Weekly wrap: RBA was right on rates and it cost us a record

There will be no letup in the political attacks against it but the share market has finally conceded that the Reserve Bank was absolutely right not to cut interest rates this year.

With Australian employment growth now hitting a 16-month high and workforce participation at a record, with inflation still sticky, the Reserve Bank’s caution in holding back against the clamour of voices calling for interest rate cuts this year was well and truly justified.

The share market reacted in two distinct ways.

Investors now only put the chances of an interest rate cut this year from the current cash rate of 4.35% at 30% and the ASX 200 fell 72.7 points or 0.9% to 8283.2 points despite US markets firming up slightly to a fresh record.

Falling back from a record

The benchmark ASX 200 fell 0.9%, or 72.7 points, to 8283.2 points, falling back from a record closing peak of 8355.9 points in the previous session.

For the week, the index still rose 0.8% and has risen 9% this year.

It is an interesting time for markets because US economic figures are also coming out stronger than expected but the price of gold is still rising as expectations of further interest rate cuts there remain intact.

Iron ore prices have been volatile as Chinese authorities are dragged kicking and screaming to belatedly stimulate their moribund economy, which has translated into an equally volatile performance for our big miners.

Positive China data a sell signal

Which is why more positive than expected news out of China was seen as a negative for miners due to a lower requirement for stimulus and scepticism about the strength of nascent Chinese growth.

Chinese industrial output in September was up 5.4% on a year ago compared to 4.5% in August, while retail sales rose from a 2.1% rise in August to 3.2% in September and fixed asset investment was also firmer, up 3.2%.

It was a painful session in commodities as iron ore prices held near $US100 a tonne after tumbling nearly 5% overnight on Thursday.

Shares in the big miners weakened with BHP (ASX: BHP) down 2.2% to $42.06, Rio Tinto (ASX: RIO) shares off 0.9% to $117.62 and shares in Fortescue Metals (ASX: FMG) were down 1.9% to $19.54.

All 11 sectors closed in the red with utilities the worst of the group.

That drop in utilities was largely driven by a 6.3% slump in APA Group (ASX: APA) to $7.16 after its main shareholder, Unisuper, sold a $500 million block trade after markets closed on Thursday.

Gold keeps shining

Gold miners were some of the rare winners after the price of the precious metal broke a fresh all-time high above $US2711 an ounce.

De Grey Mining (ASX: DEG) shares jumped 1.5% to $1.39.

Among other gains were shares in Regis Resources (ASX: RRL) up 0.4% to $2.65, Northern Star (ASX: NST) up 0.3% to $17.08, Newmont (ASX: NEM) up 0.8% to $84.45 while Gold Road Resources (ASX: GOR) closed flat at $1.90.

There was plenty of interesting corporate news to go around with shares in Flight Centre Travel Group (ASX: FLT) down an alarming 20.4% to $17.20 in the largest one day drop since the start of the pandemic.

A lacklustre trading update suggested that a profit downgrade was on the horizon.

Shares in homewares retailer Harvey Norman (ASX: HVN) fell 1.8% to $4.83 after losing a case against the Australian Securities and Investments Commission for using misleading ads.

Also, shares in fund management consolidator Regal Partners (ASX: RPL) fell 2.8% to $3.78 after it was charged by South Korean regulators for breaching securities trading laws that ban short selling.

Small cap stock action

The Small Ords index edged 0.29% higher to 3187.8 points for the week.

Small cap companies making headlines this week were:

Nanoveu (ASX: NVU)

Nanoveu has begun benchmark testing of the ECS-DOT chipset, part of its $5 million acquisition deal for semiconductor business EMASS.

This testing aims to evaluate the chipset’s performance and efficiency using the MLPerf Tiny AI benchmarking suite to support its integration into Nanoveu’s EyeFly3D platform.

The results are important for optimising the chipset for 3D applications and showcasing EMASS’s competitive edge in the system-on-a-chip (SoC) market.

Nanoveu plans to leverage the technology for commercial opportunities in various industries, including medical devices, autonomous driving, and advanced Internet of Things (IoT) markets.

InhaleRx (ASX: IRX)

InhaleRx has secured up to $38.5 million in funding from Clendon Biotech Capital to support the development of its inhaled therapies, IRX-211 and IRX-616a, through Phase 2 clinical trials.

The funding will cover all associated non-clinical work, drug manufacturing, and requirements for InhaleRx’s IND application with the US FDA.

IRX-211 aims to provide rapid relief for breakthrough cancer pain in opioid-tolerant patients, while IRX-616a is designed to offer fast-acting cannabidiol (CBD)-based relief for acute panic disorder.

Chief executive officer Darryl Davies highlighted that this partnership secures critical clinical development support while the company continues exploring broader funding opportunities.

Aurum Resources (ASX: AUE) and Mako Gold (ASX: MKG)

Aurum Resources and Mako Gold have announced a merger through an off-market takeover, with Aurum acquiring 100% of Mako’s shares and options

Upon completion, Aurum shareholders will hold 79.5% of the merged entity, with Mako shareholders holding 20.5%, creating a gold-focused company with a pro forma market capitalisation of $90 million.

The new entity will focus on advancing the Napié and Boundiali gold projects in Côte d’Ivoire, leveraging Aurum’s owner-operated drilling capacity to fast-track exploration.

Both companies see the merger as a significant opportunity to unlock the potential of their assets, with experienced leadership guiding the combined group.

Titan Minerals (ASX: TTM)

Titan Minerals has identified high-grade gold through trench sampling at its Dynasty project in southern Ecuador, expanding the mineralisation footprint along a 9-kilometre epithermal corridor.

Significant intercepts include 3m at 21.4g/t gold and 14.1g/t silver, indicating the potential for resource growth, with multiple new veins discovered at the Iguana prospect.

A 10,000-metre drilling program will soon begin, targeting resource extensions and unexplored zones.

Chief executive officer Melanie Leighton emphasised the potential for substantial resource growth, with ongoing trenching and drilling expected to deliver further results.

Vintage Energy (ASX: VEN) and Galilee Energy (ASX: GLL)

Vintage Energy and Galilee Energy have progressed toward their merger by signing a Scheme of Implementation deed, which will result in Vintage and Galilee shareholders holding 60% and 40% of the combined entity, respectively.

The merger aims to create a stronger company to capitalise on the tightening gas markets and favourable long-term outlook for onshore gas in eastern Australia.

Both companies’ directors support the merger, citing advantages from the anticipated gas shortfall’s impact on prices, margins, and cash flow.

Additionally, Vintage has brought its Odin-2 gas well online, with combined production from the Odin and Vali fields expected to significantly increase output and cash flow to support further developments.

The week ahead

One of the more interesting things to watch out for this week is a planned speech by Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser at the Commonwealth Bank Global Markets Conference in Sydney.

Since joining the RBA from the Bank of England, Mr Hauser has caused quite a stir, particularly with his comment about “the extraordinary certainty with which individual views about the outlook for the economy and the path of monetary policy can sometimes be expressed.”

There has been plenty of that “certainty” about the need to cut interest rates this year so it will be interesting to hear his latest take in the direction of inflation and the economy.

Other local data to watch out for includes the purchasing managers index, payroll jobs, detailed labour force figures and the Reserve Bank annual report.

Overseas, the main interest will be in how much the People’s Bank of China cuts 1 and 5-year loan prime rates (LPR).

In the US there is a raft of new data including purchasing manager index, manufacturing data, existing and new home sales and consumer sentiment figures.

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