by Paul Sanger
At noon, the S&P/ASX 200 is 0.42 per cent or 29.50 points lower at 7041.50.
The SPI futures are pointing to a fall of 32 points.
Best and worst performers
The best-performing sector is Energy, up 1.21 per cent. The worst-performing sector is Real Estate Investment Trusts, down 1.56 per cent.
The best-performing stock in the S&P/ASX 200 is Whitehaven Coal (ASX:WHC), trading 3.10 per cent higher at $6.66. It is followed by shares in De Grey Mining (ASX:DEG) and New Hope Corporation (ASX:NHC).
The worst-performing stock in the S&P/ASX 200 is Telix Pharmaceuticals (ASX:TLX), trading 7.80 per cent lower at $7.45. It is followed by shares in Arena REIT. (ASX:ARF)and Lake Resources (ASX:LKE).
Asian markets
Japan stocks have surged on their return to trade, while shares in the Asia-Pacific generally were mixed, following strong gains in the previous session as investors digested the US inflation report. The Nikkei 225 briefly rose 2 per cent and hovered close to that level, while the Topix index rose 1.83 per cent. South Korea’s Kospi gave up early gains to fall 0.26 per cent, while the Kosdaq declined 0.57 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.21 per cent.
In corporate news, Credit Suisse has reportedly applied to begin formal legal proceedings in the English High Court against Japanese tech company SoftBank Group over a $440 million dispute. But SoftBank shares have risen 5.5 per cent on Friday on news that it would add 4.6 trillion yen ($34.5 billion) to its pre-tax gains by reducing its stake in Chinese tech giant Alibaba. The company said the move would “further strengthen our defence against the severe market environment,” according to a press release.
More Japanese companies see economic slowdown amid inflation
A Kyodo News survey found around 42 per cent of major Japanese companies expect the economy to slow down over the next 12 months, up from just 5 per cent a year ago, as they struggle to cope with surging commodity costs and the yen’s weakness. Meanwhile, the proportion anticipating expansion dropped to 55 per cent from 90 per cent one year ago, and 84 per cent earlier this year, as concerns weighed on hopes for a gradual recovery from the COVID-19 pandemic.
The latest consensus poll expects a 2.7 per cent q/q annualised growth in Q2 GDP (due next Monday), which would bring the economy back to pre-pandemic levels. Japan’s lagging recovery has often been cited by the BOJ as a justification for maintaining easing policy, though such an outcome is unlikely to sway the policy stance, with wages growth still low and the global outlook softening. Kyodo cited a Teikoku Databank survey showing food prices will continue to surge in Japan for the latter half of 2022, with more than 10,000 items set to rise in price from August onward as import costs of materials become more expensive due to a weaker yen.
Hong Kong may not grow at all this year, according to economists’ poll
A survey of economists forecast the Hong Kong government would cut its GDP forecast Friday as the city continues to grapple with mainland China Covid restrictions that have hurt exports, a trade slump, and other global economic headwinds. Economists grew more pessimistic over prospects after Q2 GDP contracted, now predicting FY GDP will stagnate from the previous forecast of 1 per cent. The median estimate for Q3 growth is now just 1.8 per cent, with Q4 growth at 2.9 per cent. The city also faces headwinds with the US Fed sharply increasing interest rates that the Hong Kong Monetary Authority is forced to follow, given its currency peg, despite the economy being on a different trajectory to the US. Separately, the South China Morning Post reported on Hong Kong census data that showed more than 113K residents left the city in the past 12 months, leading to a population decline of 1.6 per cent, compared to the mid-2020/21 exodus of 89K. Deaths outnumbered births by 2:1. The total population is now at 7.4 million.
US equities finished mixed in Thursday trading, with the S&P shedding its morning strength
Investors received more good economic news when the July producer price index showed a surprise decline from June. PPI dropped 0.5 per cent, compared with an estimate of a 0.2 per cent gain, according to a Dow Jones survey.
The Wall Street Journal noted the Fed will want to see more evidence of cooling inflation before deciding on the magnitude of September tightening. Reuters reported the Biden administration is recalibrating thinking on whether to scrap some China tariffs or potentially impose new ones, following a ramp up in tensions surrounding Taiwan in the wake of Pelosi’s visit.
