Weekly review: share market crunch below 7000 points leaves nowhere to hide

There were few places to hide on the Australian share market in the past week as overseas pressures and domestic worries conspired to send the ASX 200 decisively below the key 7000-point levels.

By the end of Friday trade, the ASX 200 had fallen 1.3% to 6932 points with real estate and energy stocks leading it down to its worst week since September 2020.

The only small consolation is that it could have been worse with the previous session in the US leaving the Dow Jones 1.9% lower, the S&P 500 index down 2.4% and the technology dominated Nasdaq 2.8% lower.

It was a similar bleak story in Europe with news that the European Central Bank had cut its growth forecast and would start raising the cash rate by 25 basis points next month, with the potential for even bigger rate hikes down the track sending all major European indices down by at least 1%.

News that Shanghai was planning further COVID-19 lockdowns and the looming release of US inflation data failed to add any market cheer.

Not even commodity prices were helping, with Nymex crude oil dipping 0.5% and iron ore falling 1.4%.

Power crisis set to harm spending

Domestically, there is plenty to worry about in Australia with the market hitting a four-month low as the worsening east coast power crisis encouraged further selling.

Macquarie Equities warned that surging electricity costs add to the downside risks for discretionary spending and corporate margins, while creating upside risk to inflation and rate hikes.

For the week, the ASX 200 was down a hefty 4.2%, with widespread losses in real estate, discretionary, energy and financials all hitting hard.

Banks down heavily despite rising interest rates

Even Macquarie (ASX: MQG) which had resisted the heavy falls in the big four banks all week fell 3.5% to a nine-month low of $172.46 on Friday, acting like an anchor on the financial sector.

The big four banks were all lower with Commonwealth Bank (ASX: CBA) shares dropping 1.2% to $93.78, Westpac (ASX: WBC) shares shedding 1.5% to $20.85, National Australia Bank (ASX: NAB) shares down 0.7% to $28.06 and ANZ (ASX: ANZ) shares 1.2% lower to $23.07.

The crunching prices for banks all week seems to be due to a rejection of the conventional wisdom that banks will make stronger profits as interest rates rise as their margins improve.

On the electricity front there was no good news from AGL Energy (ASX: AGL) which now expects its Loy Yang A Unit 2 outage to extend for an extra month and a half due to “global supply chain issues and the availability of specialised materials”.

AGL shares initially fell hard on the news but managed to recover most of their losses and finish 0.2% lower.

In a small ray of sunshine across the market, shares in Bubs Australia (ASX: BUB) rose 9.2% after it advised that its entire first chartered infant formula shipment to the US will be bought by two major US infant formula retailers: The Kroger Co and new retail partner, Albertsons Companies.

The only other good news to be had came in the form of the jobs numbers which showed that Tasmania and Western Australia continued to have major recruitment shortages, although the overall pace of labour demand in Australia moderated.

Small cap stock action

The Small Ords index fell a steep 5.62% for the week to close at 2854.9 points.

Small cap companies making headlines this week were:

Akora Resources (ASX: AKO)

High-grade iron ore has been identified in rock chips collected from the Satrokala prospect, within the southwest tenements of Akora Resources Bekisopa project in Madagascar.

The company collected 102 rock chips over 10km of strike and uncovered up to 68.03% iron, with 66 samples averaging 64.5% iron.

Akora managing director Paul Bibby said the results were “extremely encouraging” and indicated the company could discover a high-grade deposit comparable to Bekisopa, which has global inferred resources of 194.7 million tonnes, including 7.8Mt of direct shipping ore.

The company followed up the positive regional field work results with news it had retained Wardell Armstrong to complete transport and engineering scoping studies for developing Bekisopa.

Mr Bibby said the scoping studies will provide the company with options for processing, infrastructure, environmental management in addition to indicative capital and operating costs.

Prescient Therapeutics (ASX: PTX)

Clinical stage oncology company Prescient Therapeutics has reached another milestone in advancing its CAR-T cell technology for treating cancer.

The company has developed CellPryme-M, which produces “superior cells” that are less prone to exhaustion – providing longer cancer killing activity and improved tumour trafficking.

CellPryme-M was developed in collaboration with the Peter MacCallum Cancer Centre and Prescient owns the intellectual property.

