Weekly review: Fed cuts rates as global economy continues to stall
WEEKLY MARKET REPORT
In the United States, the Federal Reserve has cut rates by 25 basis points to its new target range between 1.5% and 1.75%.
This is the Fed’s third cut in four months and follows sluggish economic growth which slumped to 1.9% during the September quarter.
Low inflation also helped underpin this latest cut, with core inflation hovering at 1.8% over the last 12 months – below the Fed’s 2% target.
Despite muted inflation, Federal Reserve chair Jerome Powell told reporters at a press conference this week that the overall economy was growing at a “moderate rate” – propped up by strong household spending, a healthy job market, rising incomes and solid consumer confidence.
Mr Powell added he anticipated the US economy would continue to “expand at a moderate rate”, despite sluggish global growth and the ongoing trade war weighing down manufacturing, exports and business investment.
On a positive note, October payroll numbers came in strong showing 128,000 jobs were added for the month, compared to the 85,000 expected.
Back in Australia, the consumer price index rose a mere 0.5% in the September quarter. While this matched estimates, it was a slowdown from the 0.6% gains that occurred in the prior quarter.
With an annual inflation target between 2-3%, the current 1.7% growth leaves some major challenges for the Reserve Bank of Australia that currently has interest rates at a record low 0.75%.
ACCC launches legal proceedings against Google
The Australian Competition and Consumer Commission (ACCC) has turned its beady eye on Google.
The watchdog announced on Tuesday it had initiated Australian Federal Court proceedings against Google LLC and Google Australia – alleging the companies had engaged in misleading conduct regarding personal data Google collects, keeps and uses.
According to the ACCC, from at least January 2017 through to late 2018, Google misled consumers about the location data it collected or used.
The tech giant allegedly refrained from properly disclosing to consumers that unless they had switched off the Google account settings “location history” and “web and app activity”, it would be collecting and using their location data.
Google is also accused of misrepresenting to consumers that the only way to stop it from collecting this data was to cease using its services.
“We are taking court action against Google because we allege that as a result of these on-screen representations, Google has collected, kept and used highly sensitive and valuable personal information about consumers’ location without them making an informed choice,” ACCC chair Rod Sims explained.
“Our case is that consumers would have understood as a result of this conduct that by switching off their ‘location history’ setting, Google would stop collecting their location data – plain and simple.”
“Many consumers make a conscious decision to turn off settings to stop the collection of the location, but we allege that Google’s conduct may have prevented consumers from making that choice,” Mr Sims added.
The ACCC also noted that Google shared this location data in a variety of forms to third party advertisers.
As part of the legal proceedings, the watchdog is seeking penalties, declarations and orders requiring a compliance program to be established and corrective notices to be published.
Woolworths under fire for wage theft
Google isn’t the only corporate giant to come under the spotlight this week in Australia, with Woolworths (ASX: WOW) under fire for wage theft.
The retail giant released a statement to the market on Wednesday saying it “unreservedly apologises” after a review found 5,700 salaried workers across its stores had not been paid appropriately in compliance with the Australian Government’s General Retail Industry Award.
Woolworths began an internal review earlier this year, which highlighted pay inconsistencies for salaried workers compared to team members that are paid under the company’s new enterprise agreement.
The company stated its was “fully committed to rectifying” the payment shortfalls, which occurred between September 2017 and August this year, and has implemented a plan to ensure it wouldn’t happen again.
Affected staff will receive first back payments including interest before Christmas.
Woolworths plans to expand the review across the group businesses to “ensure that all relevant award requirements have been met”.
Despite the wage scandal, Woolworths posted a positive September quarter with group sales from continuing operations up 7.1% to $15.9 billion, compared to the same period in 2019.
Group online sales increased 37.4% to $802 million, while Australian food sales rose 7.8% to $10.7 billion.
IMARC conference met with protests
The annual International Mining and Resources Conference (IMARC) held in Melbourne saw protesters come out in their droves.
A heavy police presence attempted to quell the situation that went on for most of the week.
Small Caps was right in the thick of it to capture the action:
Despite the vocal protests, Australian Prime Minister Scott Morrison backed the mining sector this week by saying that he wanted Australia to have the world’s most advanced, innovative and successful resources sector.
The mining industry notably contributes the lion’s share to the nation’s economy.
Regarding the protests in Melbourne and ‘Extinction Rebellion’ in Queensland, Mr Morrison added, “the right to protest does not mean there is an unlimited licence to disrupt people’s lives and disrespect your fellow Australians.”
Small cap stock action
The Small Ords index was flat for the week by close of trade Thursday, before closing up 0.4% on Friday to settle on 2886.5 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
EMVision (ASX: EMV)
Medical device technology company EMVision is targeting clinical trials for its portable brain scanner, which the company claims can rapidly detect stroke and traumatic brain injury to enable fast clinical decision making.
The scanner has been in the development works for close to a decade with the resulting device the size of an ultrasound unit and easier to use than current MRI and CT scans.
