Weekly review: rising rates hit share market

Rising interest rates might eventually be bad for home buyers when they flow through but the first place they hit is the share market.

Those higher rates were in full force as the ASX 200 dropped a solid 1.4% or 106.7 points to 7323.7 points on Friday after rising bond yields left a big dent in stocks from all sectors and wiped out all of this month’s profits in a few short hours.

Bond yields across a range of maturities were higher as investors bet that the Reserve Bank of Australia will once again announce a change in strategy on Melbourne Cup Day.

The most obvious disparity was the April 2024 bond, which the RBA has set a target yield of 0.1% on.

RBA may have given up protecting 0.1%

That yield hit took off to hit 0.69% with investors seeing no sign that the RBA had stepped into the market to force it back down.

Even 10-year yields were higher, cracking through 2% for a pandemic high, as investors discounted the RBA rhetoric about rates staying lower for longer and instead took a lead from international bond yields.

World bond rates have been rising all week on the back of inflation fears, forcing a range of central banks to consider raising official rates or at lease to ease back on bond buying.

Traditionally, higher and rising bond yields are bad for shares and particularly high growth stocks – with the noted exception of banks – and that turned out to be the case with technology stocks getting the treatment.

Technology stocks hit hardest

The information technology sector outperformed on the downside, plunging 1.6% with Xero (ASX: XRO) shares dropping 3% and Wisetech Global (ASX: WTC) shares falling 2.1%.

Afterpay (ASX: APT) performed better than many others in the sector, closing down just 0.4%.

Property shares were also down given their closer correlation with bond yields and also because of pandemic caused weakness.

Unibail Rodamco-Westfield (ASX: URW) was a good example, losing a thumping 6.2% a day after it revealed a weak quarterly result, which was impacted by a lockdown inspired revenue drop.

Banks fall in sympathy

Perhaps the only perplexing part of the trading was weakness in the Australian banks, which would normally fare well should interest rates rise, although possibly worries about weaker US futures may have had an impact.

Commonwealth (ASX: CBA) shares were off 2%, NAB (ASX: NAB) shares were dropped 2.5%, ANZ (ASX: ANZ) shares fell 1.6% and Westpac (ASX: WBC) was 2.1% lower.

Macquarie (ASX: MQG) started a trading halt while it raises $1.5 billion from investors to pursue some new investment opportunities.

In other individual stock news, Carsales.com (ASX: CAR) saw its shares drop by 3% after the auto classifieds company said extended lockdowns in the first half would see its financial performance depend more on the second half.

Sleep apnoea company ResMed (ASX: RMD) was a rare star in the falling market, with shares up 4.2% after it handed down a 20% rise in quarterly revenues.

Small cap stock action

The Small Ords index fell 1.33% for the week to close at 3502.9 points.

Small cap companies making headlines this week were:

Latrobe Magnesium (ASX: LMG)

Latrobe Magnesium is positioning itself to meet the critical global magnesium shortage from its proposed plant in Victoria’s Latrobe Valley.

The company has completed an oversubscribed $3 million placement to fund design and engineering services for the proposed 3,000tpa demonstration plant, which would then be expanded to 40,000tpa for commercial output.

Latrobe’s plant will be based on its proprietary hydromet-thermal reduction extraction process, which can produce magnesium from fly ash – a waste product from burning brown coal.

In its September quarterly report, Latrobe said it was also confident of securing two cornerstone investors, together with funding “over the coming months”.

In readiness for building the plant, Mincore has been working alongside Latrobe and the CSIRO in testing new technologies, improving existing processes, building prototypes and completing plant trial runs.

In mid-September, China ordered the closure of 18 magnesium plants in Shaanxi and capacity to be cut in half in another 30.

This has effectively stopped China from exporting magnesium supplies to the rest of the world.

Invion (ASX: IVX)

Invion’s INV043 drug is showing promise in treating triple negative breast cancer (TNBC) in in vivo models.

Hudson Institute of Medical Research undertook the trial in in vivo models implanted with TNBC that had metastases.

The model group injected with INV043 and treated with Photosoft therapy showed complete tumour regression, with no disease recurrence.

Additionally, there were no observed adverse effects.

Sparc Technologies (ASX: SPN)

A collaboration between Sparc Technologies and the University of Adelaide will work on developing a unique technology to deliver next-generation thermo-photocatalysis which could potentially make green hydrogen much cheaper to produce.