Overnight, both the S&P500 and the Dow were flat, while the Nasdaq Composite slumped 0.58 per cent to end the day at 12,779.91. The three major averages opened the session higher, but lost steam as the day progressed.
While investors are relieved that inflation is declining, it doesn’t change the fact that the Federal Reserve will continue to be hiking rates — so while sentiment is improving, it’s questionable as to whether this is just a bear market rally or something more substantial.
Energy was the standout sector on crude’s rally post a 2.6 per cent gain in the oil price.
Best-performing industries included entertainment, banks, insurers, media, road/rail and machinery.
In after market hours trading
Illumina slumped nearly 23 per cent post market after the company missed top- and bottom-line estimates in the most recent quarter and issued disappointing guidance for the full year as it faces a troublesome macro environment.
Electric vehicle maker Rivian Automotive rose 3.1 per cent in after-hours trading after beating revenue estimates and posting a smaller-than-expected loss in the latest quarter. Rivian reaffirmed its delivery estimates for the year but said it expects a larger loss than anticipated as it grapples with supply chain constraints.
Across the market, car-makers’ battery plans are at risk as raw material costs soar. It appears that there’s a lot of investment in battery cell manufacturing in Europe and the US, but not sufficient enough in the raw materials. “Right now, 85-90 per cent of materials that go into a battery are coming from China. So a big disconnect is coming particularly if you remember that car makes have had difficulty in ensuring semiconductors due to COVID supply chain issues,” says Tim Bush, an analyst at UBS in Seoul. “More crucially, availability of minerals is a looming problem for latecomers VW, Ford and GM, with the latter agreeing last week to pre-pay $200m to lithium producer Livent for supplies. Looking ahead there’s an urgent emphasis to secure a supply chain away from China as the coronavirus pandemic and Russia’s brutal assault on Ukraine have made it clear that a reliance on global supply chains in certain strategic areas is a big risk.”
This is the problem the EV industry is now looking to change with the support of western governments
Company news
Tamboran Resources (ASX:TBN) announced today that it has now received the final regulatory approvals required to begin drilling in its 100 per cent owned operated lease in the Beetaloo Basin, EP136. The approval of the Environmental Management plan by the Northern Territory Government clears the way for the program to begin in early September and includes approval for up to seven wells beginning with the Maverick 1H well, planned for next month. CEO Joel Riddle said, “Subject to success, the drilling of these three wells have potential to deliver Proved plus probable contingent resources of 1 trillion cubic feet (TCF)”. He went on to explain that booking 1TCF of contingent resources “would allow Tamboran to sanction the proposed 100TJ (terajoule) per day Maverick Pilot development by the end of calendar year 2023”. Shares are trading flat at 22 cents.
Archer Materials (ASX:AXE) today announced the granting of the Hong Kong patent associated with Archer’s quantum computing chip technology. Archer is the only ASX-listed company and one of a few players in the world developing qubit processor chip technology in the semiconductor industry. Commenting on the grant, the Archer CEO said: “The grant of the 12CQ chip patent in Hong Kong is great news. A patent is evidence of invention and patent protection in major markets is a central element in Archer’s strategy to develop the 12CQ chip.” Shares are trading 4.8 per cent higher at 88 cents.
5E Advanced Materials (ASX:5EA), an exploration critical mineral and lithium company, with US government critical infrastructure designation for its Fort Cady asset, today announced that it has entered into a definitive agreement with Bluescape Energy Partners for a $60 million private placement of senior secured notes convertible into common stock of the company. Commenting on the investment, 5E President and CEO Mr Henri Tausch noted: “We are pleased to partner with Bluescape as they are a respected US institutional investor that offers value to our company far beyond that of a typical financial investment.” Shares are trading 19 per cent higher at $2.62.
Currencies
The US dollar index was flat, though still off around 1.3 per cent for the week.
One Australian dollar has strengthened compared to the US dollar yesterday, buying 70.97 US cents.
Commodities
Gold is trading at US$1788.80 an ounce.
Iron ore is 2.0 per cent higher at US$110.60 a tonne.
Iron ore futures are pointing to a fall of 0.5 per cent.
