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Market wrap: share market trends lower as Middle East war threatens to expand

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By John Beveridge - 
20 April 2024 middle east war ASX



The probability that Israel has launched an attack on Iran was enough to send share market traders scurrying for cover, with oil and gold two of the very few safe harbours amidst severe global share market caution.

Confirmation from US government officials that Israel had launched a retaliatory attack on Iran in reply to some Iranian missile attacks last weekend was all the news traders needed to take plenty of chips off the table and reduce their exposure to markets in the midst of what could be an expanding conflict in the Middle East.

Unsurprisingly the Australian market was not spared from the carnage, hitting a three-month low following the reports and ending the week with a loss of 2.8%.

Global markets lower

Other markets were also falling with the Japanese and Hong Kong markets lower and futures for European and US markets also sharply lower.

On Friday the ASX 200 Index fell 74.8 points, or 1%, to 7567.3 at the close after it had earlier dived as much as 2% to a nine-month low of 7492.6 points.

The energy sector was the only one to show some resilience as oil prices spiked above US$90 a barrel.

That sent the share prices of oil producers higher but by the end of the day as the position on the ground became more confused with Iran claiming it had sustained no damage the energy sector also succumbed and closed 0.2% lower.

Gold shares also provided some resistance to an overall fall as gold prices spiked above US$2400 an ounce, with Northern Star (ASX: NST) jumping 1.3% and shares in local oil and gas producer Santos (ASX: STO) also gaining 1.8%.

They were rare exceptions though, with the heavyweight barbells of the Australian market – the big financial and materials sectors – both down by a hefty 1.1%.

Technology and property sectors were hit hard while the aforementioned energy and gold sectors did better while defensive stocks in the health care, utilities, staples and discretionary outperformed with relatively smaller falls.

Not helping the market was the reaction to a strong US labour report which was another reminder that strong economic conditions were supportive of interest rates there remaining higher for longer.

US Federal Reserve chairman Jerome Powell has also backed away from providing guidance on when rates may be cut, now saying that monetary policy needs to be restrictive for longer.

The Australian dollar fell 0.8% to a five-month low of US63.7¢.

Small cap stock action

The Small Ords index fell a sharp 3.84% for the week to close at 2966.0 points.

ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Nimy Resources (ASX: NIM)

Nimy Resources has discovered high-grade gallium and multiple mineral elements at the Block 3 target within its Mons project in Western Australia, supported by electromagnetic and induced polarisation surveys targeting sulphide mineralisation.

The exploration has revealed different types of mineralisation at Block 3 compared to another nearby prospect, with notable concentrations of copper, gold, silver and rare earth oxides.

High gallium concentrations, considered critical due to recent export restrictions by China, have been identified, highlighting the potential for a volcanogenic massive sulphide discovery.

Executive director Luke Hampson emphasized the substantial presence of gallium, with drill results showing intervals with gallium trioxide levels well above the high-grade threshold.

Additionally, Nimy received an R&D refund from the Australian government, supporting its ongoing exploration and development activities at the Mons project.

Titan Minerals (ASX: TTM)

Titan Minerals has entered into a joint venture agreement with Hanrine, a subsidiary of Hancock Prospecting, to explore the Linderos copper project in Ecuador, potentially allowing Hanrine to acquire up to an 80% stake by investing up to $180 million.

The terms of the joint venture include several key milestones, starting with an initial investment of $3.1 million for a 5% stake and potentially leading to an 80% ownership if Hanrine commits to exploration and development expenses.

Melanie Leighton, chief executive officer of Titan, highlighted the joint venture as a testament to the global mining community’s recognition of Linderos’ potential to host a large-scale copper porphyry system.

Exploration efforts have confirmed copper porphyry mineralisation at the Copper Ridge porphyry within Linderos, with further geological studies suggesting a much larger system than initially anticipated.

The project located in southern Ecuador includes prospects for both copper and gold.

Macmahon Holdings (ASX: MAH) and Decmil (ASX: DCG)

Perth-based Macmahon Holdings has agreed to acquire Decmil Group, expanding its civil infrastructure business and adding $6 billion in non-mining projects to its existing $4 billion civil pipeline.

The acquisition aims to diversify Macmahon’s revenue sources and enhance returns by leveraging Decmil’s established presence in renewable and government infrastructure projects across various Australian states.

Macmahon has proposed a cash offer above the current market price for Decmil’s shares, fully funding the acquisition through cash reserves and existing debt facilities.

The acquisition is expected to be earnings accretive for Macmahon and will maintain Decmil as a wholly-owned subsidiary with its current CEO, aiming to hit a long-term revenue target of $1 billion annually from civil projects.

The Decmil board has endorsed the deal, with major shareholders already signaling their approval, highlighting the transaction’s potential to deliver accelerated value and financial stability.

Firebrick Pharma (ASX: FRE)

Firebrick Pharma has launched Nasodine, an antiseptic nasal spray designed to enhance nasal hygiene, on the US market available for purchase on their website.

The product, which contains povidone-iodine, is marketed without therapeutic claims to bypass the need for US FDA approval, following a trend started by similar products since 2020.

The launch is supported by six clinical trials demonstrating the safety and efficacy of Nasodine, positioning it uniquely in the US as the only PVP-I nasal spray backed by peer-reviewed studies.

This launch marks Firebrick’s transition to a commercial entity, with plans to expand the Nasodine brand to include more products for the US and other markets.

While currently not approved in Australia for treating the common cold, Australian customers can still obtain Nasodine through personal importation, as Firebrick works towards obtaining local regulatory approval.

The week ahead

Obviously, the fast-moving events in the Middle East conflict will continue to be a deciding factor in market moves during the coming week.

Here in Australia the biggest news apart from that conflict will be the March quarter consumer price index which is out on Wednesday.

Hopefully a “dropping out” of the large 1.4% increase in the March quarter last year will result in a significantly lower inflation rate here with the expected 0.7% result set to see annual inflation fall from 4.1% to 3.4%.

Other things to watch out for include the producer price index and flash purchasing managers surveys for April along with the CommSec State of the States report.

Financial markets in Australia will be taking a break on Thursday for Anzac Day.

There are several US releases including the flash numbers for economic growth and the inflation measure derived from consumer spending.

The US economy has shown few signs of running out of pace and grew at a 3.9% annual pace in the December quarter, but could slow to 2% in the March quarter.

Also important will be the US Federal Reserve’s preferred inflation measure, the core PCE price deflator, which is out on Friday.

Again, many pundits are predicting a slight fall from 2.8% to 2.7%.

Also in the US is the continuing earnings results with some of the companies expecting to report Alphabet, General Motors, Lockheed Martin, Kimberley Clark, UPS, Visa, Tesla, Amazon, Boeing, Hilton, Ford Motor, IBM, Meta Platforms, Caterpillar, Dow, Merck, Atlassian, Microsoft, ResMed, Chevron, Colgate-Palmolive and Exxon Mobil.