Later this year, a clinical trial will be undertaken at Brisbane’s Princess Alexandra Hospital where trained nurses and clinicians will use the device.
“The device represents a breakthrough opportunity for imaging the brain, at the point of care, in a manner otherwise not possible today. Our ICU and neurology clinical collaborators are excited to start the trial very soon,” EMVision chief executive officer Dr Ron Weinberger said.
DroneShield (ASX: DRO)
Unmanned aerial device and system detection manufacturer DroneShield impressed investors this week with news a $70 million contract with government agencies in the Middle East was on the cards.
The company added to the positive news by reporting it had ended the September quarter with $3 million in placed orders, with the revenue from the orders anticipated in the coming months.
Cash inflow for the September quarter was $333,777, with net outflows of $2.5 million.
The company attributed this to the timing of cash receipts and increases in inventory and marketing activities as it scaled up its operations.
Alt Resources (ASX: ARS)
Gold explorer Alt Resources has had more success at its Tim’s Find tenements within the company’s wider Mt Ida gold project in WA.
Highlight results from the campaign were 16m at 6.08g/t gold, including 1m at 82.6g/t gold from 5m; 3m at 13.8g/t gold from 8m; and 6m at 5.9g/t gold from 16m, including 1m at 54g/t gold from 35m.
The September drilling program also confirmed gold mineralisation at Tim’s Find was open 150m to the north and 250m to the south of the existing resource.
Alt’s strategy is to fast-track Tim’s Find into operation and early cashflow and these latest results shore up that plan.
Adveritas (ASX: AV1)
Perth-based Adveritas launched its flagship anti-fraud software eight months ago and has since attracted attention from international “super-apps” looking to eradicate mobile app installation fraud.
The company has developed its TrafficGuard software as a service technology to take a protective approach to fraud by using machine learning to identify fraud patterns.
With its high-quality client base expanding, Advertis reported its annualised recurring revenue for October had increased to $1.6 million – up 80% over the past six months.
Adveritas’ lab researchers have uncovered more than 3,000 apps with malicious software designed to generate fake ad engagements. As a result, TrafficGuard blocked more than 250 million ad engagements during the September quarter.
Big name clients using Adveritas’ TrafficGuard software include GO-JEK, Rappi and MUV.
Vmoto (ASX: VMT)
Electric scooter manufacturer Vmoto reported ongoing improvement to its business during the September quarter, with 6,027 electric two-wheel products sold in the period – up 93.5% on the June quarter’s sales of 3,115.
The higher sales boosted the company’s cash position to $6.4 million – a $1.3 million increase on the June period.
At the end of September, Vmoto also had firm orders for a further 4,421 units and reported it was continuing to receive more orders from existing and new distributors into the fourth quarter.
Moving forward, Vmoto said it would continue its strategy of selling high value, high-performance electric two-wheel vehicles into international markets, while further building its distribution network.
Chase Mining (ASX: CML)
Multi-commodity explorer Chase Mining’s luck in its current drilling campaign at the Alotta prospect in Canada continued to impress investors this week with the company reporting visible thick intercepts containing massive sulphide mineralisation.
Three drill holes have unearthed similar mineralisation with the first interval extending 41m, and a further two reportedly 21.5m and 25m thick.
Chase secured the project in August last year and undertook a maiden drilling program, which returned notable assays of 9.2m at 2.59% nickel, 2.79% copper, 3.37g/t platinum group elements and 0.11% cobalt from 85.2m; and 11.28m at 2.17% nickel, 2.15% copper, 2.94g/t PGE and 0.11% cobalt from 61.15m.
In these latest drill holes, Chase noted the uncut core and mineralisation had “similar visual characteristics” and tenor to the previously reported high-grade intercepts.
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 company to make its way onto the ASX this week was:
360 Capital Digital Infrastructure Fund (ASX: TDI)
360 Capital Digital Infrastructure Fund began trading on Friday after raising $65 million via the issue of 32.5 million shares at $2 each.
The fund’s goal is to provide shareholders with income and returns from investing in its diverse portfolio of digital infrastructure assets.
According to the fund, the digital revolution is creating a once-in-a-lifetime investment cycle in technology infrastructure assets to underpin the rapid growth of cloud, internet and hyper connected world.
360 Capital Digital Infrastructure opened its first day of trade at its $2 offer price and closed Friday lower at $1.90.
The week ahead
The RBA is set to make its decision on interest rates on Tuesday, with no changes expected for now. However, the statement that comes out will be worth going over with a fine comb.
As mentioned above, inflation numbers have come in weak meaning new methods of stimulus may be sought or even a further rate cut in the mid-term future.
Retail sales for September are out on Monday, so that may give a (lagging) indication of where the economy and consumer sentiment are at.
Trade balance and home loan numbers for September will come out in the tail end of the week and also give signs of the health of the Australian economy.
Overseas, the lead will come from China which late in the week has data out for the month of October on inflation, balance of trade and imports and exports.