Weekly review: Aussie interest rates shrinking to nothing

Aussie interest rates shrinking to nothing 2019
WEEKLY MARKET REPORT

Get out your magnifying glasses – Australia’s incredible shrinking interest rates look set to contract yet again.

An almost unanimous chorus of economists now think the Reserve Bank of Australia will cut rates again in the coming week, which would take them down 25 basis points to another record low of 0.75%.

With 19 of 25 economists polled by Bloomberg expecting a rate cut and financial markets now estimating a 81% chance that the Reserve Bank will cut, it is as close to a certainty as these things get.

And even if the rate cut is delayed by a month, there is a growing consensus that there is at least another cut in the works as well, which would take official rates down to 0.5% – which will mean savers will see the returns on their savings accounts virtually hit zero.

Some economists such as those at AMP Capital, ANZ Bank and UBS go even further, projecting that official rates might fall to 0.25% by the middle of next year.

From there it is not much of a step into the crazy world of quantitative easing (QE), RBA bond buying and helicopter stimulus money which is dropped directly into people’s bank accounts just to keep the economy ticking over.

Share market rising in anticipation of a rate cut?

We will all know more on Tuesday when the official RBA board decision is announced but already it seems the market is starting to move in anticipation, with the ASX 200 on Friday defying small losses on Wall Street and rising 38.5 points, or 0.6%, to finish at 6716.1 points.

The rise was broadly based with every sector finishing higher as investors perhaps anticipated that dividend yields on shares would offer a growing premium over term deposits as interest rates continue to fall.

Many sectors were up by more than 1% including utilities, telecommunications, consumer discretionary, energy and information technology, with industrials, financials, materials, healthcare, consumer staples and property trusts also enjoying rises.

Gold posts a rare fall

Gold was the only casualty with the All Ordinaries gold index sliding 1.9% on Friday after falling 3% on Thursday.

It is worth noting that gold stocks have had an incredible run, having easily outpaced most of the rest of the market so far this year with a very strong rise so a bit of a breather is not a total surprise.

Despite the solid rise near the end of the week, the ASX 200 still recorded its first weekly decline for a month and a half, with a reasonable day of trade on Monday probably set to see September erase about a half of August’s losses.

The strong end to the week is not a total surprise, given that around $12 billion in dividends was paid out to investors in companies such as CBA, Telstra and BHP over the past week.

With a further $4 billion in dividends due in the coming week from a range of companies including Woolworths (ASX: WOW), IAG (ASX: IAG), Fortescue (ASX: FMG) and QBE Insurance (ASX: QBE) some steam might come out of the market but it is also possible that many investors will look to reinvest their dividends in more shares.

Some of the best performers remained the Buy-now-pay-later companies such as Flexigroup (ASX: FXL) which rose by 4.1% on Friday after surging 23.5% yesterday after it reported a solid lift in the volume of transactions through its payments platform.

That positive effect also overflowed to other companies in the same industry such as Zip (ASX: Z1P) and Afterpay (ASX: APT).

Speedcast (ASX: SDA) was a flyer, adding 16.9% after the IT solutions company won s big contract and also hired two highly experienced new board members in the form of Peter Shaper and Joe Spytek.

Small cap stock action

The Small Ords index closed slightly in the red for the week, down 0.29% to 2890.6 points.

Small Ord vs ASX 200 chart Sept 2019
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Stavely Minerals (ASX: SVY)

Victorian explorer Stavely Minerals impressed investors this week with news it had intersected up to 40% copper within the Thursday’s Gossan prospect at its namesake project in Victoria.

Mineralisation was intersected in the first diamond drill hole which returned 32m at 5.88% copper, 1g/t gold, and 58g/t silver, including 2m at 40% copper, 3g/t gold and 517g/t silver.

Stavely executive chairman Chris Cairns said the company has been exploring for similar mineralisation to that found in Montana’s Butte basin and the historic Magma mine in Arizona.

These latest results represent a “major exploration breakthrough” for Stavely by enhancing the company’s understanding of the mineralisation found at Thursday’s Gossan.

Bionomics (ASX: BNO)

Bionomics has reported positive results in a pharmacokinetic clinical study regarding its BNC210 drug in treating post-traumatic stress disorder (PTSD).

The company used its newly developed solid dose formulation of BNC210 and revealed it can overcome the “food effect” which gave variable absorption and lowered a patient’s exposure to the drug.

Using the solid dose formulation, Bionomics found the drug reached the required blood levels to achieve meaningful and statistically significant changes from a placebo.

