It has happened quietly and gradually but the Australian share market is once again within striking distance of its record high set back in July.
A combination of good earnings results in the US, a low Australian dollar and some really good performances by Australian listed companies with US dollar revenues such as ResMed, CSL and Cochlear has now really tipped the balance back in favour of the bulls.
Recoveries from some beaten down sectors such as gold, retail and even funds management also helped to keep the ASX 200 index up 0.7% or 45.6 points to close on 6739.2 points on Friday.
That represents a 4.1% bounce since early October and leaves the index just 2% away from the late July record of 6875.5 points.
Market just 2% away from a new record
Whether or not the Australian market can scale and surpass that final nudge upwards will largely depend on the coming week – and the continuation of a more benign international atmosphere with Brexit seemingly on hold for a while, bond yields firming and a perception that a global recession may not be about to eventuate.
Of course, such perceptions are incredibly fragile and can turn on a dime and there are two really big hurdles coming up this week, with either one capable of upsetting the applecart if it doesn’t go as planned.
Two hurdles on the immediate horizon
The first and most important is the US Federal Reserve’s October interest rate decision which is now widely expected to be the third cut of 25 basis points seen this year.
Most analysts are tipping a cut after US economic data remained soft, leaving the way open for another cut to help boost business confidence.
Should that cut not arrive – or even if the US Fed did cut but failed to indicate that it was open to further easing down the track – then that could upset the delicate positive balance seen over the past couple of weeks.
The other indicator that will be very important for local stocks and the Australian economy as a whole is the release of September quarter inflation data in Australia.
Expectations are that Australian consumer price inflation (CPI) should lift by 0.5% in the September quarter, leaving the annual rate at 1.7%.
That is still a fair way below the Reserve Bank’s medium-term target of 2-3% a year but reasonably close to its revised August forecasts, with the drought potentially playing a part in lifting food prices.
Should inflation undershoot expectations that would increase the chances of the RBA cutting official interest rates to 0.5% on Melbourne Cup day while if the inflation rate turns out to be higher than expected, a rate cut could well be off the table.
At the moment financial markets are predominantly betting on rates staying steady in November but futures are still predicting there is a one in four chance of a surprise cut.
Resmed shoots the lights out
Looking in more detail at the share market on Friday, respiratory device company ResMed (ASX: RMD) was a standout performer, surging 11% to close at a record high of $20.65 after it released some exceptionally rosy first quarter earnings.
After a couple of really weak months in which the gold index entered a technical bear market after an earlier fast rise, gold stocks also finally pulled back from the 20% fall abyss and rose by an impressive 1.6%.
Other than healthcare and gold, there was some strength in surprising areas with retailers up by 0.9% with property trusts also firming by 0.9% with other sectors also recording less solid but still impressive gains.
One of the few downers for the day were shares in Cleanaway Waste Management (ASX: CWY) which fell 28c or 13.2% to $1.85 after a disappointing trading update at the company’s annual meeting.
Small cap stock action
The Small Ords tracked the larger indices marginally higher to close out the week up 0.38% on 2875.6 points.
Small cap companies making headlines this week were:
Novita Healthcare (ASX: NHL)
US parents who want to screen their children for attention deficit disorders with Novita Healthcare’s TALi Detect tool are now entitled to reimbursement under the US Current Procedural Terminology (CPT) system.
Reimbursement falls under CPD code 96146, which applies to psychological and neuropsychological testing with automated administration and scoring.
Novita’s managing director Glenn Smith anticipates that qualifying for government reimbursement will assist the company in tapping into he US clinical market, with the TALi game-based assessment requiring up to three screenings for each child.
More than 6 million children in the US are diagnosed with attention deficit hyperactivity disorder and Mr Smith said he expects the TALi platform can “significantly improve” lives, while reducing healthcare expenditure.
Lithium Australia (ASX: LIT)
Lithium Australia will give people a choice to invest in its individual business units under a new plan, with the recycling business the first division to be separated out, with an ASX listing scheduled for a restructured Lithium Australian and Envirostream Australia in mid-2020.
Managing director Adrian Griffin said combining Envirostream’s existing business model with Lithium Australia’s technologies would create a “perfect symbiosis”.
“We see the recycling of spent batteries as a significant opportunity, given the increased legislative and community focus on environmental responsibility,” Mr Griffin added.
