Weekly review: Trade wars could last decades, Aussie housing market slump continues, central banks buying gold

Trade wars Aussie housing market slump central banks buy gold
WEEKLY MARKET REPORT

Despite increasing trade tensions between China and the United States, the Australian market showed signs of resilience with the ASX 200 closing out the week’s trade 5.4 points shy of the 6,200 mark, up 0.48 per cent.

As noted last week, global trade wars are a theme to look out for in the future, for the next 20 years in fact, according to Chinese billionaire and Alibaba founder, Jack Ma.

Trade wars could last 20 years

Ma, who will step down from his role as executive chairman of the US$426 billion Alibaba Group on Monday, believes the trade war between the US and China could last decades.

“It’s going to last long; it’s going to be a mess,” said Ma, “you may win the battle, but you lose the war.”

“Middle term, a lot of Chinese business will move to other countries.”

In the short term Ma noted that the economic actions between the US would likely immediately negatively impact Chinese and foreign companies.

China on Monday will impose new tariffs on US goods to the tune of US$60 billion. This is in response to US President Trump announcing additional tariffs of around US$200 billion on Chinese goods.

To date, the two nations have imposed US$50 billion worth of tariffs on each others goods.

With Australia heavily reliant on China economically and the US politically, it may be time that new friends are found abroad and alliances forged.

Housing market slide continues

Australian housing has been taking a hit over the past few months with $13 billion in value having been wiped from the market in the second quarter of 2018.

Australian housing prices have now fallen for 11 straight months.

According to financial modelling from CoreLogic-Moody’s Analytics, housing in Sydney is expected to fall 5.1 per cent for this year and continue to stay flat till mid 2019, before rising 0.6 per cent by year end.

Last week auction clearance rates across the nation fell to their lowest levels seen since December 2012.

With the foundations of the property market being shook, investors may start looking elsewhere for capital growth.

Central banks buying gold

Demand from the central banks for the precious metal is at three years highs, rising 8% during the first half of 2018.

A total of 193.3 tonnes of gold has been acquired by central banks this year, compared to 178.6 tonnes during the same time last year, according to the World Gold Council.

With the rising US dollar, emerging market central banks have tried to preserved their wealth with Russia, Turkey and Kazakhstan leading the charge and accounting for 85 per cent of the total purchases.

Since the beginning of 2017 to July 2018 Russia has added 383.3 tonnes of gold, Turkey 125.8 tonnes and Kazakhstan a heavy 68.4 tonnes.

All three countries have seen their currencies lose significant value against the greenback this year.

Worth noting is that China’s hasn’t updated its official gold holdings data since October 2016 when the International Monetary Fund added the yuan to its Special Drawing Rights (SDR) basket.

The Asian nation is well known for playing its cards close to its chest when it comes to gold holdings, having only updated its official tally three times in the past 20 years, other than the few months leading up to the yuan’s inclusion in the SDR.

However China is the world’s largest producer of gold, with nearly all of what is mined staying within its borders. So we can safely assume that China’s central bank would be near the top of the list for gold purchases.

Small cap stock action

The Small Cap index closed out the week strong to get across the line and finish in the green, up 0.14 per cent at 2,835 points.

Companies making news this week include:

Impression Healthcare (ASX: IHL)

Leading innovator in the oral healthcare sector, Impression Healthcare, this week revealed a collaborative deal with AXIM Biotechnologies Inc. over a range of cannabis-based health products.

Impression plans to license AXIM’s products for distribution in Australia and New Zealand.

AXIM’s flagship products include chewable gum MedChew Rx and CanChew, plus AX-1602, for the treatment of psoriasis and atopic dermatitis.

AXIM states that its CanChew product is the world’s first, patented industrial-hemp-derived CBD-infused chewing gum, already legal in all US states and over 40 countries worldwide.

Axiom Mining (ASX: AVQ)

After many years, Axiom Mining has finally been granted, via its 80%-owned subsidiary AxiomKB, a mining lease by the Solomon Islands government for the San Jorge nickel deposit.

The other 20% of AxiomKB is owned by the traditional landholders.

The issue of the 25-year lease allows for the extraction, export and sale of nickel ore and associated commodities from San Jorge and allows Axiom to commence construction at Isabel, with a view to commercial production in early 2019.

