Market wrap: ‘risk on’ sentiment sparks bullish surge

The Australian market had one of its best days this year on Friday, rising 1.1% as it chased the US market which reached a 14-month high.

It was the fifth consecutive daily rise which saw the ASX 200 hit 7251.20 points, which was a rise of 1.8% for the week and reached a better than three week high.

The gains on Wall Street came after weak US economic data reinforced the belief that the US Federal Reserve was either at or approaching the end of its cycle of raising interest rates.

Of course, that situation is far from identical in Australia, although the sight of New Zealand entering a recession after a hawkish cycle of interest rate rises might even be enough to give the Reserve Bank of Australia something to think about.

Whatever the reasoning, every sector except for health care was up, with the best performers being the energy, technology, discretionary, utilities and financials sectors.

Banks strong on rising interest margins

The big banks had a particularly strong day as brokers pencilled in higher net interest margins due to expectations of interest rate rises despite the increasing possibility of a recession while the big miners were also higher after China moved to increase economic stimulus measures.

Westpac (ASX: WBC) was the strongest of the big four, with shares up 1.5% while Commonwealth Bank (ASX: CBA) shares rose 1.1%, ANZ (ASX: ANZ) shares 0.65% and National Australia Bank (ASX: NAB) shares were up 0.78%.

The potential for higher profits in 2024 also drove up shares in utility company AGL Energy (ASX: AGL) 9.7% to $10.60 after they had risen as much as 15% to $11.14 at one stage.

Coal, lithium and tech all rise

There were plenty of other strong performances in the large cap space, with an 8.3% rally in the price of coal company Whitehaven Coal (ASX: WHC) and the same percentage increase in the shares of lithium companies Liontown Resources (ASX: LTR) and Pilbara Minerals (ASX: PLS) up 4.9% among the biggest large-cap advancers.

Technology companies were also higher with Xero (ASX: XRO) up 2.6%, NEXTDC (ASX: NXT) up 1.6% and WiseTech Global (ASX: WTC) shares 1.2%.

Bad news was thin on the ground with one of the bigger falling stocks CSL (ASX: CSL), with its shares down 0.6% following disappointment about a downgrade to its expected net profit.

All of which makes the coming week an interesting one for the market, which seems to have turned a corner as investors search for bargains among the stocks being sold to get financial year-end tax losses.

Small cap stock action

The Small Ords index rallied 1.57% for the week to close at 2842.5 points.

Small cap companies making headlines this week were:

GreenTech Metals (ASX: GRE)

GreenTech Metals has discovered lithium-bearing pegmatites at the Ruth Well project in Western Australia, with up to 1.65% lithium oxide found in initial samples.

The sampling was part of a wider program, tracing the mineralisation over a 6km strike.

Obsidian Metals Group will lead GreenTech’s lithium exploration strategy, with the company investing at least $1 million via the placement of 6.9 million shares in GreenTech.

The funding will support GreenTech’s lithium strategy and ongoing work at the Whundo project.

Managing director Thomas Reddicliffe sees the developments as positioning GreenTech as a rapidly emerging critical metals business in a growing region.

Golden Mile Resources (ASX: G88)

Golden Mile Resources has reported “spectacular” grades of nickel and cobalt at its Quicksilver project in Western Australia, with the highest intercepted grade being 49m at 1.74% nickel and 0.071% cobalt.

These results could potentially allow for direct transportation and shipping from higher-grade zones without beneficiation.

The newly appointed managing director, Damon Dormer, suggests this could provide an early cash flow as a beneficiation plant is built.

Dormer, who has over 26 years of experience in the mining sector, was appointed following a shortened probation period.

The Quicksilver project is situated on privately-owned farmland, approximately 300km southeast of Perth.

Recharge Metals (ASX: REC)

Recharge Metals has agreed to purchase the Wapistan lithium project in the James Bay region of Canada from Rockland Resources.

The project includes 219 mineral claims across two contiguous blocks covering 107.2 square kilometres.

Although the project has not been previously explored for lithium, it is in close proximity to Recharge’s flagship Express lithium discovery.

Under the terms of the agreement, Recharge will pay Rockland an upfront cash consideration of $552,000, another $220,000 for project acquisition payments, and issue Rockland 5 million Recharge shares.

To fund the upfront consideration, Recharge plans to raise $1.1 million through the issuance of 5.7 million shares at $0.19 each.

Incannex Healthcare (ASX: IHL)

Incannex Healthcare is progressing with studies for a pill-based treatment for obstructive sleep apnoea (OSA), aiming to disrupt the multi-billion dollar medical equipment industry associated with the condition.

The company’s treatment, named IHL-42X, has demonstrated promise in early trials and the firm is preparing for the next phase of testing.

Two principal investigators, Dr John Hudson and Dr Russell Rosenberg, have been appointed to lead a Phase 2/3 clinical trial to investigate IHL-42X further.

IHL-42X consists of low-dose dronabinol, a synthetic form of THC, and acetazolamide, a carbonic anhydrase inhibitor.

Phase 2 proof of concept clinical trials showed that participants had a significant reduction in the apnoea-hypopnea index (AHI) compared to a placebo.

Lake Resources (ASX: LKE)

Lake Resources has updated the measured resource estimate for its Kachi lithium project in Argentina to 2.9 million tonnes of lithium carbonate equivalent, adding to its ‘clean’ lithium processing strategy plans.

The company’s ongoing drilling campaign at the site continues to uncover the project’s potential, and the resource remains open to further exploration.

Current and future drilling will target defining a deeper resource beyond 400m below ground. Lake Resources is also carrying out flow and transport model studies to convert the lithium resource to reserve.

In partnership with Lilac Solutions, Lake Resources has achieved the production of 2,500kg of lithium carbonate equivalents at the Kachi lithium pilot plant.

The week ahead

Yet again central bank action will take centre stage this week with the release of the last Reserve Bank Board minutes from June 6.

This was the meeting that decided on another 25-basis point increase to the official cash rate which came as a bit of a surprise to some pundits.

That makes the minutes more interesting than usual because analysts will be checking for indications of whether this was a close-run decision or whether we can expect another couple of interest rate rises to come down the pike in coming months.

There will perhaps be some other clues around as the RBA Deputy Governor Michele Bullock is delivering a speech in Newcastle while Assistant Governor, Christopher Kent, is taking part in a panel discussion at the ISDA/AFMA Derivatives forum.

Another result of the RBA’s hawkishness will come on Tuesday when the weekly consumer sentiment index is released by ANZ and Roy Morgan, with consumers now gloomier than they have been for a full three years.

While the US financial markets are closed on Monday for the Juneteenth holiday, the news there will also be central bank driven with Federal Reserve Chair, Jerome Powell, giving testimony before the US Senate Banking panel on Thursday.

With inflation falling to less than half the peak rate it hit last year, there is certainly some evidence that the series of rate rises is working to cool prices and the economy but most of the inflationary fall was due to lower petrol prices while underlying price pressures remained high.

Other things to watch for in the US include measures of housing sentiment, housing starts and existing house sales which should provide a thorough picture of the housing market.

Other releases include the ‘flash’ purchasing manager index for manufacturing and services.

The Bank of England is also due to make its decision on interest rates on Thursday with a 25-basis rise expected due to still very elevated inflation.

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