by Paul Sanger
Australian shares have risen in morning trade, after Wall Street recovered from its two-day losing streak as investors wait to see how aggressively the US Federal Reserve will lift interest rates this week.
At noon, the S&P/ASX 200 is 0.83 per cent or 55.70 points higher at 6775.60.
The SPI futures are pointing to a rise of 66 points.
Best and worst performers
The best-performing sector is Utilities, up 1.47 per cent. The sector with the fewest gains is Health Care, up 0.08 per cent.
The best-performing stock in the S&P/ASX 200 is New Hope Corporation (ASX:NHC), trading 6.59 per cent higher at $5.82. It is followed by shares in Brickworks (ASX:BKW)and Ramelius Resources (ASX:RMS).
The worst-performing stock in the S&P/ASX 200 is Lake Resources (ASX:LKE), trading 3.35 per cent lower at $1.01. It is followed by shares in Homeco (ASX:HMC) and ARB Corporation (ASX:ARB).
Asian markets
Shares in the Asia-Pacific also rose Tuesday as Japan’s inflation accelerated and China kept its loan prime rate on hold.
Hong Kong’s Hang Seng index gained 0.91%, with the Hang Seng tech index up nearly 2%. The Shanghai Composite in mainland China rose 0.51% and the Shenzhen Component advanced 0.58%.
Japan’s Nikkei 225 rose 0.34% on its return to trade after a holiday and the Topix gained 0.37%.
The Kospi in South Korea added 0.37%, while the Kosdaq was 1.04% higher. MSCI’s broadest index of Asia-Pacific shares gained 0.71%.
RBA minutes show members debated case for slowing pace of rate hikes to 25 bp
September RBA minutes noted members debated arguments around raising by 50 bp or slowing to 25 bp, taking into account importance of price stability while also acknowledging policy operates with a lag and that rates are getting close to normal settings. Settled on a 50 bp rate hike this month given potential economic damage from persistently high inflation and still relatively low level of cash rate. More rate hikes are expected over coming months but RBA is not on a pre-set path and members saw a case for a slower pace of tightening as cash rate rises. Board “resolute” in need to ensure inflation returns to target, but mindful about risks that rate hikes pose to growth and employment. RBA paying close attention to evolution of labour costs and price-setting behaviour of firms, as well as response of household spending given pressures from higher inflation and rising interest rates.
Overseas investors withdrew funds from emerging Asia equities for the fourth consecutive week through to 16-Sep, pushing several regional currencies to historical lows and strengthening headwinds for stocks, according to Bloomberg data. YTD, outflows now $64B, equal to the whole of 2021. Cited analyst saying recession risks, monetary tightening in developed economies having unprecedented impact on Asia earnings expectations and EM flows. Tech-exposed South Korea and Taiwan equities hit hardest but India and Indonesia saw outflow reversed, stocks subsequently outperformed. Analyst warned until Fed shows clarity on rate direction, regional markets are still exposed to more outflow; added despite better forex management, negative correlation between dollar and EM stocks now more pronounced. Related, Reuters reported last week IIF data showed $7.7B of outflow from China’s debt markets in August, seventh consecutive monthly outflow; YTD outflow for first time since 2018 despite overall EM debt markets showing recovery signs.
Japan CPI slightly firmer than expected
Core CPI rose 2.8% y/y in August, compared to consensus 2.7% and 2.4% in the previous month. Highest since October 2014. Sequential gain of 0.4% extends run of positive readings since February. Ex-fresh food & energy series increased 1.6% y/y vs consensus 1.5% and prior 1.2%. Energy contribution edged higher, driven mainly by electricity and partly offset by slower growth in gasoline. Elsewhere, sharp moderation in mobile phone charge declines was the biggest positive driver, adding to ongoing acceleration in non-fresh food. As attention turned to this week’s BOJ meeting (expected to keep rates low and further expose Japan as an outlier relative to other major economies) Reuters sources suggested BOJ is no longer using the word ‘temporary’ in reference to elevated inflation, and may go further by saying inflation will be higher than expected for the rest of this year, driven partly by yen depreciation.
BOJ flow of funds highlights
BOJ flow of funds showed the household sector logged a financial surplus in Q2, rebounding firmly from a Q1 deficit. Household total financial assets were JPY2,007T, up 1.3% y/y, marking the lowest growth in over a year. Currency and deposits expanded steadily, though equity holdings fell for the first time since 4Q20 — in contrast with major gains throughout 2021 — driven by adverse valuation effects which overshadowed positive flows. Similarly, equity valuations were a drag on corporate sector assets, though stabilised by sharp expansion in overseas investment. On debt, BOJ’s JGB holdings turned marginally positive for the first time in a year. Back-to-back growth among depository corporations contrasted with declines in insurance and pension funds, while the overseas sector saw lower growth.
