Volatility arrives in 2018 with the dollar, stocks and metals going for a ride

Stocks Australian US dollar metals price volatility
WEEKLY MARKET REPORT

With 2018 still in the early stages, there are some strong indications that this year will be a bit of a topsy-turvy one for traders and investors alike.

This week was a real roller-coaster one for the Australian dollar – rocketing upwards on US dollar weakness and taking a raft of commodity prices up with it before backtracking a bit once US President Trump contradicted calls for a weak dollar by US Treasury Secretary Steve Mnuchin by saying he saw the dollar getting “stronger and stronger’’.

Also some serious investors including hedge fund billionaire Howard Marks warned that the easy gains on markets have been made and it will start to get harder from here on while some other market indicators are beginning to flash amber.

Two widely followed measures of US economic sentiment – the US Citigroup Economic Surprise index and the Federal Reserve’s index of the public’s uncertainty about the outlook for monetary policy are both looking ominous.

The first measures the rate at which data exceeds analyst expectations and has started to fall after recently reaching a five year high and the second is climbing after reaching a three year low in November last year.

Historically when this happens equity markets become more volatile and bond yields begin to fall.

Cannacord and Howard Marks worried about expectations being too high

Canaccord Genuity’s Tony Dwyer said while the world economy remains strong and was still improving, unbounded investor enthusiasm has run too far.

In his balanced warning, Howard Marks said that he was positive on the prospects of continued and co-ordinated world economic growth but was concerned that “expectations have become overly aggressive relative to what is likely to come out.”

“Some people are excited about the fundamentals, and others are wary of asset prices. Both positions have merit, but as is often the case, the hard part is figuring out which one to weight more heavily,” said Marks.

Neither pundit said it was time to head for the exits on the share market but said it was certainly time to be more cautious.

Electric car revolution late in Australia but still coming

Locally there were some interesting developments in the electric car front with the possibility that British industrialist Sanjeev Gupta could repurpose the old Holden plant in South Australia to build electric cars.

While Australia has been well behind the curve in adopting electric cars – partly due to a lack of charging infrastructure and a large land mass – some momentum is beginning to build and no doubt would accelerate if cars were built locally.

Either way, the larger numbers of electric cars around the world should be good news for many Australian mining companies, given our status as a producer of copper and many of the components used in lithium-ion batteries.

US Government shutdown ends

The US government shut down also ended this week after the Democrats and Republicans feuded over tougher immigration rules, with the can now being kicked down the road until February 8.

While both sides claimed a victory, President Trump’s plans to celebrate his one year inauguration anniversary were canned but he claimed the Democrats had “caved” and he had won the battle.

Perth Mint to launch gold backed cryptocurrency

Large gold refiner and exporter the Perth Mint also announced plans this week to get into the cryptocurrency game by adapting its precious metals trading platform to use blockchain and Distributed Ledger Technology (DLT).

That would allow investors in a crypto-gold product to enjoy secure and transparent gold exposure at the touch of a button, without worrying about gold storage and delivery.

Metals surge on the back of US dollar declines

As mentioned earlier, the falling US dollar translated into some healthy rises in the US currency prices of many minerals with nickel at one stage up 5.7 per cent to US$13,539.50 per tonne, the highest since June 2015.

Copper rallied as high as US$7111/t despite inventory concerns and zinc is moving towards a new decade high, closing at US$3464.50/t.

It was a similar story for lead, tin and gold but this coming week promises to be highly volatile as traders try to work out where the US dollar is really heading.

Australia will be catching up on the after-market action given that the ASX was closes on Friday for the Australia Day holiday.

ASX small cap stocks this week

The ASX 200 dipped under 6,000 points on Tuesday, only to recover and hold above the psychological level at close of trade on Thursday.

Despite being a shortened week, the small and micro cap end of the market was busy as ever.

Battery Minerals (ASX: BAT)

Stringing together four offtake agreements in quick succession, Battery Minerals now has 80% of production from its Montepuez graphite project in Mozambique covered by sales contracts.

With private Chinese companies hungry for the graphite resource.

The company claims it is on track to commence production by December 2018, with the first shipment of graphite concentrate anticipated in the March 2019 quarter.

