Weekly review: worst week in two years sets the scene for a bear market
WEEKLY MARKET REPORT
There are market changes that hit like a hurricane and the past week is just such an event.
By the end of the week, the ASX 200 index was down a staggering 6.6% at a 19-month low of 6474.8 points – more than a 15% fall from the record high of 7632.8 points recorded in the middle of August last year.
That’s not quite a bear market as yet, but the trend is in that direction, looking more like the beginnings of the COVID-19 plunge to panic lows of 4816.6 points in 2020 than anything else in recent history.
Big fall in just two weeks
All told, our market is down 10.8% in just two weeks, which is a fast, hefty fall by any measure.
The size of the portfolio dent depends on what stocks you hold but the damage is very widespread and there are not many ways to avoid a 15% index plunge across most sectors.
While the March 2020 plunge was followed by a handy rally over the rest of 2020 and particularly a great year in 2021, that fantastic year in Australia has already come close to having been effectively erased and the offshore leads are far from promising for any short-term fast recovery.
The US market as measured by the S&P 500 is well into a bear market already, down 24% with the tech heavy NASDAQ plunging a whopping 33.6% from record highs hit in November last year.
Interest rates rising fast across the world
Those sorts of falls are being mirrored across many other global markets with most countries struggling to cope with runaway inflation, resulting higher interest rates being used as the blunt weapon by central banks across the world.
Japan left its interest rates unchanged, but a sheepish 0.25% rise by the Bank of England was gazumped by a surprise 0.5% rise out of Switzerland.
Rising rates are particularly pronounced in the US with the market swooning each time Federal Reserve chairman Jerome Powell makes it clear that he is determined to catch up with inflation.
In just the past week, the Fed announced a super-sized 0.75% rise in interest rates, with a similar sized hike possible next month as the bank plays catch up with inflation.
Risk of recession rising fast
That has led to a deep-seated fear in markets that by the time inflation is brought under control, the economy might have hit reverse and be in recession as early as this year.
While job markets remain tight and jobs are still plentiful, the fear is that this might quickly change as price increases quickly soak up discretionary spending and retailers are hit hard.
Mining stocks had a bad day on Friday, down 2.8% and the technology sector fell 2.4%.
Among some of the heavyweight mining stocks falling, South32 (ASX: S32) was down 5.9%, BHP (ASX: BHP) shares fell by 3.3%, Fortescue (ASX: FMG) dropped by 5.3% and Rio Tinto (ASX: RIO) shares were 4.2% lower.
There was some respite among the gold miners which acted as a safe haven with Evolution Mining (ASX: EVN) shares up a solid 5.4%.
Banks were generally weaker with market leader Commonwealth Bank (ASX: CBA) doing the worst with a 3.6% fall.
Humm (ASX: HUM) shares fell almost 22% to $0.45 after a deal to sell its consumer finance group to Latitude Finance fell over.
Small cap stock action
The Small Ords index slipped an eye-watering 6.48% for the week to close at 2669.9 points.
ASX 200 vs Small Ords
Small cap companies making headlines this week were:
GreenTech Metals (ASX: GRE)
Swimming against the red tide this week was GreenTech Metals, which revealed initial assays from a 25-hole 3,838m reverse circulation program at its Whundo copper-zinc project in WA’s west Pilbara.
The company has received results from 22 of the holes, with notable intercepts of 32m at 2.43% copper from 75m, including 17m at 4.37% copper and 0.46% zinc from 90m, and 7m at 7.83% copper, 0.64% zinc and 26g/t gold; and 62m at 1.12% copper, 1.36% zinc and 0.36g/t gold, including 19m at 1.6% copper, 2.27% zinc and 0.51g/t gold.
Results also demonstrate the high-grade copper and zinc at Whundo persists beyond the current resource and is open down plunge.
GreenTech will incorporate all the assays into an updated resource for Whundo, which currently totals 2.7Mt at 1.14% copper and 1.14% zinc.
Lunnon Metals (ASX: LM8)
A maiden resource was unveiled for the Baker Shoot target within Lunnon Metals’ Kambalda nickel project in WA.
The Baker Shoot estimate totals 568,000t grading 2.8% nickel for 15,800t of contained nickel, with an indicated component of 295,000t at 2.75% nickel for 8,100t, and an inferred amount of 273,000t at 2.82% nickel for 7,700t.