Vaccine stocks sell off after Biden says ‘pandemic is over’
FT discussed a selloff in major Covid-19 vaccine producers Monday after US President Biden in a 60 Minutes interview said “the pandemic is over.” Analysts attributed stock weakness to concerns over demand for Covid vaccines at a time of increasing public apathy and the message from leaders in the US and elsewhere that the crisis phase of the coronavirus pandemic is coming to an end. Following comments last week from WHO that the end of the pandemic is in sight, the most upbeat assessment since it declared an international emergency in January 2020 and started describing COVID-19 as a pandemic three months later (Reuters). The US initially declared a public health emergency in January 2020 and has been reviewed quarterly. Health department is set to renew once more in mid-October, which policy experts expect will be the last time before it expires in January 2023.
BIS backs “forceful” rate hikes despite rising recession risk
According to Reuters, BIS head of the Monetary and Economic Department Claudio Borio urged major economies to forge ahead with forceful interest rate hikes despite the growing threat of recessions and currency market volatility. BIS quarterly report acknowledged that both recession and debt risks were rising, but said that bringing soaring global inflation back down remained paramount. Borio acknowledged the difficulty in predicting the point at which central banks might go too far, recalling this is the first time since WWII when policymakers are trying to tackle soaring inflation at a time when debt crises are already breaking out and when serious worries exist about overpriced property markets. Echoed phasing of the ‘narrow path’ (used by other central bankers).
US Markets
Stocks closed higher on Monday in a volatile trading session ahead of the Federal Reserve’s two-day policy meeting slated to kick off Tuesday. Rising yields now presents investors with an alternative, the gap between the S&P 500’s earnings yield and the returns from cash or high-grade, shorter-duration corporate bonds has narrowed significantly lately.
Of course – It’s rates week. The Fed will join the central banks of England, Norway, Sweden and Switzerland in raising rates this week
All eyes will be on the Fed this Wednesday with the consensus estimate is for a 75-basis-point increase. The Fed’s rate increases are having the most direct impact on US housing. Mortgage rates climbed above 6 percent last week for the first time since 2008. Rising borrowing costs have slowed home buying significantly, though the effect on home values has been more muted. Prices appear to still be rising in most parts of the country, though much slower than they once were.
Yields pushed higher overnight ahead of the Fed’s rate decision with the 10-year Treasury yield topping 3.51 per cent and hit its highest level in 11 years. Rising yields now presents investors with an alternative, the gap between the S&P 500’s earnings yield and the returns from cash or high-grade, shorter-duration corporate bonds has narrowed significantly lately. Given that equities are a lot choppier these days, it must be starting to get tempting to rotate back into bonds.
The US 1- to 5-year credit yields are now around 4.9 per cent against an S&P 500 earnings yield of ~5.9 per cent. But over the last 30 days, the S&P 500 has been 5.7 times more volatile. In short, investors now have a number of higher-yielding, lower-volatility alternatives if they want to step back from the market.
Of course the argument for bond rather than equities is further strengthened, when you consider the the impact of a possible global recession on earnings.
To the markets now overnight the Dow Jones jumped, 0.64 per cent, The S&P 500 gained 0.69 per cent and the Nasdaq Composite added 0.76 per cent
Stock wavered between gains and losses throughout the session, with the Dow Jones down as much as 263 points earlier in the day. At session lows, the S&P 500 and Nasdaq shed close to 1 per cent each.
Nine out of the 11 S&P 500 sectors ended the day positive, led to the upside by, consumer discretionary and industrials. Financials also rose as some investors bet that higher rates could benefit their bottom lines.The Materials sector was led by gains in aluminium, copper, steel & iron and agricultural stocks Health care & biotechs were the laggards, falling after comments from President Joe Biden indicated the pandemic is over. Vaccine stocks were hit hardest with Moderna off 9 per cent and Biontech down 8.5 per cent
Volkswagen announced last night that it planned to sell shares in the luxury sports-car brand Porsche at a valuation of up to $75 billion. The news marks one of the last steps in setting up one of the biggest IPOs in years, at a time when the market for taking companies public is particularly challenged.
In after market news Ford Motor warned investors that the company expects to incur $1 billion more in costs than previously expected during the third quarter due to increased costs and supply chain issues. Ford said supply problems have resulted in parts shortages affecting roughly 40,000 to 45,000 vehicles that haven’t been able to reach dealers. Shares of the company fell about 5 per cent in extended trading following the update.
Company News
RareX Limited (ASX: REE) today reported significant new results received from diamond and reverse circulation (RC) drilling being undertaken as part of the 2022 growth drilling program at its 100%-owned Cummins Range Rare Earths and Phosphate Project in the Kimberley region of Western Australia.