Cynata Therapeutics (ASX: CYP)

Australian stem cell and regenerative medicine company Cynata this week signed a memorandum of understanding with US-based biotech, Celularity Inc.

Under the agreement, Celularity will conduct a commercial evaluation of Cynata’s patented Cymerus™ production method, to gauge its effectiveness when combined with Celularity’s proprietary therapeutic stem cell technology.

In addition to the Celularity news, the Data Safety Monitoring Board recommended that Cynata’s clinical trial progress to a second cohort as planned for treatment of steroid-resistant graft-versus-host disease which began in November of 2017.

With mortality rates for steroid-resistant graft-versus-host disease patients in excess of 90%, a better form of treatment is desperately needed.

Northern Cobalt (ASX: N27)

This week saw Northern Cobalt increase its landholding in the Northern Territory by 341%, with five new tenements acquired surrounding the existing Wollogorang cobalt project.

The company expects final drilling results from last year’s campaign at the Running Creek and Felix prospects in the coming days.

Assays will also include results from extensional drilling at the company’s flagship Stanton deposit, where drilling to date has confirmed that mineralisation remains open in all directions.

Yojee (ASX: YOJ)

Yojee announced this week that it had successfully integrated blockchain technology into its product offering, having completed the first round of live testing for its software solution.

The achievement was timely as the company followed up the next day with news that it had struck a partnership agreement with Sinotrans Integrated Logistics Australia (SILA), part of China’s largest shipping and logistics company.

With experts predicting that global logistics market revenues will reach $15.5 trillion by 2023, Yojee’s digitised solutions could see the company benefit from the move to more computerised AI and blockchain linked infrastructure.

Poseidon Nickel (ASX: POS)

Backed by none other than mining heavyweight Andrew ‘Twiggy’ Forrest, Poseidon Nickel this week commenced drilling at its Medusa lithium project.

Medusa is part of the company’s Lake Johnston operations in Western Australia, which lies in a highly prospective area with a number of ASX-listed companies already exploring for and developing lithium in the region.

Despite the recent move into lithium, Poseidon remains focused on its nickel assets with the company possessing 400,000 tonnes in nickel resources.

Animoca Brands (ASX: AB1)

Bursting onto the scene in 2018 is Animoca Brands, updating the market on a number of fronts.

Animoca will be stepping into the artificial intelligence blockchain gaming market after agreeing to purchase a 60% stake in US-based Fuel Powered, which has existing commercial agreements with SEGA and Axiom Zen.

Further to this, the company signed an agreement with CryptoKitties publisher Axiom Zen to exclusively distribute the blockchain based CryptoKitties game across China. The game was valued at US$20 million in its first month.

Animoca also gave an update on its recently launched Crazy Defense Heroes game which generated A$267,000 in revenue in its second week of operation, after bringing in A$200,000 in week one.

Beginning the year at $0.015, Animoca’s share price has rallied as high as $0.12, and closed the week’s trade at $0.086. A great start to the year for shareholders of AB1, up over 470%.

Anson Resources (ASX: ASN)

Anson advised the market that it remains on track to produce its first lithium carbonate in April from its Paradox lithium brine project located in Utah.

Results from recent sample drilling are due in the coming days and the company has begun discussions with battery manufactures to bench test its lithium product, with results expected in the near-term as well.

MGC Pharmaceuticals (ASX: MXC)

Hitting a new high with its share price, since becoming a cannabis focused company, this week was MGC Pharma with news out that its European subsidiary MGC Derma has signed a sales and distribution agreement with leading global online beauty store Cult Beauty.

MGC Pharma also received an interim Good Manufacturing Practice certificate in order to commence manufacturing its medicinal cannabis-based products at the European production facility.

The licence allows MGC Pharma to begin manufacturing its first batch of the company’s medical cannabis product for treating epilepsy in adults, CannEpil.

The week ahead

It is a fairly busy week coming up with the main action is Australia being the release of the consumer price index on Wednesday, along with a range of other numbers including the State of the States, the NAB business survey, private sector credit, home value index, the manufacturing purchasing managers index, export & import prices, building approvals and producer price indexes.

Internationally it will be a big week with the influential Chinese purchasing managers index released and the US Federal Reserve meeting plus the release of US monthly job numbers.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.