Healthy volunteers in the study tolerated BNC210 well and Bionomics has submitted a Fast Track designation application to the US Food and Drug Administration.

Azure Minerals (ASX: AZS)

During the first phase of mining at Azure Minerals’ Oposura zinc-lead-silver project in Mexico, the company has extracted higher grade ore than expected.

Azure managing director Tony Rovira said it was an “impressive” start to the company’s small-scale mining campaign.

The company has now mined about 6,100t of ore grading 13.4% zinc and 10.7% lead – exceeding the scoping study’s estimated grades of 5.1% zinc and 2.6% lead.

Included in the stockpile was about 2,100t of ultra-high-grade ore at 24% zinc and 18.3% lead.

XTEK Ltd (ASX: XTE)

Defence technology supplier XTEK Ltd has secured a long-term contract potentially worth $35 million over seven years providing repair and maintenance services to the Australian Defence Force.

Under the contract, XTEK will service and maintain the ADF’s small unmanned aerial system (SUAS) fleet, which is current 59 units, with a further 20 anticipated next year.

XTEK managing director Philippe Odouard described the contract as a “significant” win for the company, with servicing underpinned by XTEK’s recently completed repair and maintenance facility in Canberra.

The initial contract is for three years, but it contains multiple options to be extended to seven. It is estimated the contract will bring in about $5 million annually.

Animoca Brands (ASX: AB1)

Gaming company Animoca Brands collared a contract this week to develop a blockchain-powered game for the world’s most prominent motorcycle racing series – MotoGP.

The company has signed a three-year global licencing agreement with Spain-based Dorna Sports to develop and publish the official blockchain game.

Dorna is responsible for managing the MotoGP world championship and holds exclusive commercial and television rights for the series.

Animoca plans to launch the game by the start of MotoGP’s 2020 racing season which kicks off in March.

Broken Hill Prospecting (ASX: BPL)

Broken Hill Prospecting has now secured all the titles covering 11sq km of its La Paz rare earth project in Arizona.

The titles pave the way for Broken Hill to immediately start exploring the land which will include extensive detailed structural mapping and sampling to identify the high-grade areas at La Paz.

According to Broken Hill, it is the only ASX-listed company with exposure to the US rare earth market.

“La Paz is located in a mining-friendly jurisdiction with world-class infrastructure and demonstrates the potential to be the largest rare earth project in North America,” Broken Hill chief executive officer Trangie Johnston said.

ASX floats this week

Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2019 can now do so.

The latest companies to make their way onto the ASX this week were:

Osteopore (ASX: OSX)

After raising $5.25 million in its IPO, 3D-printed medical implant company Osteopore debuted on the ASX this week.

The company plans to use the IPO funds to facilitate its strategy in developing 3D medical implants that stimulate natural tissue regeneration, including its patented 3D-printed scaffolds for bone regeneration.

Osteopore already has three products available including Osteoplug, Osteomesh and Osteostrip – with all securing US FDA and EU CE Mark certification and sold to hospitals worldwide.

On its first day on the ASX, Osteopore’s shares closed at $0.725 – up more than 262% on the $0.20 IPO price.

By Friday, Osteopore’s share price continue to climb and finished its first week at 0.915.

Partners Group Global Income Fund (ASX: PGG)

Partners Group Global Income Fund began trading on the ASX on Wednesday after raising $550 million via the issue of 275 million shares at $2.00 each.

As its name suggests, Partners is a managed investment scheme with the goal of providing holders a monthly income through its diversified portfolio of private debt investments.

The company is wholly-owned by Swiss-listed private markets investment manager Partners Group Holding AG, which has a $30 billion market cap.

By Friday close of trade, Partners’ share price was up slightly to $2.06.

The week ahead

As mentioned earlier, the RBA decision on interest rates will be one of the highlights with the decision being announced on Tuesday.

There are also plenty of economic releases to keep an eye on, beginning on Monday when the RBA releases data on private sector credit.

Lending has been growing very slowly so any increase would be welcome.

Other data to watch out for in a crowded week include international trade, retail trade, manufacturing, inflation, car sales, house prices and building approvals.

On the interest rate front, RBA Governor Dr Philip Lowe is also delivering a speech on Tuesday evening which will be closely examined to work out the pace of any further cuts.

On Friday, the RBA releases the half yearly Financial Stability Review which looks at the condition of the financial system and potential risks to financial stability.

Overseas there are plenty of releases to watch out for including the US jobs report and Chinese manufacturing and services activity gauges.

This week’s top stocks

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