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Market wrap: US inflation brings glorious rally to an end

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By John Beveridge - 
US inflation market rally October 2023



After six glorious positive sessions of gains, the ASX 200 finally wilted on Friday in the face of higher US inflation which brought an end to hopes for a lowering of the pressure on interest rates.

By the close of trade the ASX 200 had fallen 40 points, or 0.6% down to 7051 points, which still represented a 1.4% market rise for the week.

The fall was almost a carbon copy of the 0.6% fall in the US markets after US core consumer prices grew 0.4% compared to a forecast rise of just 0.3%.

That kept the annual US inflation rate sticky at 3.7%, compared to the vain hopes of most economists that it would fall to 3.6%.

Hotter than expected inflation has now made it much more likely that the US Federal Reserve might have at least one more official interest rates rise left in this cycle, causing bond yields to resume their climb and share markets to go back to recording soggy falls.

Rate sensitive sectors fall the most

Here in Australia, that led to a selloff in rate sensitive sectors such as real estate and technology, which both fell 1.9%.

Health care and utilities were the only two sectors to end higher, up 0.45% and 0.35% respectively as investors sought out defensive cash flows as a safe port while the growth sectors got hammered.

A 1.9% rise in the price of CSL (ASX: CSL), made for a welcome change given its shares have fallen to lows not seen since 2019, which has caused some bargain hunters to come out of the woodwork.

Perpetual reverses investment flows

There was some individual stock news which drove prices higher, with shares in fund manager Perpetual (ASX: PPT) up 2.8% to $21.31 after it revealed that assets under management had remained steady in the September quarter – quite an achievement in a weaker market.

Compared to the previous quarter in which it suffered $5.1 billion of outflows despite the acquisition of Pendal, Perpetual his quarter recorded $100 million in inflows.

It was also a good day for shareholders in Australia’s biggest gold miner, Newcrest (ASX: NCM), with share up 0.8% to $26 after shareholders overwhelmingly voted in favour of a $26.2 billion merger with US gold mining giant Newmont.

In other news, Bega Cheese (ASX: BGA) shares jumped 3.2% to $2.89 after a buy rating was released by Bell Potter analysts.

Small cap stock action

The Small Ords index rose 1.81% for the week to close on 2686.6 points.

14 october 2023

ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Wide Open Agriculture (ASX: WOA)

Wide Open Agriculture plans to acquire the assets of German lupin protein producer Prolupin GmbH for $4.12 million, aiming to become the world’s largest lupin protein producer with a solid foothold in Europe.

The acquisition includes an advanced manufacturing facility in Grimmen, Prolupin’s protein products, patents and trademark.

Wide Open intends to upgrade this facility, doubling its production capacity to 1,000 tonnes per annum after investing up to $5 million within 24 months.

Chief executive officer Jay Albany emphasised the deal’s strategic alignment with their growth plans, underscoring the significant opportunity in Europe’s plant-based protein market.

Redbubble (ASX: RBL)

Redbubble reported a positive underlying cashflow for the first quarter of the 2024 financial year, with a cashflow of $700,000, an increase of $16.9 million from the previous year.

The company’s cash balance reached $39.9 million and saw a 14% rise in gross profit after paid acquisition (GPAPA) to $26.5 million, following recent business initiatives.

However, there was a 6% decline in marketplace revenue, and operating expenses were reduced by 32% to $23.3 million due to cost-saving measures.

Chief executive officer Martin Hosking said the company aims for profitable revenue growth and will focus on maximising GPAPA amidst softer trading conditions in the US.

Fin Resources (ASX: FIN)

Fin Resources has achieved early exploration success in the James Bay region of Quebec, discovering large spodumene crystals at its Cancet West lithium project.

The discovery, adjacent to James Bay Minerals’ Aqua lithium prospect, is near other significant lithium deposits in the region.

Initial fieldwork identified multiple pegmatite bodies, suggesting potential for significant lithium reserves.

Director Jason Bontempo expressed optimism for discovering additional lithium mineralisation through further exploration, sampling, and drilling at Cancet West.

PharmAust (ASX: PAA)

PharmAust has reported positive results from a Phase 2 veterinary study on its lead candidate drug monepantel (MPL), for treating canine B-cell lymphoma.

Conducted on 54 dogs, the study determined MPL to be safe with no severe adverse reactions.

The drug showed an overall clinical benefit of 35% with a median time to progression of 28 days, comparable to the FDA-approved Laverdia.

PharmAust aims to use this data for an investigational new animal drug application with the FDA’s Centre for Veterinary Medicine.

The company also completed dosing patients in Cohort 4 of its Phase 1 MEND study, testing MPL as a treatment for motor neurone disease.

Blue Energy (ASX: BLU)

Blue Energy announced a 36% increase in the estimated total proved and probable (2P) reserves for its Sapphire Block gas development in Queensland, following an independent study by Netherland Sewell and Associates Inc.

The study revealed a rise in 2P and 3P (proven, probable and possible) gas reserves to 91 petajoules and 287 petajoules, respectively.

The findings bring Sapphire’s 2P reserves to 80% of the total gas supply volume required in a non-binding

MoU between Queensland Pacific Metals and Blue Energy. Furthermore, Blue Energy and Origin Energy reaffirmed their intention to continue with an existing non-binding gas supply agreement.

The week ahead

It should be another big week in Australia with the September jobs data out on Thursday expected to show a slight lift in the jobless rate due to a more sluggish but still positive performance by the jobs market of creating around 25,000 new jobs.

There is also a rash of data out of China, which last week showed that it has not yet escaped the grips of deflation.

The economic growth figures for the September quarter and the September monthly activity data will be a key gauge of whether the Chinese economy is stabilising in the face of a still weak property sector.

Annual growth is expected to have moderated from 6.3% to around 4.5%.

Given the supremacy of the bond market in setting the tone for the US share market, a speech by US Federal Reserve Chair Jerome Powell at the Economic Club of New York on Thursday could be one of the keys to how the market performs.

Other indicators to be released on the US economy include retail spending, housing and manufacturing activity indicators while the US earnings season starts to heat up this week as well.

Some of the companies reporting include Charles Schwab, Bank of America, BNY Mellon, Prologis, Goldman Sachs, Johnson & Johnson, Lockheed Martin, United Airlines, Alcoa, Morgan Stanley, Procter & Gamble, Netflix, Travelers, US Bancorp, Tesla, AT&T, Blackstone, Philip Morris International, Intuitive Surgical and American Express.