by Peter Milios
The global race for lithium, a commodity crucial for the electric vehicle (EV) industry, has intensified as German Chancellor Olaf Scholz signed an agreement with Argentina to secure lithium supplies and is seeking a similar deal with Chile. The lithium sector is facing supply difficulties, as demand from the battery manufacturing sector in China takes up most of the world’s lithium chemicals, and with EVs growing in popularity and production, the gap between lithium supply and demand is expected to remain short.
Albemarle, a US-based lithium giant, has recently raised its demand estimate by 15 per cent. Despite expecting supply to increase in 2023, some miners are struggling to meet their production plans, with some ASX-listed lithium companies announcing delays and higher capital budgets.
At noon, the S&P/ASX 200 is 0.15 per cent or 11 points lower at 7,482.40.
The SPI futures are pointing to a fall of 18 points.
Best and worst performers
The best-performing sector is Information Technology, up 2.56 per cent. The worst-performing sector is Materials, down 0.74 per cent.
The best-performing large cap is WiseTech Global (ASX:WTC), trading 4.75 per cent higher at $60.315. It is followed by shares in Lynas Rare Earths (ASX:LYC) and New Hope Corporation (ASX:NHC).
The worst-performing large cap is ResMed (ASX:RMD), trading 6.24 per cent lower at $31.55. It is followed by shares in Insurance Australia Group (ASX:IAG) and Suncorp Group (ASX:SUN).
Asian news
Stocks in the Asia-Pacific traded mixed on Monday ahead of mainland Chinese markets resuming trade after a week-long New Year break.
Chinese onshore equities are poised to enter a bull market — the CSI 300, which tracks the largest mainland-listed stocks, gained more than 19 per cent from its recent lows seen at the end of October last year.
In Japan, the Nikkei 225 rose 0.2 per cent and the Topix also gained 0.03 per cent. South Korea’s Kospi fell 0.24 per cent while the Kosdaq rose 0.28 per cent.
Some bullish talking points for the week
Depressed positioning related to bearish 1H consensus still a tailwind, long-only funds buying big tech, retail coming back in, lower vol said to be helping drive CTA inflows and technicals in focus with SPX break of 200-dma and negative trendline. On the policy front, no leaks in WSJ Fed preview, leaving Fed on track for 25 bp rate hike next week. BoC the first high-profile pause in the tightening cycle. BoJ getting control of the JGB market with a new lending tool. Better liquidity backdrop with BoJ and TGA drawdown. Debt ceiling standoff also playing into speculation about an early exit from QT. Elsewhere, earnings takeaways helped by low-bar dynamic and while macro uncertainty elevated and guidance trends softer, corporate commentary does not seem to be backing up the hard-landing narrative. ADP said not seeing broad-based softening in the labor market. Also some sell-side pushback against the softer survey data as the better indicator of the health of the economy. Goldman Sachs also said the housing market has bottomed, while mortgage application volume picking up and both Redfin and DR Horton talking up some recent improvement. No real cracks in the disinflation narrative with core PCE inflation in line.
Some bearish talking points for the week
Sell-side strategists (including at JPMorgan, Morgan Stanley) pushed back against early 2023 strength, noting market not pricing in earnings, recession and geopolitical risks. Recession/hard landing concerns are still supported by deep curve inversion (2/10 most inverted since Sep ’81), tenth straight decline in LEI, first y/y decline in M2 growth on record and contractionary PMI prints. Key Q4 earnings (and forward guidance) metrics continued to deteriorate and run below trend. More companies/industries highlighted heightened macro uncertainty and softer demand. Layoff announcements spread beyond tech. Depressed claims further underpinned a tight labour market theme that has become a key input for Fed’s higher-for-longer rate policy. No signs of any thaw in debt ceiling stalemate. Outside the US, ECB commentary continued to lean hawkish with expectations for 75 bp of rate hikes in 1H. Japan inflation continued to run ahead of expectations and wage hikes got more attention amid lingering scepticism about BoJ policy sustainability. Russia reportedly preparing a new offensive in Ukraine.
Fed expected to slow pace of tightening to 25 bp
The FOMC decision on Wednesday is likely to be the highlight of a busy macro week. The Fed widely expected to further slow the pace of tightening to 25 bp, bringing the funds rate to 4.50 per cent to 4.75 per cent. Previews highlighted expectations for a unanimous decision and flagged only minor tweaks to the policy statement. Noted statement likely to reiterate forward guidance that “ongoing increases” in the funds rate will be appropriate. Powell’s press conference could lean hawkish as he stresses that despite the slowdown in the pace of tightening, Fed has more work to do on inflation, particularly with the labour market still tight. Powell also expected to again push back against easing of financial conditions (loosest since early 2022 and well below Jackson Hole) and market expectations for a 2H pivot, reiterating his comments from the December meeting that policy is on track to remain restrictive “for some time”. Also thoughts Powell could note December dots in SEP remain valid despite disinflation narrative traction. Big question revolves around the extent of his pushback, as some officials (Citi flagged Williams and Brainard) have recently been more dovish than expected.
