July has been one of those months that prove that you never can tell when you need to stay invested, with a robust weekly rise of 2.3% helping to produce a memorable monthly rise of 5.7%.
There are still plenty of worries about how durable such a comeback might be in the face of so much uncertainty but investors will be happy to take this rise in their stride as the ASX 200 index jumped 0.8% to 6945.2 points on Friday – not too far from the 7000-point mark.
As usual, the genesis of the revival was Wall Street with the Dow Jones Industrial Average up more than 1% while the S&P 500 was up 1.2% and the tech focussed Nasdaq 1.1%.
Technical recession pushes hope for fewer interest rate rises
In this case, bad news is seen as good news for the market with investors hoping the US Federal Reserve will now slow the pace of interest rate rises after the US economy went into a technical recession after two quarters of negative growth.
While the jury is still out as to whether this is an actual recession with the US National Bureau of Economic Research saying it needs more evidence of a slowdown, the market took off anyway with weakening growth seen as just the signal the Fed needs to back off on interest rate rises.
They are not doing that just yet with the Fed this week, as widely expected, increasing its target range for the Federal Funds rate by 75 basis points, to 2.25-2.50%.
Federal Reserve Chair Jerome Powell said policymakers were “strongly committed” to reducing inflation and it was “necessary to have slow growth” but investors have seen enough porkies told by central bankers to go with the dovish vibe rather than the statement.
And the vibe is for at the very least a slowdown of interest rate rises until the direction of inflation can be seen.
Falling bond yields push up miners and banks
Here in Australia, the fall in US bond yields and rise in the US market was greeted with a rare unanimous rise to the main barbells of the local market – the big miners and the big banks with even the Australian dollar rallying to a 6-week high of US70.18c due to a weaker US unit.
The materials index rose 1% and financials by 0.6% with green dominating all sectors bar the defensive health care one, which showed a marginal loss.
Real estate shares had a particularly strong day, with the sector rising an impressive 3% on the back of falling bond yields.
Smaller companies have enjoyed a particularly strong comeback, with the small ordinaries index up 10.2% so far this month.
Weaker iron ore prices took some of the shine off the big miners late in the day after China’s central government renewed its belief in achieving COVID-19 zero through lockdowns and put the responsibility on reviving building projects back on to local government.
Gas powers Origin
There were some strong rises due to specific circumstances with Origin Energy (ASX: ORG) shares jumping 4.7% to $5.97 on news that it had doubled its quarterly earnings from its stake in Asia Pacific LNG, which has benefitted greatly from soaring gas prices.
There was plenty of weakness showing in the buy now pay later brigade with Zip (ASX: ZIP) plunging 25% reversing its surge on Thursday and shares in former merger partner, Sezzle (ASX: SZL) dropped almost 20% to 80c.
Small cap stock action
The Small Ords index rallied 3.05% for the week to close at 2957 points.
Small cap companies making headlines this week were:
K-TIG (ASX: KTG)
K-TIG on Friday announced it had signed a memorandum of understanding with Darchem Engineering in a bid to novate a three-cubic-metre intermediate level waste nuclear storage container contract.
Darchem has more than 180 nuclear sites worldwide and is considered a market leader in the design and manufacture of varying high integrity engineered products in stainless steel and titanium, as well as thermal insulation systems.
K-TIG says the MoU is an important milestone towards fulfilling its nuclear waste storage strategy and continuing to reinforce its commercial presence in the UK and the European Union.
In addition, the company announced its revenue for the quarter reached $765,000, representing a 36% increase compared to June quarter 2021.
RLF AgTech (ASX: RLF)
Advanced crop nutrition technology developer RLF AgTech has posted a record FY2022 with cash operating receipts of $10 million.
The $10 million in cash receipts was up 23% on FY2021, and included the $3.4 million received in Q4 FY2022.
The company closed out the period with $2.2 million-worth of forward orders for FY2023, as it fast-tracks its expansion throughout Asia.
RLF AgTech chief executive officer and managing director Ken Hancock said the company had seen increasing demand for its advanced crop nutrition products over the last 12 months.
Security Matters (ASX: SMX)
Nasdaq-listed special purpose acquisition company Lionheart III Corp has made a bid to merge with anti-counterfeit technology developer Security Matters.
The deal gives Security Matters an $288 million pre-money valuation, which is up substantially from its $18.3 million market cap on the ASX.
Lionheart and Security Matters executed a business combination agreement and a scheme implementation deed, which paves the way for Security Matters to delist from the ASX, and list on the Nasdaq through a newly formed Irish company SMX Ireland.
A SMX Ireland subsidiary will merge into Lionheart, and Lionheart, will, in turn, become a wholly-owned subsidiary of SMX Ireland.
The final merged entity will have a proforma equity value of $518 million and a post-transaction cash balance of $167 million.
Security Matters shareholders will own about 55.5% of the combined entity.
Montem Resources (ASX: MR1)
A pre-feasibility study has confirmed Montem Resources’ proposed Tent Mountain renewable energy complex in Alberta has “compelling economics” and would offer “strong returns for shareholders”.
