Weekly review: stagflation fears force share market into retreat
每周市场报告
Australian shares wilted in the face of potential stagflation as price growth in the United States hit a 40 year high.
The US inflation figures saw the February numbers hit a staggering 7.9% annual rate, with worse to come as the spike in commodity prices due to wide-ranging sanctions against Russia will be reflected even more strongly in the next figures.
That brings stagflation into the realm of possibilities with rising costs against stagnant economic growth a potential scenario if US CPI passes an annualised 9%.
Market starts higher but is swamped by bad news
After starting higher, the ASX 200 dropped 0.9%, or 67.2 points to 7063.6 points on Friday after the highest US inflation since 1982 with the rising costs also putting intense pressure on the US Federal Reserve to act swiftly to raise official interest rates.
Technology shares were hit particularly hard with the local stocks chasing a plunging NASDAQ to close down 3.2% on Friday – a fall of more than 20% so far this year.
The only shares that showed some resilience in the face of determined selling were those that stand to benefit from rising prices – those in the utilities, materials and energy sectors.
Market down on interest rate expectations and slowing economy
Australian investors now need to really take notice of Reserve Bank governor Dr Philip Lowe’s warning to prepare for rising interest rates at the same time as the price of living and commodities is rising sharply and economic growth could be weakening.
While there were some good days during the week, by the Friday close the ASX200 index was down 0.7% for the week, with the telco sector down 1.6% for the week and down for nine of the last ten weeks.
On top of the Ukraine war and US inflation caused volatility, there was also some company specific news pushing stock prices around.
Breville gets negative jolt from more coffee
Shares in appliance manufacturer and distributor Breville (ASX: BRG) fell 2.7% to $26.24 after it announced the $170 million acquisition of Italian upmarket coffee machine maker LELIT.
The acquisition is meant to strengthen Breville’s standing in the coffee market and will be funded on a cash and debt-free basis, with half of the payment in cash and the other half in scrip.
That potential dilution gave investors an unpleasant jolt despite the potential positives of the acquisition.
Crazy nickel prices end Nickel Mines’ SPP
In other news Nickel Mines (ASX: NIC) responded to crazy trading in the nickel market by announcing the immediate withdrawal of its share purchase plan (SPP).
The nickel miner said that “applications have far exceeded” the target of $18 million, with $57 million of applications already arriving for new shares.
There has been some crazy nickel trading on the London Metals Exchange after Xiang “Big Shot”” Guangda’s Tsingshan Holding Group was caught out with some massive short positions on nickel.
Despite being the world’s biggest nickel producer, the group’s short positions were overtaken by a massive nickel price surge as Russia’s invasion of Ukraine pushed up prices.
Nickel prices zoomed to a record high above $136,000 a tonne during the week and trading was suspended, causing havoc for other nickel stocks too including Nickel Mines as their share purchase plan was swamped.
Nickel will continue to be interesting with no clarity on whether Tsingshan’s remaining short positions will remain or be traded.
Zip’s share price falls below SPP
Another share purchase plan causing interest was one by buy now pay later group Zip Co (ASX: Z1P), with shares closing down 7.6% after it announced plans to raise about $50 million through the SPP.
The SPP come after Zip raised $148.7 million at the $1.90 issue price from institutional investors but this price was set at a 2% discount to the volume-weighted-average-price of Zip shares during the five trading days up to 1 April this year.
With the stock last trading at $1.58, shareholders would be better off buying on market than through the SPP as Zip shares follow technology stocks south.
In other news Virtus Health (ASX: VRT) shares entered a trading halt after the fertility clinic operator foreshadowed an announcement “in relation to ongoing matters pertaining to proposals to acquire Virtus Health”.
Small cap stock action
The Small Ords index fell 0.66% this week to 3179.7 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
Incannex Healthcare (ASX: IHL)
Preliminary results from a phase 2 clinical trial investigating Incannex Healthcare’s novel cannabinoid IHL-42X drug has shown it can reduce disease severity in obstructive sleep apnoea (OSA).
The phase 2 proof of concept trial was conducted at the University of Western Australia’s Centre for Sleep Science and Victoria’s The Alfred Hospital.
Three doses of IHL-42X and a placebo were assessed, with results demonstrating up to 91.5% reduction in the severity of OSA with one particular dosage of IHL-42X.