Prescient plans to use CellPryme-M to enhance the cancer killing ability of its OmniCAR programs, and licence it to other CAR-T technology developers.

Thomson Resources (ASX: TMZ)

As part of its strategy to build more than 100Moz of silver, Thomson Resources has released an updated indicated and inferred resource for its Webbs deposit in NSW.

The resource totals 2.2Mt at 140g/t silver, 0.15% copper, 0.55% lead and 1.1% zinc for 9.7Moz silver, 3,300t copper, 12,000t lead and 24,000t of zinc – equating to 14.2Moz of silver equivalent.

Webbs is Thomson’s fifth resource to be delivered within 10 months for its New England Fold Belt Hub and Spoke projects, with global resources standing at 54.4Moz of silver equivalent.

Thomson’s positive exploration news also extended to its Bygoo project in the NSW Lachlan Fold Belt where drilling returned 17m at 0.9% tin from 129m; 23m at 1% tin from 62m; 39m at 0.4% tin from 89m; and 13m at 0.4% tin from 45m.

Culpeo Minerals (ASX: CPO)

Acquiring 80% of Lana Corina earlier this year has proved a positive move for Culpeo Minerals after the third hole of its maiden drilling program intercepted 173m at 1.05% copper.

Culpeo managing director Max Tuesley said the third hole of the program confirms mineralisation extends at depth and remains open.

Mr Tuesley added the 173m intercept at 1.05% copper was the highest-grade hit to-date at the project.

An 85m high-grade molybdenum zone was also uncovered, which started from 486m and graded 1,367ppm.

Lotus Resources (ASX: LOT)

Uranium explorer Lotus Resources revealed a maiden resource for its Livingstonia deposit in Malawi.

The inaugural resource totals 6.9Mt at 320ppm uranium for 4.8Mlb.

This brings Lotus’ global resources for its Malawi projects to 49.4Mt at 475ppm uranium for 51.1Mlb.

Lotus is advancing Livingstonia as a potential satellite deposit to its flagship Kayelekera project where a definitive feasibility study is underway.

Vonex (ASX: VN8)

After teaming up with More, which is a partly-owned subsidiary of the Commonwealth Bank, Vonex will become an exclusive provider of business phone hardware and services to the bank’s customers – both new and existing.

Vonex will develop, operate and maintain a customised platform to be integrated with More’s billing and ordering system through custom APIs (application programming interfaces) developed specifically for the project.

The platform is expected to assist More with its rapid growth and manage hosted PBX services, IP telephony hardware and softphone licences for More’s SME customers.

This agreement coincides with the launch of More’s business NBN and hosted-phone for Commonwealth Bank’s customers.

The week ahead

With most global central banks now firmly set on a rising interest rate regime, the big question is how consumers will react as their household income dries up.

This is particularly the question for those who have taken on massive mortgages when property prices were very strong and interest rates tiny.

Not helping the situation is rising prices on a range of essentials items from household gas and electricity prices to petrol and groceries, making consumer confidence measures particularly important reading.

The real sea change in central bank policies came in the past week with the European Central Bank changing course and raising rates hard to tackle inflation.

The danger, of course, is that all of this central bank action will cause a recession if the swing from ultra-low interest rates is too dramatic.

On Wednesday the US Federal Reserve is set to raise interest rates again after a 50-basis point rise in May, with most pundits tipping official US rates will reach 2.5% to 3% by the end of the year.

It is a delicate balance that the Fed must keep with the major effect of higher official interest rates so far being falling share prices – something that is really being delivering in spades.

Most pundits think the Fed will raise its key interest rate this week by half of a percentage point, the second straight increase of double the usual amount, with investors expecting a third to hit in July.

After a large 0.5% rate rise from the RBA last week, we are in for a light week on the data front with the share market closed on Monday due to the Queen’s Birthday holiday.

For traders that will be a welcome relief given the relentless fall in the market in the past week, with perhaps some consolidation to come.

Rising interest rates hit consumer confidence in various ways – through directly reducing disposable income but also through falling property prices – something that is already underway and will be a drag on consumer confidence, given that household wealth falls along with home values.

That is why Commonwealth Bank has cut its forecast growth for the Australian economy this year to 3.5% from 4.7%, while next year GDP will expand 2.1%, or a full percentage point slower than previously predicted.

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