Weekly wrap: markets enter a new era after incredible volatility

After an absolutely hectic and volatile week on the world’s share markets, it is tempting to say well, that’s over now and things have settled down.

On the surface that may be true, particularly when you consider that the ASX 200 is only down 2% for the week but it doesn’t factor in the fact that something monumental has happened and the repercussions will be with us for some time to come.

What all started with a soft employment figure in the US led to fears of recession, a possible end to the AI boom that has been powering markets, a 12.4% fall in the Nikkei 225 index in one day – the most in more than three decades – and an abrupt end to the Japanese Yen carry trade that has been a big supporter of all sorts of speculative activity including most hedge fund trading.

The widespread panic may have reduced somewhat along with the VIX volatility (or fear) index but there is no escaping the fact that the ASX 200 fell 3.7% last Monday and markets have entered a new period of increased uncertainty.

Fundamentals like interest rates and growth now in the driver’s seat

Of course, it is important not to over-react – in a few years’ time when looking at the current market action it will likely look a bit of a blip that came from nowhere – but in this localised period of time it is important to note that the market environment has changed and the period in which AI exuberance super-charged a few big companies and carried world stock markets higher in its wake could be over.

In this now changed atmosphere, things such as the strength of economic growth and the easing policy – or otherwise – of central banks will reassert a prominent position in the minds of all investors.

It is still possible to imagine a soft landing for the US and world economies but it is not as easy a path as many imagined just a month ago.

Friday an excellent recovery after a dire start to the week

In this context Friday was an excellent recovery day for the beaten down Australian share market, with the ASX 200 up 1.3% or 95.7 points to 7777.7 points as all 11 sectors enjoyed a unanimous vote of confidence.

There were even some signs of strong life in the technology sector which leapt 3.1% after shares in family tracking app Life360 (ASX: 360) improved an amazing 18% to close at $17.56 after the company reached an all-time quarterly record of new circles added and increased its paying member base by 132,000 users.

News that the Murdoch controlled media group News Corp (ASX: NWS) was selling its majority-owned Australian pay television platform Foxtel put a rocket under its shares, which rose 7.6% to $44.54.

The big miners also enjoyed a 2.8% rebound in iron ore prices, with shares in Rio Tinto (ASX: RIO) up 2% to $116.47, BHP (ASX: BHP) up 1.6% to $40.86 and Fortescue (ASX: FMG) up 2.2% to $18.49.

The big banks were also all higher but times were harder for insurance giant QBE (ASX: QBE) which closed down 1.7% to $16.05.

Investors were not convinced by a hefty gain in earnings and were instead looking at a lower result compered to analyst estimates.

Heading in the opposite direction were shares in furniture retailer Nick Scali (ASX: NCK) which initially fell but ended the session up 0.1% to $14.84 despite recording a big slump in full-year profit as shoppers held back on spending.

Real estate giant REA Group (ASX: REA) launched its shares 6.8% higher to $202.36 after profit and dividend rose in the year on the back of higher home listings.

Small cap stock action

The Small Ords index fell 3.24% for the week to close at 2925.7 points.

Small cap companies making headlines this week were:

Energy Resources of Australia (ASX: ERA)

Energy Resources of Australia has initiated legal action against the federal and Northern Territory governments over the denial of a new licence for the Jabiluka uranium project, claiming a lack of procedural fairness and natural justice.

ERA is seeking an urgent hearing from the Federal Court of Australia due to the imminent expiration of the Jabiluka mineral lease.

The company alleges multiple defects in the licence decision, including unreasonableness and inadequate time for ERA to respond to the federal minister’s advice.

The decision not to renew the lease allows the site to be incorporated into Kakadu National Park, providing clarity on the project’s future.

Consequently, Boss Energy (ASX: BOE) has withdrawn its offer to acquire the Jabiluka site following the government’s decision.

HighCom (ASX: HCL)

HighCom has completed the delivery of a fleet of AeroVironment small unmanned aerial systems (SUAS) to Australia’s Department of Defence and secured a four-year support contract.

The company has expanded its business development team to boost sales and explore new opportunities, while also receiving $4 million in SUAS spare parts orders for delivery in the 2025 financial year.