92 Energy (ASX: 92E)
Elevated uranium was intersected in the first three holes of 92 Energy’s winter drilling program at its Gemini Mineralised Zone (GMZ) uranium discovery, within its Gemini project, which is 27km from the McArthur River uranium mine in Saskatchewan, Canada.
92 Energy plans to complete 6,600m of drilling at the project, with one of the first three holes unearthing 14m of composite elevated radioactivity.
The GMZ zone is open in all directions and was first discovered last year after drilling uncovered 5.5m at 0.12% uranium.
Live Verdure (ASX: LV1)
Live Verdure is preparing to launch the first four hemp-based skincare products under its 8 Seeds brand in the September quarter of this year.
The initial hemp-based skincare products comprise a daily hydrating facial moisturiser with SPF, facial serum, cleansing oil and body repair crème.
A further nine products are under development across two ranges. The Derma range is harnessing the anti-inflammatory properties of hemp to target common skin conditions such as acne, eczema, psoriasis and rosacea.
The second range is non-irritating and anti-inflammatory for people with sensitive skin. Products from these two ranges will be rolled-out after the initial four have been launched.
Investigator Resources (ASX: IVR)
Follow up drilling has kicked-off at targets close to Investigator Resources’ Paris silver project in South Australia to build on the project’s current resource of 18.8Mt at 88g/t silver and 0.52% lead for 53.1Moz of silver and 97,600t of lead.
A 6,750m program for 51-holes has been planned and will focus on six prospects – Ares, Apollo, Helen East, Uno-Morgans, Diomedes and Ajax.
The current program is following up on previous drilling and surveys across the prospects that returned silver, gold, lead and zinc.
Eclipse Metals (ASX: EPM)
Rare earths, precious and base metals have all been identified in grab samples from Eclipse Metals’ Ivittuut project in Greenland.
The grab samples were collected from the Ivigtut and Gronnedal-Ika prospects within the project and Eclipse now has interim laboratory results from nine of the samples.
Rare earths were identified in grades up to 0.62% lanthanum, 10% cerium, 0.10% praseodymium, 0.82% neodymium, 0.10% samarium, 0.10% gadolinium, and 0.86% yttrium at Gronnedal-Ika.
While at the Ivigtut mine dumps samples assayed up to 165g/t silver, 0.14% copper, 3.83% lead and 0.37% zinc.
Leigh Creek (ASX: LCK)
South Australia’s Department of Energy and Mining has granted approval to Leigh Creek for construction to begin at its Leigh Creek urea project in the state.
Leigh Creek managing director Phil Stavely said the company now looked forward to starting construction activities at the project site.
“We expect preliminary preparatory work to commence next week.”
This approval specifically relates to shallow investigation drilling, which will provide geological, geotechnical and environmental information for the urea project’s stage one and stage two designs.
From its Leigh Creek project, the company plans to develop the only fully integrated urea production facility in Australia with all inputs for low carbon urea production on site.
Lunnon Metals (ASX: LM8)
Lunnon Metals has unearthed nickel sulphides again in the latest hole at the Warren target, which is part of the historical Foster mine within its wider Kambalda nickel project in WA.
This hole was wedging off the parent hole and hit nickel sulphides about 20m up-dip of the parent hole – exactly at the depth predicted by the down hole electromagnetic survey.
The company’s drilling program at Warren aims to demonstrate it hosts a separate nickel mineralised channel in its own right with the potential to have “substantially more” than the current 6,400t of metal.
The week ahead
The Russian invasion of Ukraine and retaliatory sanctions on Russia will continue to boost share market volatility this week.
Add to that a US Federal Reserve announcement on Wednesday of an interest rate rise on the back of flying inflation readings and you have the main ingredients for a very topsy turvy week in prospect.
While they are the two biggest market movers to keep an eye on, there are a host of other things to consider with the biggest in Australia probably the jobs figures on Thursday.
Expectations are that up to 40,000 jobs will have been added in February.
Other local releases to watch out for include consumer confidence, Reserve Bank board meeting minutes and figures on our very weak population growth.
Overseas, other than the US Fed announcement there are US releases on housing, retail sales and manufacturing while Chinese numbers on new house prices, retail sales and investment will also add colour to what is happening inside the giant country.