Tent Mountain is a historical coal mine, and Montem is looking to convert it into a renewable energy complex with three elements – a pumped hydro energy storage (PHES) project using the existing water reservoir, installing a 100MW green hydrogen electrolyser and establishing a 100MW offsite wind farm.
Via the PHES stream, Montem aims to install 320MW of capacity and 2,560MWh of storage. This project would have an 80-year life and allow for eight hours of continuous power.
The pre-feasibility study identified the storage capacity could be doubled to 4,955MWh for a potentially low capital cost of C$35 million, which would involve increasing the size of the upper reservoir.
With the green hydrogen electrolyser element, if it was established it would be the first project of its kind in Alberta.
Montem expects the offsite wind farm would recharge the PHES and power the green hydrogen electrolyser.
Netccentric (ASX: NCL)
In collaboration with Malaysia-based RedSquare Technologies, Netccentric is launching a Web 3.0 creator platform, which it says will place it at the forefront of the Web 3.0 revolution.
The companies will establish NFT Technologies (NFT Tech), which will enable brand owners to issue non-fungible tokens (NFTs) in collaboration with influencers.
“We are delighted to launch NFT Tech in partnership with RedSquare and are excited by the opportunity to develop Netccentric into a Web 3.0 creator platform,” Netccentric executive chairman Ganesh Kumar Bangah said.
The NFTs will be “brought to the masses” and contain real-world utility, which means they can be exchanged for physical goods, services and rewards from brands.
“We see a strong growth trajectory ahead for well-regulated NFTs that provide safety, security, credibility and a positive user experience,” Mr Kumar Bangah said.
Dart Mining (ASX: DTM)
Globally renowned Chilean lithium miner SQM has agreed to earn into Dart Mining’s Dorchap lithium project in Victoria.
Under the first earn-in stage, SQM will sole fund $3 million of exploration at the project over three years to secure a 30% interest.
SQM can then elect to spend an additional $9 million on advancing Dorchap over an additional three years, which would give it an extra 40% and bring its ownership to 70%.
Dart chairman James Chirnside said the joint venture with SQM will accelerate the time-frame in which the company will be able to achieve its objectives at Dorchap and boost its geological knowledge.
The lithium prospectivity of pegmatite dykes was first identified at Dorchap in 2016.
Genmin (ASX: GEN)
Under an agreement made with mining major Anglo American earlier this month, Genmin has received a US$10 million royalty pre-payment.
Anglo American has purchased a 1% royalty over Genmin’s Baniaka iron ore project in Gabon.
The pre-payment was calculated based Anglo’s expected royalty revenue from the first 75Mt of iron ore produced and sold from Baniaka.
As part of the deal, Anglo American has an exclusive right to negotiate and agree to terms for providing up to U$75 million in funding for developing Baniaka as well as purchasing 100% of the expected offtake from the asset.
Genmin chief executive officer Joe Ariti said Anglo American was an ideal partner to help bring Baniaka into production.
BBX Minerals (ASX: BBX)
Further near-surface platinum, iridium and rhodium mineralisation has been noted at BBX Minerals’ Tres Estados project in Brazil’s southern Amazon region.
Analysis of drill core samples from BBX’s 2020-2021 drilling program at the project identified more mineralised intervals in two holes.
Notable results were 3.19m at 3.44g/t 5E PGM (2.56g/t platinum, 0.82g/t iridium, and 0.06g/t rhodium) from 14m, including 1.67m at 5.71g/t 5E PGM (4.89g/t platinum, 0.7g/t iridium and 0.12g/t rhodium); and 10m at 1.18g/t 5E PGM (0.77g/t platinum and 0.42g/t iridium) from 21m.
Another hole intercepted 2m at 2.94g/t 5E PGM (2.77g/t platinum and 0.107g/t rhodium) from 2m; and 7m at 1.88g/t 5E PGM (1.75g/t platinum and 0.13g/t rhodium) from 16m, including 1m at 3.57g/t 5E PGM (3.37g/t platinum and 0.2g/t rhodium) from 20m.
The week ahead
There are no prizes for guessing the big announcement in the coming week with the Reserve Bank’s decision on official interest rates by far the most important.
The consensus is that the RBA will raise rates from the current 1.35% to 1.85% but there is always scope for some surprises in either direction and this will be followed by a welter of housing loan interest rate rise announcement from banks – plus, hopefully, some higher deposit rates.
Other announcements that will be interesting include the release of CoreLogic house prices which are expected to show continuing price falls in Sydney and Melbourne with a national 1.5% fall expected.
Adding to the mass of data will be a swag of Australian profit results which are sure to drive individual share price movements.
Figures on inflation, job advertisements, lending indicators, building approvals, retail trade, new car sales and international trade figures will come together to draw a more complete picture of how the Australian economy is responding to the flood of influences at the moment.
Overseas, US labour market data will be interesting, along with measures such as chain store sales that will show how consumers are responding to strong price rises while purchasing manager indices will show how business is responding.
China will also see purchasing manager indexes and figures on the manufacturing and services sector as the country continues to struggle with slow growth and COVID-19 outbreaks and shutdowns.