Weekly review: strong oil and iron ore prices push the Australian market higher

A strong day on Wall Street was the key to a positive week on the ASX 200, which closed up 0.9% or 62.86 points higher at 7238.80 points.

Miners and technology were the biggest contributors to the gain, following on from a 1.3% rise in the Dow Jones, a 1.8% increase on the S&P 500 and a stunning surge of 2.7% on the tech heavy Nasdaq.

The US trade was boosted by comments from Federal Reserve vice chairwoman Lael Brainard who committed to a better-than-expected half-point interest rate increases at the next two central bank meetings.

In a sign that energy demand is not going anywhere but up, oil prices managed to gain despite OPEC+ agreeing to raise output by 648,000 barrels per day (bpd) in July and by a similar amount in August.

That increased production is an attempt to make up for the sanctions against Russia, which reduced output by 1MMbpd.

Brent crude rose 1.1% to US$117.61 a barrel after the announcement and the US Nymex crude added 1.4% to US$116.87 a barrel.

Iron ore and baby milk booming

Oil wasn’t the only commodity rising with iron ore up a stonking 5.1% to above US$142.20 a tonne, which sent the share prices of the big iron ore miners up.

BHP (ASX: BHP) shares rose 2.5% to $46.76, Rio Tinto (ASX: RIO) shares were up 2.7% to $116.03 and Fortescue Metals (ASX: FMG) shares jumped 4.1% to $21.46.

It was a stellar week also for the infant powdered milk exporters after baby milk producer Bubs Australia (ASX: BUB) struck a major supply agreement with the US Food and Drugs Administration.

Shares in a2 Milk Company (ASX: A2M) enjoyed the reflected glory after revealing it had also recently applied for FDA approval for its infant formula. Its shares rose 6% for the week to $4.76.

Lithium running out of charge

As a counterpoint it was a sobering week for some of the lithium producers with analyst downgrades sending shares in Allkem (ASX: AKE) down 15.3% for the week and Pilbara Minerals (ASX: PLS) share 15.8% lower for the week.

There were rocky times for many companies in the utilities sector as domestic gas and coal prices skyrocketed, sending electricity up as well.

Origin Energy (ASX: ORG) shares fell 11.4% for the week to $6.16 despite a late recovery after the energy provider withdrew its FY2023 guidance.

Shares in the banks were mixed after the value of new home loans fell by 6.4% in April, which was the biggest monthly decline in nearly two years.

The fall means the average home loan size is now $611,154, with property prices softening in many markets as interest rates begin their upward march.

Small cap stock action

The Small Ords index creeped 0.34% higher for the week to close at 3024.9 points.

Small cap companies making headlines this week were:

Bubs Australia (ASX: BUB)

Bubs Australia joined efforts to alleviate the infant formula crisis in the United States after the country’s government announced the “fourth operation fly formula mission” on Thursday.

The US Biden Administration has sourced the first two flights to transport Bubs’ infant formula products to the country, with initial shipments scheduled to leave Melbourne’s Tullamarine airport on 9 and 11 June.

Bubs will export about 1.25 million tins of its infant formula – equating to about 27.5 million feeding bottles for American babies.

The upcoming shipments follow Bubs securing discretion from the FDA.

US FDA discretion enables the country to immediately import, distribute and sell Bubs and other internationally-sourced infant formulas in the country.

Boss Energy (ASX: BOE)

Following a final investment decision this week, Boss Energy is a step closer to mining and processing at its Honeymoon uranium project in South Australia.

With the board approving the final investment decision, Boss can now accelerate engineering, procurement and construction of the project, with first uranium production expected in late-2023.

Boss is fully funded for the project’s estimated $113 million in capital costs after a $125 million capital raising in March.

The company also owns a strategic 1.25 million pounds of uranium, which is now valued at around US$59.38 million (A$82.6 million).

“This final investment decision puts us firmly on track to be Australia’s next uranium producer,” Boss managing director Duncan Craib said.

