Market wrap: shares slide hard on rates rise and recession fears
WEEKLY MARKET REPORT
The share market continued falling on Friday, capping off Thursday’s 1.6% fall with a further 1.3% deterioration.
A softer oil price did most of the damage although the seeming inevitability of more interest rate rises to come in the US and the thumping 0.5% rise in official rates in the UK to 5% all helped to push the ASX 200 down a hefty 96.3 points, to 7099.2 points.
That left the share market at its lowest ebb since the end of May, with just one week remaining to finish off the financial year.
Financial year should still be positive
Even with the possibility of that June disappointment, it is still likely that 2022/23 will remain positive for the year, up around 10-11% after falling by a similar amount in the previous financial year.
The best sector over the year at this stage is likely to be information technology shares but our gains are around half of those in the US courtesy of the concentration of strongly rallying big technology shares there.
Cheaper oil hurts energy stocks
Lower oil prices were bad news for our energy stocks with shares in big player Woodside Energy (ASX: WDS) falling 4.6% and Santos (ASX: STO) shares down 4.3% to $7.30.
Fears of a recession and rising rates infected the real estate and banking sectors, with shares in the biggest bank Commonwealth Bank (ASX: CBA) down 1.6% to $98.51, with shares in National Australia Bank (ASX: NAB) down 1.4% to $25.78.
Red ink was spread liberally right across the share market, with defensive stocks such as utilities and consumer staples the only signs of some positivity to emerge from what was otherwise a bleak, across the board fall.
There was some negative movement on individual stock news too, with shares in healthcare company Cochlear (ASX: COH) slumping 3.5% after the UK competition regulator partially blocked its planned $170 million acquisition of Oticon.
Small cap stock action
The Small Ords index fell 3.49% for the week to close on 2743.2 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Bubs Australia (ASX: BUB)
Bubs Australia has increased momentum in its US operations, achieving its first $1 million month on its Amazon e-commerce platform in May.
Meanwhile Bubs’ direct-to-consumer business has reached net revenues of $1.8 million year-to-date.
Based on its Q4 performance, the company forecasts its FY23 US net revenue to be between $20M – $22m, compared to $8.1m in FY22.
The company says it remains on track with US regulatory compliance, recently completing a necessary FDA audit of its Deloraine manufacturing facility.
It has also finished a protein efficiency rating study and is preparing for a growth monitoring study scheduled for September 2023.
Latin Resources (ASX: LRS)
Latin Resources reported a 241% increase in resources at its Colina lithium deposit in Brazil, now estimated at 45.2 million tonnes, including a measured 30.2Mt at 1.4% lithium oxide.
This increased resource, equivalent to 1,477,700 tonnes of lithium carbonate, signifies a substantial expansion of the Colina project.
Eight drilling rigs are operating at the site, executing a 65,000m drilling campaign throughout the year.
The upgraded resources and the potential benefits of rising lithium prices will play a key role in Latin Resources’ upcoming preliminary economic assessment.
The intense drilling program, testing significant pegmatite swarms, has so far generated a database of 135 diamond drill holes.
Centaurus Metals (ASX: CTM)
Centaurus Metals has reached an agreement with Vale to acquire 100% of the off-take rights for all products from its Jaguar nickel project in northern Brazil.
The deal increases Vale’s net operating royalty by 1.2% for nickel sulphate and 1.25% for nickel concentrate.
The agreement will give Centaurus control over future sales from the Jaguar project, allowing for greater opportunities for strategic funding and partnerships.
It also strengthens Vale’s alignment to the project’s success.
Centaurus believes the deal preserves its cash reserves for the ongoing feasibility study and avoids dilution of existing shareholders, while enhancing funding and partnership flexibility.
Living Cell Technologies (ASX: LCT)
Living Cell Technologies is preparing for the third clinical trial of its NTCELL treatment for Parkinson’s disease, thanks to the completion of a dedicated pig herd and surgical facility by contractor NZeno in New Zealand.
The facilities were established for the exclusive use of LCT and will allow the company to produce its own pathogen-free pigs, crucial for NTCELL production.
These pigs have been used for the tissue in previous trials, and NZeno was engaged in 2021 to breed and maintain them.
A scientific review led by Parkinson’s disease expert Professor Carolyn Sue is currently underway to assess the NTCELL trial protocol.
Additionally, an advisory board, consisting of various scientific and healthcare experts, has been appointed for ongoing advice on the NTCELL project.
The week ahead
Once again inflation will be the key indicator to watch in the coming week, both locally and overseas.
The figures should give a good idea on whether the Reserve Bank will hike official interest rates again in July or take a break.
The first is the monthly measure of consumer prices for May which is released on Wednesday while the second is retail spending for May, which is released on Thursday.
Taken together, they should give us a fairly good guide into how consumer prices are tracking and how consumers are spending in the shops.
While the US market has been falling after it became clear the Federal Reserve still has a couple of interest rate rises ready to go over time, Friday’s release of the personal consumption expenditures deflator should feed into predictions on when the next rise will arrive, with July looking likely.
While in the West we remain fixated on rising interest rates to ensure we get on top of inflation, the opposite problem is the case in China which has been cutting interest rates to stimulate the economy and to arrest signs of falling prices and deflation.
There will be some new data on those issues this week as well with industrial profits out on Wednesday and the official purchasing managers indexes for June.
The Chinese government will be hoping that the interest rate cuts will have boosted activity in the services and factory sectors.
Some individual stock factors will also be around in the coming week, with one being a fairly large number of Australian stocks that trade without their dividends – most of them property trusts.
There are also some companies reporting their profits including Metcash (ASX: MTS) and Collins Foods (ASX: CKF), with CSR (ASX: CSR) and PointsBet (ASX: PBH) having investor meetings which could include some details on how sales and profits are tracking.
There are a swag of earnings reports out of the US during the week as well.