Lithium Australia currently owns 23.9% of Envirostream and the companies have developed lithium-ion battery cells from spent lithium-ion batteries Envirostream had collected.
CSG Ltd (ASX: CSV)
Multi-billion-dollar company Fuji Xerox has acquired CSG Ltd in an all-cash deal giving CSG an equity value of $140.8 million.
CSG’s board recommended the deal with CSG holders expected to get $0.31 per share, which was a 32% premium to the company’s previous closing price of $0.235.
Fuji Xerox is one of the largest integrated document and printing providers in the Asia Pacific and the CSG acquisition will enable it to lock-in a greater market position in Australia and New Zealand.
In addition to board approval for the transaction, CSG’s largest shareholder Caledonia Private Investments said it would also vote in favour of the deal.
Imugene (ASX: IMU)
Imugene’s oncolytic virotherapy (OV) drug known as CF33 Oncolytic Chimeric Poxvirus will undergo further research after City of Hope Researchers Dr Yanghee Woo and Prof Yuman Fong received a $564,173 grant from the US Department of Defense.
The researchers will study the impact of the CF33 Oncolytic Chimeric Poxvirus on gastric cancer sufferers.
According to Imugene its OV drug is a virus used to infect, replicate in and kill cancer cells while leaving healthy cells alone.
As part of its intent to advance the therapy, Imugene will undertake to separate phase 1 clinical trials next year test two constructs of its OV drug.
Freehill Mining (ASX: FHS)
Iron ore explorer Freehill Mining has begun a phase two drilling program at its Yerbas Buenas project in Chile, with a magnetic structure on its newly acquired licence a focus.
Two diamond rigs are onsite at the project with a 4,500m program to be completed before the end of December.
Drilling will target the YB6 magnetic structure which extends into the new lease area.
Previous drilling at YB6 last year unearthed 120m at 30% iron from near surface, including a higher-grade interval of 16m at 61% iron.
Freehill chief executive officer Peter Hinner said the magnetic footprint on the newly acquired tenement was “exactly the same” as that made by YB6.
As a result, Freehill anticipates similar grades from drilling this new ground.
Latin Resources (ASX: LRS)
Junior mineral explorer Latin Resources revived investor faith this week when it revealed it had entered an agreement to acquire a halloysite-kaolin project and a lead-silver asset in WA via the takeover of Electric Metals.
Electric Metals wholly-owns the Noombenberry halloysite-kaolin project, which Latin is eager to get its hands on due to the high demand for the mineral in end-use markets such as ceramics and petroleum.
Halloysite is also increasingly sought in new technologies such as nanotube and medical therapies.
To acquire Electric Metals and its assets, Latin will issue the vendors 25 million shares plus 6.25 million options at $0.012, with the options possessing an expiry date of 31 December 2022. Further share and option payments will be made upon reaching milestones.
New Century Resources (ASX: NCZ)
Zinc miner New Century Resources is another step closer to full production at its flagship Century mine after the company reported slurry commissioning had begun on the processing plant’s upgraded scavenger circuit.
New Century is aiming to ramp the mine throughput rate up to 12 million tonnes per annum over the 2020 financial year.
A third and final ramp up will comprise upgrading the rougher circuit, with this stage scheduled for completion in March next year.
New Century’s current throughput rate is close to 9Mtpa, with the company producing 10,013t of zinc metal during September.
The week ahead
In economic terms we are beginning to get close to the end of the year and the coming week is one of the last really big weeks for local and international data releases.
As mentioned earlier, the US Fed rates decision and the Australian inflation numbers are the two really big market moving events to look forward to.
They are not the only ones though, with RBA Governor Dr Philip Lowe delivering a speech on Tuesday and a swag of offshore releases including US jobs and economic growth.
The actual text of the US Fed decision will be almost as important as the decision itself with market bulls hoping for a 25-basis point cut and commentary saying that the Fed stands ready for more cuts should the data make them necessary.
US growth and GDP figures will feed into that narrative with the usual perverse market reaction being that weaker than expected figures might encourage lower rates and will be positive for the share market.
Locally, consumer confidence figures should show if the battered local consumer is getting off the canvas while data on home prices, building approvals and manufacturing activity will also be interesting.