Mr Craib will use the project’s development to negotiate offtake deals with utilities and capitalise on the looming uranium supply deficit.

Southern Cross Gold (ASX: SXG)

After its ASX debut last month, Southern Cross Gold has impressed investors with early drill results, and unveiling a 119.2m wide intercept from its Sunday Creek project in Victoria.

The 119.2m intercept graded 3.9g/t gold equivalent and contained numerous higher grade intervals, including 39m at 5.2g/t gold and 1% antimony (6.8g/t gold equivalent) from 179m; 2.3m at 26.2g/t gold and 3.7% antimony (32g/t gold equivalent) from 184m; and 5.2m a 14.7g/t gold and 4.8% antimony (22.3g/t gold equivalent) from 189.9m.

Southern Cross managing director Michael Hudson said the 119m intercept with high-grade mineralisation was “unprecedented” in the Victorian goldfields.

He said the only intersection that is comparable is AuStar Gold uncovered 132.2m at 2.2g/t gold at its Rose of Denmark/Morning Star mine.

Assays remain pending for a further four holes completed at the project.

Propell Holdings (ASX: PHL)

May was a record month for Propell Holdings, which saw more customers than ever using its small-to-medium business finance platform and lending reaching an all-time high.

The company reported customers using its platform exceeded 2,000 in May, which was a 428% increase on the previous year and 20.1% higher than the March quarter.

Lending also reached an all-time high during May, with more than $1.2 million in new origins – an increase of 34% on April and up 17% on the previous record month.

As well as the increased lending, Propell revealed a 20% increase in its average loan size, which it says is “critical” in scaling the business.

Incannex Healthcare (ASX: IHL)

A phase 2 proof-of-concept clinical study found Incannex Healthcare’s IHL-42X drug reduced the apnoea hypopnea index (AHI) score in obstructive sleep apnoea (OSA) patients.

At all three doses tested, IHL-42X reduced the AHI score, but the lowest dose performed the best.

When taking the lowest dose, IHL-42X reduced OSA by more than 80% in 25% of participants, and 50.7% on average on the AHI.

“The observation that low dose IHL-42X was the most effective at reducing AHI is encouraging for the development of IHL-42X as a pharmaceutical as a lower dose will reduce the risk of side effects and the cost of goods,” Incannex stated.

The lower dose also showed THC levels under the threshold for impaired driving the morning after a dose.

The week ahead

There are no prizes for guessing the biggest economic news for the coming week with the Australian Reserve Bank Board’s decision on official interest rates on Tuesday the standout.

The expected result is a 0.25% rise, which would take the cash rate up to 0.6%, which is a considerable rise from the 0.1% it was at a couple of months ago.

Following the expected rise will come the usual round of floating rate housing loan rate rises by financial institutions both large and small and a series of groans from borrowers who will be stumping up more every month to pay the mortgage.

Eventually, there may even be some rises in deposit rates too.

Also of interest locally in the coming week will be the May inflation gauge from the Melbourne Institute, job advertisements, purchasing manager indices, consumer sentiment and new home sales.

Winding up the releases for the week will be a range of labour force figures from the Australian Bureau of Statistics which cover jobs, payroll costs and industrial disputes, which are running hot at the moment due to labour shortages.

Overseas, the big question will be how high inflation is getting in the US and China.

There are widespread hopes that the May Consumer Price Index in the US will show that peak inflation is now behind the world’s biggest economy, with many pundits predicting that the headline annual growth rate will have slid to around 8.2%.

That is still uncomfortably high and naturally the numbers are not known until they are announced on Friday, with plenty of market moving potential in their wake.

Also interesting will be the Chinese inflation numbers which have been much more subdued so far but may be under pressure despite the People’s Bank of China cutting interest rates to stimulate demand.

Other releases to watch out for in the US include chain store sales, consumer credit, mortgage applications, unemployment and consumer sentiment.

This week’s top stocks