Company news
Magmatic Resources (ASX:MAG) announces that their step-out drilling has intersected visible sulphide mineralisation. Commenting on the rapidly expanding footprint at the Corvette Prospect, Magmatic Resources’ Managing Director Dr. Adam McKinnon said: “this represents our biggest step-out on the Corvette trend to date, what we’ve observed in this hole is a clear indication of the potentially massive scale of the Corvette system.” Shares are trading 14.3 per cent higher at $0.12.
BluGlass (ASX:BLG) has launched six laser products at a leading industry conference, Photonics West. Commenting on the product launches, BluGlass President Jim Haden said, “The release of these laser diodes reflects the significant performance and reliability improvements we have made over the past year.” Shares are trading 36.11 per cent higher at 4.9 cents.
Babylon Pump & Power (ASX:BPP) announced positive EBITDA for the first half of the financial year and a 55 per cent improvement in operating cash flow compared to the same period last year. In response, Managing Director Michael Shelby said, “The timing of certain payments plus a growth in receivables from some major, highly regarded clients means Babylon enters the second half of the financial year with significant momentum and is well-placed to deliver further record performances.” Shares are trading 50 per cent higher at 1 cent.
Immutep (ASX:IMM), a biotechnology company focused on developing LAG-3 related immunotherapy treatments for cancer and autoimmune diseases, reported positive results in its 2nd quarter FY23 activities report. The report includes the granting of a second US FDA Fast Track designation for eftilagimod alpha (efti) in 1st line non-small cell lung cancer, promising Phase II results in 1L NSCLC, positive independent data monitoring committee recommendation, and successful meetings with FDA in metastatic breast cancer. Shares are trading 1.05 per cent lower at 28 cents.
Knosys (ASX:KNO) reported strong first half cash receipts with total cash receipts of $6 million in 1H FY23, up 24 per cent from 1H FY22. The company also showed steady Annual Recurring Revenue (ARR) of $9.6 million, disciplined cost control with Q2 FY23 operating expenses down 7 per cent compared to Q1 FY23, and a minimal net cash outflow of $182K for 1H FY23. The company also signed key contract extensions with Singtel and Optus. Shares are trading 7 per cent lower at 9.3 cents.
Lepidico (ASX:LPD) announced an update on its mineral resource development work at the Karibib Project in Namibia, which resulted in the upgrade of a further 1.58 million tonnes of lithium oxide into Indicated Resources. The estimation work was completed in accordance with JORC Code (2012) between October and December 2022, and an updated mineral resource estimate report was produced by Cube Consulting. Shares last traded at 1.5 cents.
Argent Minerals (ASX:ARD) announced their quarterly activities report. The company acquired the Copperhead Project in the Gascoyne Province, Western Australia, which is located close to major REE and Ni-Cu-PGE projects and has extensive structural and geophysical targets with potential for copper, REE, lithium, nickel and PGE mineralization. A 1,800m drill campaign at Argent’s Kempfield polymetallic deposit in New South Wales was also completed with preparations for drilling underway. Shares are trading 5.88 per cent lower at 1.6 cents.
Actinogen Medical (ASX:ACW) released its December 2022 Quarterly Activity Report and Appendix 4C, highlighting key advances into Phase 2 programs for Alzheimer’s disease. These include FDA approval for a six-month Phase 2b trial of Xanamem in early Alzheimer’s patients, treating the first patient in the XanaCIDD Phase 2a trial, and completing initial development of a tablet formulation for the XanaMIA Phase 2b trial. Shares are trading 4.21 per cent lower at 9.1 cents.
Kingston Resources (ASX:KSN) has reported record quarterly production of gold and silver at its Mineral Hill mine in New South Wales, with ongoing exploration and development of its SOZ underground deposit, as well as completion of ESIA for the Misima gold project in PNG and appointment of a new Company Secretary. The company has also received funding from the NSW government and a $1.5 million milestone payment as part of its Livingstone Gold Project transaction. Shares are trading 4.55 per cent higher at 12 cents.
The report contains forward-looking statements regarding ImpediMed’s (ASX:IPD) ability to expand sales and market acceptance in the US and Australia, as well as expectations regarding their clinical trials and intellectual property position. The CEO of ImpediMed, Rick Valencia, who has over 30 years of experience in the healthcare and technology industries, is encouraged by the company’s prospects and has been making changes to the executive team and refining the company’s roadmap and goals. The report also mentions that the company has seen solid growth in its Core Business revenue, with $2.2 million in revenue, a 38 per cent YoY increase. Shares are trading 11.76 per cent lower at 6 cents.
Breaker Resources (ASX:BRB), a mining or oil and gas exploration entity, has released its quarterly cash flow report. The report shows that the company received $126,000 in interest and had net cash used in operating activities of $4,947,000, while the net cash from investing activities was $59,961,000. The total cash and cash equivalents at the end of the period was $77,300,000. Shares are trading 2.39 per cent lower at 33 cents.
Commodities and the dollar
Gold is trading at US$1782.70 an ounce.
One Australian dollar is buying 71.21 US cents.