Global resources for the wider Kambalda project now stand at 2.2Mt at 2.9% nickel for 64,300t of contained nickel.
“Baker highlights the prospectivity of our ground holdings in the world-renowned Kambalda nickel district and our ability to yield extensional and new discoveries on an ongoing basis,” Lunnon managing director Ed Ainscough said.
Stavely Minerals (ASX: SVY)
Another small cap to unveil a resource this week was Stavely Minerals, which says the maiden estimate for its Cayley Lode target was a “standout”.
Cayley Lode is within the wider Stavely copper-gold project in western Victoria and now has a resource of 9.3Mt at 1.2% copper, 0.2g/t gold and 7.1g/t silver for 252Mlb of copper, 65,000oz of gold and 2.1Moz silver.
Stavely executive chair Chris Cairns said the maiden resource for the Cayley Lode deposit was a “significant milestone” for the company.
Mr Cairns said the resource for Cayley Lode was just a starting point, with the deposit having “enormous” potential for continued resource growth.
92 Energy (ASX: 92E)
The highest level of radioactivity has been intersected to-date at the Gemini Mineralised Zone discovery, within 92 Energy’s wholly-owned Gemini project in Canada’s prolific Athabasca Basin.
In the second hole of the current program at GMZ, 92 Energy hit a maximum radioactivity of 26,100 counts per second.
Overall, a 47m interval was hit with an average radioactivity of 2,366cps.
Previous maximum radioactivity encountered at GMZ were 7,860cps and 15,780cps.
To fund its aggressive exploration program at Gemini along with preliminary activities at its other projects in the Athabasca Basin, 92 Energy is raising $8.7 million.
The funds are being raised through a flow-through share placement of almost 11.2 million shares at $0.78 each.
Frontier Energy (ASX: FHE)
Preliminary findings from a study indicate Frontier Energy could produce green hydrogen “significantly earlier” than expected at its Bristol Springs solar project in WA’s south west.
According to Frontier, the earlier than anticipated hydrogen generation is possible due to the Bristol Springs’ “unique location” near Waroona and its proximity to “significant existing infrastructure”.
Frontier managing director Mike Young said its location and proximity to infrastructure means the initial capital outlay would be “significantly less” compared to more remote projects.
The full study results will be released “in the coming months”.
Kazia Therapeutics (ASX: KZA)
The US Food and Drug Administration has granted Kazia Therapeutics orphan drug designation for its lead candidate paxalisib in treating atypical rhabdoid/teratoid tumours (AT/RT).
These tumours are a rare and highly aggressive form of childhood brain cancer.
Recent data indicates treating AT/RT with paxalisib is an “important new opportunity” for the company, with this form of brain cancer “poorly served” by existing therapeutics.
Kazia has already secured orphan drug designation for paxalisib in treating malignant glioma in adults, and diffuse intrinsic pontine glioma (DIPG) in children.
Earlier in the week, Kazia presented “positive data” on paxalisib on AT/RT and DIPG at the 20th International Symposium on Pediatric Neuro-Oncology in Germany.
The week ahead
If you were hoping for a respite from the damages wrought by central bankers in the coming week, think again, with Reserve Bank of Australia Governor Philip Lowe set to deliver a speech on “Economic Outlook and Monetary Policy”
That, combined with the release of the RBA board’s minutes from its last decision which raised official rates by 0.5% with the promise of more rises to come, should be enough to keep markets on tenterhooks about the RBA’s plan from here-on.
Expect any hint that we could be in for another 0.5% rise next month to add plenty of unwelcome selling pressure to the Australian market.
Late on Friday Dr Lowe is also taking part in a UBS Panel discussion on “Central Banks and Inflation” in Zurich, Switzerland which is another potential pain point.
Economic news out of Australia is likely to come a distant second to RBA developments with purchasing manager releases, consumer confidence, skilled vacancy data and underemployed worker data rounding out the week.
Internationally, two days of semi-annual testimony by the US Federal Reserve chair, Jerome Powell, will put jitters through markets on Wednesday and Thursday.
Other US releases include home sales, chain store sales, unemployment and bank stress tests.
Chinese one- and five-year prime loan rates are due to be released on Monday with no change expected and the final data on the March quarter current account surplus will be out on Friday.