Weekly review: US midterm elections, central banks buying gold, Chinese yuan whispers

US midterm elections central banks buying gold Chinese yuan whispers ASX
WEEKLY MARKET REPORT

Markets received a boost this week with the ASX 200 bouncing back a healthy 2.11%, experiencing a run of six consecutive sessions in the green to close out Friday at 5,849.2 points.

Despite this being the best one week gain in two years, it is still down a fair way from the 6.373.5 mark achieved back in August.

However, was welcomed by market participants nonetheless.

US midterm elections

Midterm elections in the United States will see voters head to the polls next week on Tuesday, 6 November.

The outcome of the polls will decide who takes the majority in the House of Representatives and the Senate.

Should the Democrats win the majority next week over the Republicans, it could make passing bills more difficult for President Trump which in turn is likely to further aggravate the already raw political tensions in the country.

The outcome may not impact markets immediately, but it could certainly impact the way the country is run.

Early polling shows a slight edge to the Democrats, however we saw how inaccurate and irrelevant these polls can be in the last Presidential race, in which Hillary was apparently a certainty to win, being used as a political propaganda tool rather than objective truth.

The general market view is that the Democrats win the House, while the Republicans maintain control of the Senate, and if the last five midterms are anything to go by, the markets tend to rise following the outcome.

Bizarre is the fact that US politics generally has a far greater impact on Australian markets than politics does here at home. With even a prime minister ousting not phasing markets, however one tweet from US president Trump able to make global markets move in either direction.

Central banks gold buying at 3-year highs

Purchases of the precious metal by central banks has continued to increase, according to the World Gold Council, with round US$5.82 billion spent during the third quarter to boost central bank reserves.

Over 148 metric tons of gold was acquired by the national banks in the three months to the end of September, a rise of 22 percent on the same period last year.

Russia led the way by acquiring more than 92 tons of gold, the country’s largest quarterly net purchase since 1993.

Gold price chart central bank buying
Gold price currently at US$1,232.2 per ounce (A$1,713 per ounce).

The buying of gold by the central banks was somewhat offset by funds who were selling down the metal at the same time.

Chinese whispers on the yuan

One day we hear the yuan is tumbling to it’s lowest level in a decade, the next, it is making it’s biggest recovery in a decade.

The yuan is currently trading just below the physiological support level of 7 to the dollar, last seen in 2008, to be trading at 6.92.

Weighing down the Chinese currency in recent times has been the ongoing trade wars and concerns of a slowdown in the world’s second largest economy.

Reports of an end to the trade war by Trump saw the yuan rally late in the week.

Despite the love-hate relationship between the two nations, they are so intertwined and reliant on each other on various levels that boardroom solutions are likely to prevail regardless of all the posturing.

Small cap stock action

It was a refreshing change of scenery with the Small Cap index moving back into the green, the index put on 3.25% to finish Friday at 2,627.9.

As usual, the small cap scene didn’t disappoint with several companies making important announcements, including:

Leigh Creek Energy (ASX: LCK)

The Leigh Creek Energy in situ gasification (ISG) project, estimated to hold 7.8% of Australian east coast gas reserves, is set to elevate its position from resource to reserve by the end of 2018 adding “significant commercial value”.

Cultural and environmental opposition to the operation have been addressed, and Leigh Creek Energy has successfully produced synthetic gas (syngas), all landmark achievements.

Syngas includes methane and hydrogen among other constituents meaning that it can be used directly in the production of electricity as well as processed further into natural gas and ammonium nitrate, giving the product versatility in multiple markets.

Leigh Creek Energy has this week received the 2017/18 tax rebate allowing it to repay the loan. The company also has significant backing from offshore investors, China New Energy Group holding 28.9% and CITIC with 3.7%.

Pointerra (ASX: 3DP)

Pointerra has secured more data-as-a-service sales (DaaS) agreements in three sectors, boosting its projected growth over the coming quarter.

The company’s emphasis is on the marketing of its unique 3D technology that allows businesses and consumers access without having a high-specification computing system.

In the new high-growth advanced driver assistance systems  market, Pointerra has signed up a top secret client, starting with a DaaS contract worth US$9,000 per month and this number is expected to rise.

Architecture engineering and construction sector companies are using Pointerra’s cloud platform for 3D data and Pointerra recently upsold a global engineering firm from a $500 subscription to one worth $7,500.

Meanwhile, in the surveyor and mapping market, Pointerra has secured one of North America’s premier surveying and mapping companies as a client.

Australian Vanadium (ASX: AVL)

Drilling results from Australian Vanadium have confirmed the continuity of the high-grade vanadium zone at its Western Australian Gabanintha project. The high-grade zone is within a large magnetite layer, which hosts a current resource estimate of 175.5Mt at 0.77% vanadium pentoxide.

Better drill results show a 17m intersection grading 1.03% vanadium pentoxide and 61.9% iron oxide from 38m, including 7m at 1.29% vanadium pentoxide from 41m.

Results from the drilling program have provided substantial and valuable information for use in the development of the company’s ongoing pre-feasibility study.

