Weekly review: volatility is back as market crunches on trade concerns

Volatility stock market trade concerns ASX Australia
WEEKLY MARKET REPORT

Volatility returned with a real vengeance after the Australian share market finished its worst week since last November.

The overall picture was even worse than that with the three relatively positive days at the  end of the week nowhere near enough to erase the savage drops that greeted investors at the start of the week.

Over the course of the period, the ASX 200 Index fell 184.2 points, or 2.7%, to 6584.4 points after the worsening trade and currency war between the US and China caused some serious wobbles early in the week.

Trade war still raging

The trade war is far from over too, with President Donald Trump continuing his attacks on the US Federal Reserve, calling for “substantial” Fed rate cuts to allow the dollar to fall in value against foreign currencies.

He confirmed that he is determined to meet Chinese currency weakness by trying to slash his own currency by tweeting: “As your president, one would think that I would be thrilled with our very strong dollar. I am not!”

Trump wants a weaker dollar

Trump claimed that the Fed’s high level of interest rates in comparison to other countries was keeping the dollar too strong and making it more difficult for US manufacturers to compete.

The Fed has reduced its official interest rate by 25 basis points but Trump is pushing for more interest rate cuts to keep the US dollar weaker.

Of course, interest rates are only one part of the US dollar’s strength, with the country’s stronger economic growth rate, innovative companies and reputation as a safe haven also helping to push up the US dollar.

Trump’s consistent rhetoric slamming the US Fed has also produced plenty of calls for the central bank’s independence to be protected from political interference.

Market falls hard as trade war barbs continue

It is not hard to see why the market failed to retrace the steep early falls with all of the big miners and the four big banks all ending the week lower.

Bulk commodity and metal prices all slid heavily on the back of China’s decision to allow its currency to slide against the US dollar, heightening fears that the trade war was getting much worse rather than improving.

There were some semi-positives during the week with AMP (ASX: AMP) shares finally gaining on the back of a recovery plan and the Reserve Bank of New Zealand’s surprising decision to slash official interest rates by 50 basis points to a record low of 1%.

Across the week BHP Group (ASX: BHP) reacted to the lower prices by falling 4.1% to $37.20, Rio Tinto (ASX: RIO) fell 4.2% to $87.64 and Fortescue Metals Group (ASX: FMG) lost 5% to $7.26.

The banks all fell as well with Commonwealth (ASX: CBA) down 2.9% to $79.49, Westpac (ASX: WBC) fell 2.1% to $28.22, NAB (ASX: NAB) skidded 3.1% to $27.63 and ANZ (ASX: ANZ) fell 2.7% to $27.03.

Technology companies fall on growth concerns

The really savage place to be in on the Australian market was the previously hot technology sector with investors bailing out of higher risk and looking for safer places to put their cash.

Appen (ASX: APX) shares really dived, down a hefty 15.4% for the week to $25.42, despite a late week recovery.

The IT company wasn’t alone with a series of other weekly technology falls including WiseTech Global (ASX: WTC) which fell 14.1% to $27.39, Altium (ASX: ALU) lost 7.3% to $33.08, Afterpay Touch (ASX: APT) declined 5.2% to $24.17, accounting automation company Xero (ASX: XRO) was crunched by 7% to $61.06 and Nearmap (ASX: NEA) dropped 4.9% to $3.08.

AMP finally improves

While AMP shares were up 5.7% after the group outlined a new strategy, which included a revised life insurance sale and a big $650 million equity raise but not all of the companies reporting profits were so lucky.

Shares in Insurance Australia Group (ASX: IAG) were down 8.9% to $7.70 after it reported a profit fall and AGL Energy (ASX: AGL) dropped 5.9% to $19.25 after it forecast a weaker year to come.

Building products company James Hardie Industries (ASX: JHX) enjoyed a 9.2% share rise to $21.61 after it forecast a better outlook.

Gold continues to shine

It was also a great week for the gold miners thanks to the safe haven reputation of their major product.

Gold continues to make all-time highs in Australian dollar terms and soared to six-year highs in the US dollar.

The best performers were Regis Resources (ASX: RRL) which rose 8.8% to $6.05 and St Barbara (ASX: SBM) jumped by the same percentage to close at $3.97.

