Weekly review: US dollar remains strong as bond yields rip higher

Despite a mid week bump, the ASX 200 shed 1.21% to close the period at 6676.8 points.

Highlights from economic data this week was Australia’s unemployment rate which remained steady at 3.5%. The participation rate was also unchanged at 66.6%.

Australian 10-year government bond yields hit a nine year high of 4.26% on Friday and look to be breaking higher.

Meanwhile, US 10-year government bond yields reached 4.3%, having started the year at only 1.5%.

This was the 10th straight week that US bond yields rose and they are now at their highest levels since 2008.

US dollar destroying other currencies

As of late we’ve seen major global currencies trade in a similar manner to crypto currencies.

This was foreshadowed by recent guests on Small Caps: Gregory Mannarino and Francis Hunt.

The Japanese Yen is crumbling against the US dollar, as is the Korean Won. With the Hong Kong dollar versus US dollar peg looking like it may break any day now.

The Australian dollar has lost over 12% since August to the world’s reserve currency, the British Pound having shed over 21% since May.

The US dollar has been acting like a wrecking ball in global markets as of late and is showing no signs of stopping just yet and has many market participants wondering whether we will see a super spike.

On a fundamental note many nations are looking to remove the US dollar from trade, specifically the BRICS aligned nations.

However for now, many emerging markets require the US currency to buy goods and to pay the interest on their debt. As a result, with a higher priced dollar, we could see emerging markets come under severe pressure.

Not to mention with bond yields spiking and US national debt now over US$31 trillion and the unfunded liabilities well over US$100 trillion, you don’t need to be an economist from Harvard to work out that the road we are on can’t last forever.

Soon governments may not be able to even afford the interest on their debt. Possibly why we are seeing Central Bank Digital Currencies (CBDCs) being prepared in the background as a ‘solution’ and to usher in a new financial system.

Small cap stock action

The Small Ords index closed the week marginally lower by 0.16% at 2668.7 points.

Small cap companies making headlines this week were:

Toys”R”Us ANZ (ASX: TOY)

Toys”R”Us is branching into the UK after executing an exclusive sub-licence with WH Smith High Street (WH HS).

The deal paves the way for Toys”R”Us to trial nine store-in-store (SIS) implants with the initial stores to opened in the first half of 2023 and operate for a 12-month period.

Under the agreement, WHS HS will pay Toys”R”Us a fixed percentage royalty fee based on any sales revenue from the SIS implants, which will stock games, toys and family/children related products.

If the trial is successful, a stage-two rollout may occur with additional SIS implant stores over a 10-year agreement.

Establishing physical SIS implant stores follows the recent launch of a UK website selling Toys”R”Us and its Babies”R”Us branded products.

Piedmont Lithium (ASX: PLL)

Piedmont Lithium’s Tennessee lithium hydroxide project was this week awarded a $244 million grant by the US Department of Energy to support construction and development, which is scheduled to begin next year.

When completed, Tennessee will be the largest facility of its kind in the US, producing around 30,000 tonnes per annum of battery-grade lithium hydroxide or more than double current domestic production rates.

Piedmont expects the project will become one of the world’s most sustainable lithium hydroxide operations.

Taruga Minerals (ASX: TAR)

Perth-based Taruga Minerals has reported “exceptional” rare earth element grades from drilling at the Morgans Creek prospect in South Australia.

Ionic clay-hosted grades of up to 9,082ppm TREO are believed to be the highest recorded to date for the company.

The results have extended the known mineralised strike zone at Morgans Creek by 300%, from 1.4km to 4.3km.

Wide Open Agriculture (ASX: WOA)

Regenerative food and farming company Wide Open Agriculture reported its 13th consecutive quarter of revenue growth this week at almost $2.69 million, up 60% on the previous corresponding period.

The quarter saw an accelerated pipeline for the company Dirty Clean Food brand’s oat milk with new distribution prospects identified for Thailand, the Philippines, Vietnam, Indonesia, Malaysia, Korea and Japan.

The company also expanded its distribution agreement with Grow Hub Innovations for the sale of oat milk in Indonesia and Malaysia.

Credit Clear (ASX: CCR)

Australian receivables management solution provider Credit Clear achieved cash flow positive status for the entire first quarter of the new financial year, generating $531,000 from its operating activities.

The result was attributed to a rapid growth in high-gross margin digital payments, which totalled $15.3 million and represented an increase of 19% on the previous quarter.

Credit Clear also signed a record 99 new clients during the period, which is set to bring an expected $3.4 million in additional revenue over the next 12 months.

Southern Cross Gold (ASX: SXG)

It’s been a busy week for Southern Cross at the Sunday Creek gold project, with more high-grade results from the Apollo target and a new mineralised zone identified at Golden Dyke.

Assays from the first drill tests undertaken across the north-northeast-trending Apollo shoot returned up to 362.6 grams per tonne gold equivalent, giving the company a total 18 holes exceeding the threshold of more than 100g/t by cumulative metres gold equivalent.

Southern Cross said the newest results were encouraging for their “exceptional hit rate”.

Meanwhile, drilling below old workings at Golden Dyke unearthed 48.9m at 3g/t gold equivalent (2g/t gold and 0.64% antimony) from 182m, indicating the discovery of a new gold zone at the project.

The week ahead

Mid week in Australia we’ll see consumer price index (CPI) data for the September quarter.

Last quarter we saw a 6.1% year-on-year gain, the highest print since Q2 2001, this quarter we’re expected to see a whopping 7%, but we’ll know next week.

Reducing inflation is the main priority by the Reserve Bank of Australia, the CPI print will likely give a good indication on future rises in rates.

Even though it’s a lagging indicator, central banks by their nature are reactive and not proactive, hence are usually late to the party when it comes down to cool markets or to get them going.

However, that’s no reason for them to not win a Nobel Prize, as former Federal Reserve chairman Ben Bernanke did last week.

Over in the US, data to keep an eye on includes GDP numbers for the last quarter, durable goods orders for September, personal income/spending and new home sales.

China is set to release its NBS Manufacturing PMI for the month.

However, given China once again delayed the release of economic growth figures this week, can we really rely on the accuracy of these figures? The same question applies to data from western governments as well which are clearly understating the real rate of inflation the everyday person is experiencing.

With regards to the delayed release of China’s GDP numbers, Beijing was tipped by analysts to put out weak quarterly growth figures given the country has been crippled by the zero-COVID strategy and a brewing real estate crisis.

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