HighCom has strengthened its partnership with AeroVironment and renewed agreements for reselling and representing SUAS and loitering munitions systems.

The company relocated its XTclave manufacturing operations from Australia to Ohio to better penetrate the US market, expecting $2 million in annual savings and improved profitability.

Despite deferred revenue affecting its full-year results, HighCom ended the financial year with a $6.2 million cash balance and no debt, and does not anticipate needing additional equity in the medium term.

LBT Innovations (ASX: LBT)

LBT Innovations has secured a $4.1 million deal with AstraZeneca for a seven-year contract to supply its APAS Independence kits, along with support and maintenance services.

The deal involves the installation of five APAS instruments across AstraZeneca’s manufacturing sites within the next six months, with potential for further orders. AstraZeneca will also continue leasing a sixth APAS kit previously installed for validation purposes.

LBT’s managing director, Brent Barnes, highlighted that the agreement validates the effectiveness of APAS technology in meeting stringent environmental monitoring requirements during drug manufacturing.

LBT is focusing on expanding its reach within the pharmaceutical industry, with additional evaluations by other multinational customers expected soon.

BPH Energy (ASX: BPH)

BPH Energy announced that its investee company, Asset Energy, is pursuing legal action against the Australian and NSW governments on behalf of the PEP11 joint venture due to delays in drilling applications.

Asset Energy, which operates the offshore PEP11 permit with Bounty Oil (ASX: BUY), has filed for judicial review in the Federal Court, alleging that the Commonwealth-New South Wales Offshore Petroleum Joint Authority breached its duty by failing to make decisions on two pending applications.

The first application, initially rejected in 2022, was set aside by the Federal Court due to apprehended bias, and neither application has been resolved according to law.

Asset Energy seeks to compel the Joint Authority to make a decision within 45 days, citing a delay of over 1,600 days since the first application was accepted.

The case revolves around Asset’s efforts to secure additional time to drill an exploration well and conduct studies in the PEP11 area.

Beamtree Holdings (ASX: BMT)

Beamtree Holdings reported strong performance with a 21% revenue growth and profitability improvements for the year ending June 2024, driven by international contracts and high customer retention.

The company achieved a 47% increase in international revenue, a 95% customer return rate, and kept cost growth to 12% through prudent financial management.

Beamtree posted its first operating profit of $400,000, a 129% improvement from the previous year’s $1.4 million loss, and ended the year with a $5 million cash balance.

Major contracts included a $3.6 million deal with Dr Sulaiman Al Habib Medical Group and a $1 million contract with Lean in Saudi Arabia, expanding its presence in the Middle East, Canada, and the UK.

The company has a strong pipeline for 2025 and aims to reach $60 million in recurring revenue by 2026 through continued international expansion and strategic investments.

East 33 (ASX: E33)

Oyster farmer East 33 has received an off-market takeover offer from unlisted company Yumbah Aquaculture, proposing to acquire all shares for $0.022 per share, which would lead to East 33’s delisting from the ASX.

The offer is at a premium compared to East 33’s recent trading price.

An independent board committee has recommended shareholders accept the offer, citing the benefit of liquidity in a historically low-volume stock and concerns over East 33’s future funding needs without additional capital.

The proposal is contingent on Yumbah acquiring at least 90% of East 33’s shares.

East 33, Australia’s largest vertically-integrated producer of Sydney rock oysters, operates in New South Wales, with Yumbah already holding a significant stake in the company.

The week ahead

It is a bit hard to imagine what the coming week might hold – there are sure to be many hangovers and unexpected results from last week’s extreme market gyrations.

What we do know about is that Reserve Bank Deputy Governor Andrew Hauser will be making a speech in Brisbane on Monday, which could be interesting given the hawkish tone the RBA has been taking of late, including forecasting no rate cuts this year.

Also of interest will be the wage price index, along with consumer confidence, business and household spending figures and labour force figures for July.

The third week of the corporate profit reporting season is also certain to produce some stock specific moves while overseas some of the highlight include the New Zealand interest rate decision which could produce a cut and a range of US and Chinese data points around imports and exports, housing and most importantly inflation readings.

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