Australian Vanadium’s preliminary base case scenario proposes an open-pit mine as well as a refining plant that will supply high-quality vanadium pentoxide at a competitive cost for use in the steel, speciality alloys and energy storage markets.

Musgrave Minerals (ASX: MGV)

Broad sections of gold mineralisation have been uncovered at Musgrave Minerals’ Lake Austin North prospect, with drilling at the A Zone returning 94m at 2.4 grams per tonne gold from 156m.

Higher-grade mineralisation was found in smaller intervals within the drill intersection including 52m at 4.1g/t gold, 12m at 8.8g/t gold and 6m at 6.3g/t gold.

Estimated to be completed in eight weeks, diamond drilling is underway at the A Zone and will comprise 1,500m and at least seven holes.

Preliminary drill results at the C Zone have shown 30m at 0.6g/t gold including 12m at 1.3g/t gold, prompting plans to execute further aircore drilling to define the expanse of mineralisation present.

Mach7 Technologies (ASX: M7T)

Mach7 Technologies has secured a lucrative contract with Hong Kong’s public Hospital Authority to provide its enterprise imaging solution.

The deal is initially for a five-year period and worth an anticipated HK$81 million ($15 milllion) with an option to extend for a further five years.

The enterprise imagining platform will be distributed across Hong Kong and allow radiology images to be easily accessed, exchanged and stored throughout the healthcare sector, streamlining the examination process and resulting in greater efficiency and less exposure to patients.

Mach7 has also established contracts with several universities and health institutions, allowing the technology to be accessed and showcased world-wide.

Adriatic Metals (ASX: ADT)

Adriatic Metals reports promising results from ongoing exploration at Rupice, with drill samples from current exploration revealing the highest-grade polymetallic mineralisation to date.

This latest intersection was 42m wide and comprised 14.1% zinc, 8.4% lead, 245g/t silver, 5.7g/t gold, 1.4% copper and 34% barium sulphate from 222m.

Substantial precious metals of 24m at 8.6g/t gold and 332 g/t silver from 226m were found in a second hole.

The level of precious metals identified in both drill intersections backs up the UK company’s focus on re-examining historical drill sites that were previously not assayed for gold and silver.

Winchester Energy (ASX: WEL)

3D seismic and well control work have aided Winchester Energy in locating some hopeful drill targets within the Texas Permian Basin that it will begin examining in early 2019.

Winchester estimates the new prospects (El Dorado, Mustang and Spitfire) possess gross prospective resources of 7.8bbl of oil with an optimistic expectation of 17 million bbl in the Strawn and Ellenburger formations.

Early testing at White Hat Ranch 39#1 well, within the Strawn Formation generated 1,000bbl of oil over 10-days.

Meanwhile, Winchester reported its White Hat 20#2 well has produced 30,000bbl of oil over the past 17months.

Winchester’s share, before royalties, of its Nolan County wells has totalled 152,855bbl of oil and 84.5 million cubic feet of gas, thus far.

Race Oncology (ASX: RAC)

Dr John Cullity, non-executive director of Race Oncology, has brought the Bisantrene cancer drug closer to being commercialised. The drug has been developed for the treatment of acute myeloid leukaemia (AML).

Biosynergy, owned by Cullity, has entered into a services agreement with Race, which will assist the company in attaining licensing agreements and other deals for Bisantrene.

Cautious optimism was expressed by Cullity in the potential to bring the drug before oncology companies world-wide leading to commercialisation.

Race has the possibility of fast-tracking approvals for Bisantrene after the US FDA granted the drug a rare paediatric disease designation.

IPOs this week

Small Caps readers who want to view upcoming IPOs or see the stocks that have listed in 2018 and how they are performing can now do so.

The latest company to make its way onto the ASX this week is:

Wiseway Group ASX WWG IPO

Wiseway Group (ASX: WWG)

Wiseway Group joined the ASX club on Wednesday this week after raising $26.1 million via the issue of 52.1 million shares at $0.50 each.

The integrated logistics company operates a fleet of 75 truck across eight warehouses Australia-wide.

In addition to domestic transport, Wiseway provides air and sea freight and import services and specialises in trade between Australia and China.

During its first week on the ASX, Wiseway experienced a $0.40 low and a $0.495 high, before closing Friday almost mid-way at $0.44.

The week ahead

Next Tuesday we have the Reserve Bank of Australia (RBA) set to announce its interest rate decision with the central bank expected to keep rates on hold for a record at 1.5%, where it has been since August 2016.

Of interest will be the statement made by the RBA on Friday where it sees the economy headed. With the housing market softening it may find itself short of the intended inflation target of 2-3%, with the latest quarter’s data coming in at 1.9%.

Over in the US, we have the Federal Reserve set to announce its official decision on interest rates on Friday. Recent rises in the rate by the US central bank will likely see the marker sit at 2.25%, having risen steadily since Trump came into office.

The midterm election results on Tuesday could ruffle markets depending on the outcome, as the political divide in the nation continues to widen.

The main data points to keep an eye out of from China include inflation numbers, tipped to come in at 2.4% from the previous month of 2.5%, and yearly trade data, including import and export numbers.

With China’s being a bell weather of global consumption the numbers will give a better idea of how world trade is actually progressing.

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.