Weekly review: Trump’s COVID-19 diagnosis thumps Australian stock market

Trump COVID-19 diagnosis coronavirus Australian stock market
WEEKLY MARKET REPORT

The Australian share market got a serious case of the wobbles in the final hour of trade after US President Donald Trump and his wife Melania confirmed they had both contracted the coronavirus during the US election campaign.

Our market immediately lost 50 points in just seven minutes after the Presidential diagnosis was made public.

The unprecedented diagnosis throws a major wrench into the US election campaign in the final month, especially given that Trump has just shared a stage for an extended time with the Democratic contender, former Vice President Joe Biden, during the fiery first debate.

Campaign in turmoil

It is also not impossible for current Vice President Mike Pence to have been infected after one of Trump’s closest aides, Hope Hicks, tested positive, so the election campaign is now likely to be heavily curtailed.

There has been prolonged close contact between many of the Trump advisers during the campaign and not a lot of masks worn or social distancing so the chances of further infections remains high.

At a maximum should Pence also test positive it could now bring on a full-blown constitutional crisis, with House Speaker and Democrat Nancy Pelosi effectively the third in line should both Trump and Pence both die or become incapacitated from COVID-19.

At a minimum, it will produce a Presidential election campaign that is different to any before it, with Trump effectively quarantined from all but electronic campaigning for the foreseeable future, the next debates now unlikely to happen and the short and long-term state of Trump’s health impossible to predict.

Market sells down as risk taken off the table

The immediate market reaction was to sell to reduce risk which saw the ASX 200 close down 81.4 points or 1.4% to close at 5791.5 points – the weakest close in more than a week.

US futures markets fell 1.7% as the Australian market closed, pointing to heavy losses for the US market when it opens for Friday trade.

The Australian market was already far from buoyant when the news came through but it had begun to improve in parts after news was released about the start of a travel bubble being created with New Zealand.

Those one-way restrictions from October 16 will allow New Zealanders from non-hotspots to visit NSW and the Northern Territory.

Travel stocks rise then lose their mojo

That announcement had boosted the “travel stocks’’, with rises observed for Qantas (ASX: QAN), Air New Zealand (ASX: AIZ), Sydney Airport (ASX: SYD), Auckland airport (ASX: AIA), and travel agencies Flight Centre (ASX: FLT), Webjet (ASX: WEB), Corporate Travel (ASX: CTD) and Helloworld (ASX: HLO).

That didn’t last long with all ASX sectors plunging into the red after the Trump diagnosis, led by a 4% fall in the energy sector.

Gold and silver once again lived up to their safe haven reputation, with prices for both rising.

Initially the Australian dollar weakened, down from US71.60c to US71.33c but it bounced back to US71.55c after the share market closed.

Mesoblast hit hard by US FDA decision

There was another case of big US news moving stocks after the US Food and Drug Administration asked for more evidence of the effectiveness of Mesoblast’s (ASX: MSB) flagship remestemcel-L treatment before it granted approval.

That significant regulatory disappointment saw more than $1 billion stripped from the company’s market capitalisation as Mesoblast shares dived 37% or $1.89 to close at $3.19.

The big banks were weaker as the financials sector shed 1.3% and the big miners were not much help either, with the materials sector down 2.13%.

A 1.1% slide in the price of big blood products group CSL (ASX: CSL) also led the health sector to a 1.65% slide.

Small cap stock action

The Small Ords index was set to finish in the green until the late thump down on Friday of 1.85%, to finish the entire week down 0.94% on 2704.5 points.

October 2020 ASX 200 Small ords chart
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Piedmont Lithium (ASX: PLL)

Impressing the market this week was Piedmont Lithium with its announcement it had secured an offtake deal to supply Tesla with spodumene concentrate from its North Carolina project.

The agreement covers a fixed commitment for Tesla to purchase at least one-third of Piedmont’s planned 160,000tpa spodumene concentrate production from the project.

Piedmont anticipates the offtake deal will deliver between 10-20% of its total revenue for its proposed integrated mine-to-hydroxide operation over the first five years.

RareX (ASX: REE)

Assays from infill drilling at RareX’s Cummins Range rare earths project have revealed “spectacular” and “ultra-high-grade” results.

