger than the global share market.

$130 trillion bond market battle

Bond market investors are trying to ratchet up interest rates on long bonds of 10 years or more to repay them for the risk of growing inflation as economies recover from the pandemic, while on the other side, central banks are trying to keep rates as low as possible to stimulate jobs and a complete economic recovery.

It is always tough to bet against central banks because of the massive size of their balance sheets and their ability to buy bonds in industrial quantities but it is far from clear that they will win a conclusive victory here with long term yields stubbornly turning upwards.

Technology and growth stocks suffering

This battle has spilled over into share markets in a very serious way with technology stocks in particular, and growth stocks in general, struggling to hold on to inflated values.

That theme continued to play out in Australia with local tech stocks again falling on Friday, with buy-now pay later leader Afterpay (ASX: APT) down 2.5% and smaller sector players falling harder, such as Sezzle (ASX: SZL) down 4%, ZipCo (ASX: Z1P) 5% lower and Splitit (ASX: SPT) falling 6.5%.

Oil a rare source of higher prices

There was some good news to be found with the fears of inflation at least driving oil prices up 4% as OPEC+ producers also helped by deciding to continue production cuts for another month.

With many investors expecting production to rise in March, that led to a rally in local energy stocks including a 5% spike in the price of shares in Oil Search (ASX: OSH) and Santos (ASX: STO) and a 3.1% rise for Woodside (ASX: WPL).

In the end, the energy rally helped the market to eke out a marginal rise for the week of just 0.56% or 37 points.

Healthcare down

There were some individual moves of interest with blood products group CSL (ASX: CSL) trading without its dividend, causing it to fall 2.8% to $248.58 and sending the healthcare sector down in sympathy.

Fruit and vegetable grower Costa Group (ASX: CGC) announced an expansion, buying the farming operations of KW Orchards citrus farm and its packing operation.

The acquisition should be finalised by the end of the month but Costa’s shares fell 1% on the news.

Crown keeps attracting trouble

The bad news keeps coming for casino operator Crown (ASX: CWN) which has now added another Royal Commission to its roster of major inquiries, with the WA Commission to examine the suitability of Crown Perth to continue holding a casino gaming licence.

Crown shares added $0.01 or 0.1% to $9.97.

Consumer shares also bucked the downward trend, with Woolworths (ASX: WOW) up 0.4% to $38.95 and Coles (ASX: COL) 0.6% higher to $15.50.

Lower commodity prices sent the big miners down with BHP (ASX: BHP) falling 2.2% and Rio Tinto (ASX: RIO) dropping 3.3%.

Small cap stock action

The Small Ords index fell 1.67% this week to close at 3071.7 points.

ASX 200 Small Ords chart 2021 March
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Global Energy Ventures (ASX: GEV)

It was a big week for Global Energy Ventures, which revealed a positive scoping study into its compressed hydrogen shipping solution that aims to transport green hydrogen to the Asia Pacific with zero emissions.

Global Energy Ventures has designed what it describes as a “world first” ship that is capable of transporting 2,000t of compressed hydrogen.

The scoping study results showed the compressed hydrogen shipping solution was economically competitive compared to transporting liquefied hydrogen or ammonia.

Boss Energy (ASX: BOE)

Uranium hopeful Boss Energy is powering ahead with its plans to revive the Honeymoon mine in South Australia.

An enhanced feasibility study is underway at the project, which aims to provide an even better base case scenario to developing Honeymoon including reducing capital and operating costs.

The study is due to be released before the end of the month, with GR Engineering Services already identifying a 10% cost saving on estimated capital expenditure.

Boss plans to become one of the lowest cost uranium producers worldwide.

Strandline Resources (ASX: STA)

Mineral sands explorer Strandline Resources is a step closer to securing the remaining financing required to develop its Coburn project in WA.

The company has cemented a binding offtake for a 100% of the planned rutile output from the mine over five years – equating to about 20% of the mine’s forecast revenue over the period.

Strandline now has binding offtake agreements covering 90% of its planned production from Coburn and is working on finalising finance options “as soon as possible”.

EMVision (ASX: EMV)

The Australian Stroke Alliance has advised EMVision that it will be allocating $8 million it recently received under the stage two Medical Research Future Fund.

EMVision will use the fund to develop and validate its planned first responder brain scanner helmet model for air and road ambulances as well as confirm its portable brain scanner’s diagnostic capabilities in a hospital environment.

The company’s chief executive officer Dr Ron Weinberger said the company’s lightweight and accessible devices aim to transform stroke management for first responders and clinicians.

Navarre Minerals (ASX: NML)

Navarre Minerals’ Glenlyle project in western Victoria has produced some “outstanding” gold and silver drill intersections.

Notable silver results were 75m at 12.6g/t silver from 21m, including 38m at 23.5g/t, 1m at 301g/t and 1m at 207g/t. Highlight gold intersections were 1m at 1.3g/t gold from 99m; 1m at 1.2g/t from 45m; 1m at 1.2g/t from 76m; and 1m at 1.1g/t from 28m.

Follow up drilling will be undertaken to test the extent of the mineralisation.

Meanwhile, Navarre is also drilling at St Arnaud, with 5,000m of aircore and 2,000m to be completed.

Alice Queen (ASX: AQX)

At its wholly-owned area of the Queensland-based Horn Island project, Alice Queen has received many positive results from a recent 35 hole for 7,072m infill reverse circulation drilling program.

The company undertook the program immediately west of the historic Horn Island pit and now has assays at hand for the first 15 holes.

Notable results were 2m at 22.9g/t gold from 37m, including 1m at 43g/t from 37m; 19m at 3.2g/t gold from 80m, including 3m at 10.9g/t gold from 93m; 48m at 2.1g/t gold from 127m, including 6m at 5.4g/t gold from 142m; and 7m at 10.5g/t gold from 159m, including 1m at 29.1g/t gold.

Tesoro Resources (ASX: TSO)

On Friday, Tesoro revealed it had uncovered even more potential at the El Zorro project in Chile, with high-grade gold found in the first drill holes of the new Toro Gordo target.

All four of the first holes drilled at Toro Gordo intercepted gold with notable intersections of 1m at 69.7g/t from 180m, 4m at 8.04g/t from 36m, and 2m at 3.3g/t gold 151m.

Tesoro managing director Zeff Reeves said the results were “exceptional” and demonstrated the potential for “large quantities of gold” across the El Zorro project.

Drilling at the primary Ternera target has provided even further confidence in the prospect with latest assays of 45m at 1.57g/t gold from 86m, including 17m at 3.62g/t gold from 90m; and 18m at 1.05g/t gold from 60m.

The week ahead

While the continuing action on the bond market is likely to again dominate the week, there are some things to watch out for in what is a quieter week for data releases.

A speech by the Reserve Bank governor Dr Philip Lowe titled “The Recovery, Investment and Monetary Policy’’ on Wednesday will be closely watched for further details on his plans to keep interest rates at their current super-low level for years.

Monthly business and consumer confidence surveys will also be of interest, as will inflation expectations.

Internationally, inflation figures in both the US and China will also feed directly into the bond market battle, with any indication of a rise in inflation strengthening the hand of those pushing for higher rates and a lower result favouring the central banks.

This week’s top stocks

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