The other gold stocks were good performers too, including Newcrest Mining (ASX: NCM) which was up 5.5% to $38.67, Northern Star Resources (ASX: NST) up 5.9% to $13.30, Evolution Mining (ASX: EVN) climbed 6.2% to $5.47 and Resolute Mining (ASX: RSG) jumped 7.3% to $2.

Small cap stock action

The Small Ords index this week took a 2.04% hit to close out on 2875.6 points.

XJO ASX 200 Small Ords August 2019 volatility
ASX 200 vs Small Ords

Small cap companies making headlines this week included:

Opthea (ASX: OPT)

Biopharmaceutical company Opthea excited investors this week, announcing positive results from a phase 2b clinical trial that showed its drug OPT-302 could improve vision outcomes for patients with an age-related eye condition.

The trial involved 366 patients with wet age-related macular degeneration (AMD), a disease characterised by loss of vision caused by degeneration of the central portion of the retina.

It compared using a combination of OPT-302 (in either 0.5mg or 2mg intravitreal dosages) and 0.5mg Lucentis over 24 weeks to a control group that received a standard monthly dosage of 0.5mg Lucentis on its own.

According to Opthea, the trial demonstrated that OPT-302 combination therapy met the primary endpoint of superiority in mean visual acuity gain at 24 weeks compared to Lucentis monotherapy.

In addition, the study showed that 45% of patients in the 2mg OPT-302 combination group were able to see 15 or more letters on the standardised eye chart from baseline to week 24, compared to 40.5% of patients in the Lucentis control group.

One of the study investigators, Dr Pravin Dugel said OPT-302 had the potential to be a “game changer in the treatment landscape, not just for wet AMD but also for other debilitating retinal vascular diseases where there remains a significant unmet medical need for more efficacious therapies.”

Lithium Australia (ASX: LIT)

Battery minerals developer Lithium Australia has recovered wide intersections of high-grade mineralisation grading up to 3% lithium oxide from a maiden drilling program at its Youanmi project in Western Australia.

The company kicked off the reverse circulation drilling campaign in June and has completed 54 holes to-date, targeting lithium, caesium and tantalum pegmatites outcropping on surface over 3km of strike.

Highlights from the first batch of assays included a 6m intersection grading 1.64% lithium oxide from 11m, including 1m at 3.07% lithium oxide.

Lithium Australia managing director Adrian Griffith said the assay results support the company’s exploration model and suggest Youanmi “could provide critical local feedstock” for its lithium-cathode and battery business units.

The company expects to receive assays from the drilling program’s remaining 19 holes before the end of this month.

Great Western Exploration (ASX: GTE)

Great Western has commenced another round of drilling at its Yandal West gold project in Western Australia’s mid-west.

The explorer will conduct a new nine-hole 800m reverse circulation drilling campaign targeting three prospects: May Queen, Harris Find and Ives Find.

This latest campaign follows the completion of high-impact RC drilling at Ives find in June.

Results from the Duck lode indicated that gold mineralisation continued along strike to the east and remains open in all directions.

Impression Healthcare (ASX: IHL)

Impression Healthcare has edged further into the medicinal cannabis space after revealing on Friday it has established a wholly-owned all-new cannabinoid discovery brand Incannex Pharmaceuticals.

Via Incannex, Impression has launched a line of EU GMP-approved CBD oil products to treat conditions previously approved under the Special Access Scheme.

The company has engaged Linnea SA to supply the CBD materials for Incannex to develop its products.

Incannex will purchase up to 2,000 50ml bottles before the end of this year, with purchase amounts to steadily increase over the contract’s term through to 2024.

The pharmaceutical grade CBD products will be distributed by Cannvalate under the Special Access Scheme.

Cannvalate receives more than 100 new patient enquiries each day – accounting for half of the medicinal CBD market in Australia.

Incannex plans to lock-in 1,000 patients before the end of the year – making it one of Australia’s largest licenced cannabis companies.

“Impression Health and Incannex have realised that the two largest determinants of future growth for cannabis companies are patient acquisition and creation of patent-secured, novel cannabinoid products which have been scientifically validated by clinical trials,” Impression chief medical officer Dr Sud Agarwal said.

Mincor Resources (ASX: MCR)

After months of negotiating, Mincor Resources has finalised its offtake agreement with BHP’s subsidiary BHP Nickel West, marking a major step towards restarting nickel sulphide mining in Western Australia’s Kambalda district.

The binding ore tolling and concentrate purchase agreement follows a term sheet inked between the parties in March, replacing a 20-year contract that expired earlier in the year.