RareX noted the assays were “significantly above the resource grade” and comprised 41m at 4% total rare earth oxides (TREO) from 29m and 36m at 4.6% TREO from surface, including an ultra-high-grade zone of 3m at 25.1% TREO.

Assays from the remaining drilling at the program are expected over the next month, with RareX executive director Jeremy Robinson saying he could not have wished to a better start to exploration at Cummins Range.

Electro Optic Systems (ASX: EOS)

NSW-based Electro Optic Systems has secured a contract worth $94 million to supply the Australian Government with 251 remote weapon systems and related materials.

The new-generation systems are part of the Australian Defence Force’s $270 billion capability upgrade.

Electro Optic will deliver the initial batch of 40 units before the end of the year, with remainder to be shipped in 2021.

Navarre Minerals (ASX: NML)

In collaboration with the CSIRO, Navarre Minerals has identified prospective sites across its wholly-owned Stawell Corridor gold project in Victoria.

Navarre managing director Ian Holland described the results from the CSIRO collaboration as “exciting”, with the researcg project aiming to predict areas of potential concealed gold mineralisation that can be tested by drilling.

Earlier research of the nearby 4Moz Magdala gold deposit has provided Navarre with a “deep understanding” of the gold system.

American Pacific Borates (ASX: ABR)

An independent crop trial using American Pacific Borates’ boron-enriched sulphate of potash fertiliser has generated positive results.

The University of Connecticut carried out the trial which aimed to evaluate the growth and yield performance of four different fertilisers and a conventional fertiliser without boron.

Crops evaluated were tomato and broccoli, which were planted in May. In broccoli, the study showed “significant benefits” from using boron-enriched sulphate of potash. Additionally, the tomato crop yield increased 10% using the same fertiliser.

PharmAust (ASX: PAA)

The Olivia Newton-John Cancer Research Institute (ONJCRI) is investigating the anti-cancer mechanisms of PharmAust’s leading drug candidate monepantel on three cancer cell lines: skin, lung and ovarian.

A $50,000 federal government grant is partly supporting ONJCRI’s study, which comprised an RNA sequencing screen to evaluate how the entire genome of cancer cells responded when treated with the drug.

This provided results about which genes are “switched on” or off by the drug. ONJCRI researchers found that changes in gene expression in the non-cancer cell genome were modest compare to the changes identified in the three cancer cell lines.

PharmAust noted the observation supported previous studies that indicate monepantel has selectivity towards cancer cells.

AD1 Holdings (ASX: AD1)

HR technology company AD1 Holdings will acquire Art of Mentoring, which is a “leading” mentoring software as a service company.

In consideration for the acquisition, AD1 will make a $1 million cash payment upfront and issue $500,000 in shares. Additional cash and scrip-based payments will be made upon Art of Mentoring achieving growth targets.

Art of Mentoring has an annual recurring revenue stream of $1 million, with AD1 claiming it also has “excellent growth outlook” and will provide synergies to its own career platform.

Interviews

Piedmont Lithium (ASX: PLL) president and CEO Keith Phillips discuss the news of the company signing a binding sales agreement to supply Tesla with its proposed spodumene concentrate product from its namesake North Carolina project.

RareX (ASX: REE) executive director Jeremy Robinson discusses the latest results from the company’s Cummins Range rare earths project.

The week ahead

We were in for a massive week in Australia even before the Trump diagnosis but the ramifications for the US presidential campaign will now obviously become a dominant factor.

The really big local news, of course, is the Federal Budget on Tuesday, which is expected to contain some significant spending to push economic activity.

Tax cuts, reduced regulation and programs to stimulate manufacturing should all be announced with the total bill likely to be a record Budget deficit of around $200 billion or even more.

Also meeting on Tuesday is the Reserve Bank board and there has been some speculation that the cash rate could be cut from the current ultra-low 0.25% to 0.1%, although effectively the rate is that low already given the RBA’s extensive targeting of short-term bond rates and its significant loans to the banks.

Other things to watch out for during the week include new car sales, consumer confidence and job advertisement numbers and in the US a speech and interest rate decision from US Federal Reserve Chairman Jerome Powell.

This week’s top stocks

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