by Peter Milios
Overnight, the International Monetary Fund gave harsh predictions, warning a third of the global economy will be in recession next year.
Following on from this, the ASX shares opened lower this morning, following a bland session on Wall Street.
However, thanks to financials, at noon, the S&P/ASX 200 is 0.20 per cent or 13.60 points higher at 6658.60.
After posting its 15 per cent profit gain, Bank of Queensland jumped 8.1 per cent.
All major banks lifted.
The SPI futures are pointing to a rise of 2 points.
Best and worst performers
The best-performing sector is Financials, up 1.27 per cent. The worst-performing sector is Utilities, down 1.08 per cent.
The best-performing stock in the S&P/ASX 200 is Bank of Queensland (ASX:BOQ), trading 8.05 per cent higher at $7.38. It is followed by shares in Coronado Global Res (ASX:CRN) and Whitehaven Coal (ASX:WHC).
The worst-performing stock in the S&P/ASX 200 is Block (ASX:SQ2), trading 3.13 per cent lower at $86.13. It is followed by shares in Domino Pizza Enterprises (ASX:DMP) and Mineral Resources (ASX:MIN).
Assistant Governor Ellis says RBA models imply neutral rate of at least 2.5 per cent, but is a moving target
In a speech on the neutral rate, Assistant Governor Ellis emphasised this is a long-run concept and subject to change. The RBA clarified it is not shifting policy mechanically towards a destination point but uses the neutral rate as more of a guiding “pole-star”. The speech noted neutral rate is not directly observable and must be inferred from data. Moreover, it should not be treated as an exogenous variable as causation runs both ways with economic fundamentals. Ellis also pointed out the neutral rate is expressed in real terms and hence a function of inflation inputs, of which there are a variety. He observed the tendency for some to use recent observed inflation, though neutral rate technically requires forward-looking projections. The current environment encapsulates this difference as current inflation is very high, though expectations beyond the next year remain well anchored inside the target range. Overall, Ellis said RBA models imply a nominal neutral rate of at least 2.5 per cent, conditional on inflation at target, derived from an average of different approaches.
PBOC vows to resolutely curb major currency volatility
Reuters cited a PBOC statement that it will take steps to stabilise expectations and keep the yuan basically stable. Noted yuan does not necessarily weaken when considering performance vs broader currency basket and recalled prior cases when yuan strength coincided with the dollar. Pledged to take comprehensive measures and resolutely curb major volatility in FX rates and act to “keep the yuan basically stable on a rational, equilibrium level.” Boasted ample policy room with many tools and its track record in managing market expectations. Bloomberg discussed ongoing elevated speculation with one-month risk reversals in offshore yuan at the highest since 10-May, while onshore implied vol rose to a record high reflecting demand for protection against yuan depreciation. Underlying backdrop turning more bearish as concerns over chip sector and Zero-Covid policy add to concerns about outflows.
U.S. Stocks finished lower in a choppy trading session
Semiconductors, software, networking, Chinese internet were among the laggards today. Autos were weaker, F-US and GM-US were downgraded. Cruise lines, gaming underperformed; China announced additional restrictions amid an uptick in Covid cases. Life-science tools, medtech lagged. Integrateds, E&Ps, oilfield service, refiners also underperformed. A&D, machinery, E&Cs, building products, trucking were gainers. Tobacco, beverages, grocers, packaged food were better; KHC-US was upgraded. Insurers, asset managers were areas of relative strength. Media, utilities, restaurants, homebuilders, pharma, biotech were other outperformers.
Japan machinery orders weaker than expected, details mixed
Core machinery orders fell 5.8 per cent m/m in August, compared to expectations of a 2.8 per cent decline, and followed 5.3 per cent gain in the previous month. Leaves Q3 trajectory mildly positive and still firmer than the survey projection of a 1.8 per cent q/q decrease. Sector crosswinds continued as a spurious plunge in non-manufacturing (logistics and real estate orders halved) overshadowed sharp rebound in manufacturing(nonferrous metals, chemicals surged). Elsewhere, public orders rebounded sharply from prior month’s weakness, while overseas demand extended declines. Recall the latest BOJ Tankan survey showed FY22 capex projections pointed to stronger than expected growth, reflecting pent-up demand from investments delayed over the pandemic combined with structural growth in green and digitization segments. Growth is also fuelled by expectations of sales and profit growth.
Company news
Tamboran Resources (ASX:TBN) have confirmed this morning that “Falcon Oil and Gas” will not be exercising their pre-emptive right in relation to the Tamboran/Sheffield JV’s recent acquisition of Origin Energy’s Beetaloo assets. Falcon, who own a 22.5 per cent non-operating interest over the assets, have entered into a binding Letter of Intent with the JV partners which paves the way for the completion of the Origin Beetaloo assets acquisition — subject to Northern Territory Government approval later this month. Tamboran managing director and CEO stated, “The amendments to the JOA and FIA pave a way forward for all parties to benefit from collaboration as we work towards sanctioning of the proposed Amungee Pilot Development in EP 98.”
Lake Resources (ASX:LKE) and SK On have executed a Conditional Framework Agreement (CFA) involving a 10 per cent strategic investment in Lake Resources and offtake for up to 25,000 tonnes per annum battery grade lithium from the Kachi Project which is subject to a set of conditions under the CFA. Lake’s new CEO and MD David Dickson said that the CFA cements the ability for Lake to increase their environmentally responsible production, and allows the opportunity for SK On to participate in Lake’s other projects, to ensure that the supply of high quality lithium products are created. Shares are trading over 1 per cent higher at $1.
Queensland Pacific Metals (ASX:QPM) and General Motors Holdings LLC (NYSE: GM) have announced the formation of a strategic collaboration, via a material investment and long-term offtake agreement. The announcement outlines a conditional commitment of up to US$69m(A$108m) by way of an equity subscription in QPM, including a binding commitment of US20.1m at A$0.18 per share. QPM Managing Director Dr Stephen Grocott commented, “GM’s investment in our company and the associated offtake brings us one step towards construction of the TECH Project where we will one day aim to deliver the world’s cleanest produced nickel and cobalt.” Shares are trading 16.7 per cent higher at 18 cents.
Commodities and the dollar
Gold is trading at US$1665.66 an ounce.
Iron ore is 1.7 per cent lower at US$97.05 a tonne.
Iron ore futures are pointing to a fall of 1.9 per cent.
One Australian dollar is buying 62.68 US cents.