RareX Managing Director, Jeremy Robinson, said the initial assay results from deeper drilling had further increased the scale of the Cummins Range deposit and confirmed the presence of a very large mineral system: “Our deeper drilling has shown that carbonatite pipes are very large mineralising systems capable of hosting millions of tonnes of rare earth oxides and top-quality rock phosphate. We look forward to releasing further results from diamond holes to the south-east, closer to the centre of the system. “The phosphate mineralisation on the Phos Dyke is shaping up to be a very large body of phoscorite, with the rare earths-rich carbonatite veins reported in this release and in our last announcement proving to be an added bonus.” Shares are trading 3.08 per cent higher at 6.7 cents.
Hygrovest Limited (ASX: HGV) an Australian-listed specialist investment company, which concentrates on producing capital growth for shareholders over the medium term from investments in listed and unlisted equities and other financial assets today advised that it has agreed to an investment management agreement with Parallax Ventures (“Parallax”), with an initial term to 30 June 2023 (which may be extended by a further 2 years at HGV’s option) (“IMA”). The IMA is effectively on the same terms as the previous investment management agreement, entered into with Parallax in 2019. The HGV Board considers that Parallax’s asset management expertise and importantly, its knowledge of HGV’s existing cannabis investments, which still comprise 62% of the HGV portfolio2, will be valuable in executing HGV’s stated aim to diversify away from the underperforming sector. Equally, the appointment of an external asset manager to manage the existing portfolio and access new investment opportunities is viewed as the best option for HGV. Shares are trading flat at 6.6 cents.
Ragusa Minerals Limited (ASX:RAS) today advised that it has received notification from the Northern Territory’s Mineral Titles office that the Company’s 100% owned tenement EL33150 has been granted – part of the NT Lithium Project (“Project”) EL33150 was granted on 16 September 2022 for a period of 6 years. The Company identified the highly prospective tenement (and associated project area), as prospective for lithium from historical geological mapping works and the interpreted continuation of the geological rock-types found in the neighbouring lithium projects, indicating a high level of lithium prospectivity throughout the region. Ragusa Chair, Jerko Zuvela said “The Company’s strategic and highly prospective NT Lithium Project – with high grade historical and confirmatory lithium sample results, approved MMP for drilling commencing soon, and now contains five granted tenements. This is another very positive milestone that puts Ragusa in a strong position to rapidly accelerate the development of our project within a proven high-quality lithium district. We have a significant opportunity to utilise our exploration and development experience to rapidly progress our NT Lithium Project and realise the massive upside value potential in a Tier 1 jurisdiction close to major infrastructure at a time of record lithium prices.” Shares are trading 14.3 per cent higher at 28 cents.
ABx Group Limited (ASX:ABX) today provided assay results which confirm a 6.5km mineralised channel connecting the Company’s Deep Leads and Rubble Mound rare earth discoveries, located in northern Tasmania. The clay-hosted rare earth elements (REE) occur within a shallow channel structure that increases the prospect size by 27% to 5.1 km2 and demonstrates the potential for the mineralised zone to deliver thick intersections as well as expand significantly along strike. Commenting on the discovery, ABx Group MD and CEO Dr Mark Cooksey said: “Our latest results represent a milestone moment in our development of the rare earth channel at Deep Leads and Rubble Mound. The extensive channel structure has connected and combined the two discoveries into a single deposit and, excitingly, the mineralisation has also been shown to return results which are thick – exceeding 20 metres thickness – and near surface. Shares are trading 9.7 per cent higher at 17 cents.
AML3D (ASX:AL3) has announced the company is continuing to develop its strategically important relationship with the Boeing Company (NYSE:BA) by agreeing to an expanded scope for the supply of 3D printed components. The Boeing company develops, manufactures and services commercial aeroplanes, defence products and space systems for customers in more than 150 countries. Boeing has updated the scope of the July 2022 purchase contract to include the next phase of Aluminium test parts in the form of prototype components. This has significantly increased the value of the July contract by an additional 150%. AML3D Managing Director, Andrew Sales, commented: “AML3D has already demonstrated to Boeing that our proprietary WAM® 3D metal printing technology produces high quality parts on time and to specification. The expanded purchase contract is strategically important as it moves AML3D towards being embedded into Boeing’s supply chain, which aligns with the delivery of our growth targets for the Aerospace sector.” Shares are trading 25 per cent higher at 10 cents.
Commodities and the dollar
Gold is trading at US$1674.29 an ounce.
Iron ore is 0.8 per cent lower at US$97.70 a tonne.
Iron ore futures are pointing to a fall of 0.1 per cent.
One Australian dollar is buying 67.18 US cents.