The parties will advance the process which uses the sun’s ultraviolet light and thermal properties to convert water into hydrogen and oxygen without an electrolyser and produce and ultra-green hydrogen fuel.

Because the process does not employ electrolysis or require renewable energy from wind farms and photovoltaic solar panels, it would have lower capital and operating costs.

Sparc executive chairman Stephen Hunt said the project offered a “realistic pathway” to generating green hydrogen energy that can economically compete with conventional fossil fuels.

New Century Resources (ASX: NCZ)

As part of its aspiration of becoming a world-leading ESG focused tailings management and economic rehabilitation company, New Century Resources has partnered with similarly ESG focused major miner Sibanye-Stillwater (NYSE: SBSW).

Under the partnership, Sibanye-Stillwater has subscribed for 139.6 million New Century shares for US$16.3 million (A$21.6 million), as part of a US$24.8 million (A$32.9 million) placement.

Following shareholder approval next month, Sibanye-Stillwater will participate in another placement and subscribe for a further maximum of US$29.9 million (A$39.7 million) worth of shares to ensure it secures a 19.99% equity in New Century.

Eligible shareholders will also be given a chance to participate in an entitlement offer that will raise an extra US$35.2 million (A$46.9 million) for New Century.

All up, New Century expects to raise a maximum of US$89.9 million (A$119.6 million), but this could be lower depending on subscription uptake.

New Century will use the funds to acquire the Mt Lyell green copper project in Tasmania and pursue its ESG strategy in collaboration with Sibanye-Stillwater.

Crowd Media (ASX: CM8)

With a new chief steering the ship, Crowd Media is targeting the commercial launch of its talking head system by the end of March next year.

During Q1 FY2022, Crowd’s new chief executive officer Idan Schmorak came onboard and is pushing commercialisation of the technology.

Mr Schmorak wasn’t the only newcomer to the board after Sytze Voulon was appointed as non-executive director.

To drive the commercialisation push, Crowd established its research and development team and continued working with investee and partner Aflorithmic Labs. The duo is integrating Crowd’s AI and Q&A Chatbox technology with Aflorithmic’s voice cloning capabilities.

Mr Schmorak said the company was entering 2022 with improved operating cash flow and “fresh wind in the sails” on all fronts.

Global Energy Ventures (ASX: GEV)

Hydrogen technology focused Global Energy Ventures is planning to establish a 2.8 gigawatt green hydrogen export project on the Tiwi Islands off the Northern Territory.

The company aims to ship up to 100,000tpa of green hydrogen into the Asia Pacific region via its integrated production and export supply chain including its compressed hydrogen shipping technology.

Global Energy Ventures managing director Martin Carolan said the rationale behind the decision to establish the project was to “demonstrate the simplicity and efficiency of using compression for a pipe-to-pipe green hydrogen supply chain and to provide greater certainty in the commercialisation of our shipping solution”.

He noted the company’s shipping solution was “highly modular” and can scale to match the advancement of electrolyser technologies and meet demand, while delivering green hydrogen gas at a competitive cost.

Credit Clear (ASX: CCR)

It was a record quarter for Credit Clear which achieved revenue of $3.4 million for the Q1 FY2022 period.

The record revenue was up 22% on the previous corresponding period and was driven by an all-time high in its digital platform revenue which hit $1.3 million.

Client wins rose 152% on the previous quarter with 58 new customers coming on board during Q1 FY2022.

This sharp uptick in new client wins occurred while maintaining a 99% retention rate of existing users.

Credit Clear provides digital, actionable communications for optimising clients’ account receivables.

Chief executive officer David Hentschke said the Q1 FY2022 results were underpinned by the company’s “significant sales efforts”.

The week ahead

Given the share market’s interest rate inspired weakness, the looming Melbourne Cup Day meeting of the RBA Board will be a particularly important one.

For some reason this meeting has often produced surprises and many analysts expect this one to be no different with a potential watering down of the lower for longer mantra that rules out interest rate rises until 2024.

Commentary could also cover inflation, the job market, the bank’s bond-buying program and any revisions to economic forecasts.

There are plenty of other things to watch out for in the coming week with CoreLogic Home price movements expected to show another solid rise.

Other data covers surveys of purchasing managers, job advertisements, inflation, new car sales and trade.

It is a busy week for the US too, with the Federal Reserve meeting and widely expected to wind back bond purchases, along with the release of job numbers, construction spending, new car sales, chain store sales, mortgage applications, unemployment benefits, international trade and consumer credit figures.

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