Under the finalised deal, Mincor has the right to process up to 600,000tpa of nickel sulphide ore at BHP’s Kambalda nickel concentrator.

The produced nickel concentrate will then be sold to BHP Nickel West for further downstream processing at the Kalgoorlie nickel smelter and Kwinana nickel refinery.

According to Mincor, the deal is a “significant foundation agreement” to the successful completion of the company’s definitive feasibility study on an integrated restart plan, due to be released in December.

Mincor put its mines on care and maintenance in 2016 as nickel prices sank to decade lows, but since the market’s recovery, it has been advancing a restart strategy for its Kambalda district deposits including Cassini, Long and Ken.

Jervois Mining (ASX: JRV)

Australian explorer Jervois Mining launched a 2,000m diamond core drilling campaign at its Idaho Cobalt Operations (ICO) in the US to support the project’s updated feasibility study.

Drilling will target the main lens of the Ram deposit, which takes up only 7% of the acreage but contains 100% of the project’s current resource and reserves estimate.

This program will then be followed by infill drilling of up to 3,400m.

Drilling is expected to be completed in October, after which Jervois will deliver an updated resource model to feed into mine planning for the updated study, anticipated for release in March 2020.

The company acquired the ICO as a result of its completed merger with eCobalt last month.

The advanced-stage project comprises a high-grade cobalt-copper deposit and partially completed mine and mill sites, both of which are already environmentally permitted with an approved plan of operations.

An estimated US$100 million has already been invested in plant and infrastructure at the project to-date.

Otto Energy (ASX: OEL)

Oil and gas junior Otto Energy and Texas-based joint venture partner Talos Energy struck more oil while drilling the offshore Bulleit appraisal well in the US Gulf of Mexico.

According to Otto, the well intersected about 110 feet of net oil pay in the deeper MP sands target after already intersecting 140ft of net pay in the shallower DTR-10 sand target in May.

The earlier find was deemed a commercial discovery in June.

The well is now being suspended as a future producer, with Talos planning to complete and tieback the well to its nearby Green Canyon 18 offshore production facility in the first half of next year.

Otto managing director Matthew Allen said Bulleit would be a “highly important” well in delivering the company’s planned 5,000 barrel of oil per day production target by the end of 2020.

CCP Technologies (ASX: CT1)

IoT company CCP Technologies has expanded its temperature monitoring solution into several new industries, with the company rolling-out its technology in hospitals, research institutions, aged care, hospitality as well as food transport and storage industries.

The company’s smart sensors monitor temperatures and push data to a cloud-base platform that can be accessed via a real-time dashboard.

CCP designed the technology to monitor temperature-sensitive items to ensure compliance, consumer safety, energy efficiency and reduce waste.

In healthcare, the technology is used to monitor highly-valued temperature sensitive medications and biological material including blood and vaccines.

The benefits of CCP’s technology in this area include protection of patients and reduced insurance claims.

CCP has also rolled out its solution across 14 aged care facilities and is used by Meals-on-Wheels providers in NSW and Victoria.

Monash University is implementing the technology to monitor biological specimens.

The week ahead

There are some really interesting milestones to look out for in the coming week, with most of the Australian interest in the jobs and wages data released on Wednesday and Thursday.

There are also releases on business conditions and consumer sentiment and the Reserve Bank’s data on credit and debit card lending.

There are a couple of Reserve Bank speeches to watch out for with Assistant Governor (Financial Markets) Christopher Kent speaking on Tuesday and Deputy Governor Guy Debelle speaking about Risks to the Outlook on Thursday.

Speaking of risks to the outlook, Chinese July activity data is out this week along with US retail spending and inflation numbers.

Once again profit reports will be central to company specific share price reactions with about 80 reports out this week.

Some of those include Ansell, Argo Investments, Aurizon, Bendigo & Adelaide Bank, GPT Group, JB Hi-Fi, Challenger, Magellan, Aveo, Computershare, CSL, Dexus, Tabcorp, ASX, Ausdrill, Blackmores, Breville, Evolution Mining, Iluka Resources, QBE Insurance, SEEK, Super Retail Group, Sydney Airport, Telstra, Treasury Wine Estates, Whitehaven Coal, Woodside Petroleum, Cochlear, Domain, Kogan.com, Newcrest Mining, Nick Scali, Spotless Group and Star Entertainment.

This week’s top stocks

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.