Invigor Group (ASX: IVO)

Data analytics company Invigor saw its share price rise 166% for the week on news it had signed an agreement with Tencent partner, Winning Group.

Winning Group plans to use Invigor’s loyalty solution as it expands WeChat Pay in Southeast Asia.

We Chat has over 1 billion users, who are predominantly located in China and Southeast Asia, with 900 million using WeChat Pay.

Consolidated Zinc (ASX: CZL)

According to Consolidated, the first truckload of ore has left its high-grade Plomosas zinc-lead-silver project in Mexico bound for processing at the nearby Santa Eulalia concentrator.

The company plans to initially deliver 100 tonnes per day (3000 tonnes per month) to Santa Eulalia and scale that up to at least 10,000 tonnes per month by mid-2019.

The company expects to see first revenues from the ore in October-November of this year.

Aurora Labs (ASX: A3D)

3D printing company Aurora Labs reached a milestone this week in its ability to print complex parts much faster than current industry standards.

The company is aiming to achieve a print speed of a whopping 1000kg per day for its fill sized large format printer.

Currently Aurora can produce 15.88kg per day, while comparable sized machines in the market only produce 1.96kg per day.

Ventnor Resources (ASX: VRX)

Positive tests taken from bulk samples of Ventnor’s Arrowsmith and Muchea silica sand projects have confirmed the projects are able to produce high-quality sand sought after by Asia’s glassmaking and automobile industries.

The company collected 300kg samples from each of its four granted tenements across Arrowsmith and Muchea for bulk metallurgical testwork, with last month the company stating it had achieved the desired glassmaking standard of 99.5% silicon dioxide.

Three of the company’s directors took part in the recent share purchase plan upping their stake in the company.

IPOs this week

For readers interested in the latest ASX debutants and upcoming IPOsSmall Caps has you covered.

The latest stocks to make their way onto the ASX this week include:

ASX IPO Althea Archtis Vintage Energy

Althea Group (ASX: AGH)

The latest cannabis stock to hit the ASX, Althea, burst out of the gates on Friday upon listing showing demand for the sector is alive and well.

The company raised over $19.6 million in a heavily oversubscribed IPO.

Althea holds a number of licences and permits for the importation, cultivation, production and supply of medicinal cannabis in Australia.

Althea intends to direct $10 million of the funds raised towards building a 3-tonne-per-year cannabis growing facility in Skye, Victoria.

Althea hit a high of $0.60, before finished the day’s trade at $0.56, up $180 from its issue price of $0.20.

Archtis (ASX: AR9)

Also listing on Friday was cybersecurity software developer ArchTIS, after successfully raising $8 million.

Funds raised will go towards the ongoing development and commercialisation of its Kojensi secure content and collaboration software suite for clients both in the public and private arena.

Archtis’ Kojensi services are currently being used by the Australian Department of Defence.

Shares in Archtis closed out the week lower at $0.185.

Vintage Energy (ASX: VEN)

Oil and gas company Vintage Energy joined ASX ranks on Monday following an oversubscribed $30 million capital raising.

The company will deploy funds to tap into the eastern Australian gas market.

Vintage is looking at three main projects, including a farm-in deal with Comet Ridge in the Galilee Basin, a joint venture in the Otway basin with Rawson Oil and Gas and a permit in the onshore section of the Bonaparte Basin in the Northern Territory.

Shares in Vintage Energy closed out the week flat at $0.20.

The week ahead

News out of the US will likely have the biggest impact on markets with the Federal Reserve to make a decision on interest rates. A rise of 25 basis points is expected, taking rates to 2.25%.

However investors will also be listening out for signs on whether the narrative of another rate rise this year continues to diminish.

In addition, US GDP numbers for Q2 are expected to come in at a healthy 4.2% growth.

Manufacturing numbers out of China will be released at the end of the week and may show signs of where the global economy is at.

As discussed earlier, the status of the trade war between China and the US is likely to impact markets depending on which way developments turn.

Weekly top stocks

Filip has written in both Australia and abroad during his career, covering everything from the global economy, politics and geopolitical issues to commodities and small cap stocks on the ASX.