ASX pushes higher, following a firm Wall Street: Aus shares up 0.5% at noon

Market Reports

by Paul Sanger

At noon, the S&P/ASX 200 is 0.52 per cent or 36.70 points higher at 7101.00

The SPI futures are pointing to a rise of 39 points.

RBA closely monitoring how household spending evolves as policy is normalised

August RBA minutes noted members agreed it was appropriate to continue normalising monetary policy, but that policy is not on a pre-set path as the RBA looks to keep the economy on an even keel. It was noted that survey- and market-based expectations assumed a cash rate rise to around 3 per cent by the end of 2022 (versus a current 1.85 per cent), and key sources of uncertainty relating to competing forces affecting spending were emphasised. Members further noted that income are being supported by tight labour markets and large financial buffers, but that higher inflation and interest rates are weighing on household budgets. Financial pressures are expected to build in the period ahead. Some increase in unemployment as growth slows is anticipated. Wage and price-setting behaviour present a material risk to the inflation outlook, but medium-term inflation expectations remain well anchored, and inflation is expected to peak later in 2022 before declining.

Best and worst performers

The best-performing sector is Consumer Staples, up 1.34 per cent. The worst-performing sector is Energy, down 1.11 per cent.

The best-performing stock in the S&P/ASX 200 is Life360 (ASX:360), trading 5.09 per cent higher at $5.78. It is followed by shares in BHP Group (ASX:BHP) and PointsBet Holdings (ASX:PBH).

The worst-performing stock in the S&P/ASX 200 is Challenger (ASX:CGF), trading 13.76 per cent lower at $6.14. It is followed by shares in Zip Co (ASX:ZIP) and Lake Resources (ASX:LKE).

Shares in Asia-Pacific mostly higher as investors monitor market reaction to Chinese economic data

Mainland China markets were mixed. The Shanghai Composite fell slightly to end the day at 3,276.09 and the Shenzhen Component was up 0.33 per cent at 12,460.22. Hong Kong’s Hang Seng index was 0.72 per cent lower in the final hour of trade.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.21 per cent lower.

Japan’s Nikkei 225 increased 1.14 per cent to 28,871.78 while the Topix index added 0.6 per cent to 1,984.96 after the country reported an expansion in GDP.

China’s industrial output and retail sales data for July missed expectations.

India and South Korea markets were closed for a holiday Monday.

Asian macro headlines

  • China sovereign bonds have received foreign inflows in July for the first time in six months
  • China's credit market offers cheap money, but weaker borrowers will struggle for access
  • Beijing has cut holdings of US Treasuries for the seventh consecutive month
  • Hong Kong audit regulator has begun new probe into property services unit
  • NYSE delistings may signal that Beijing is ready to compromise on US audit dispute
  • Singapore's rich face higher taxes amid growth risks
  • Australian beef exporters say they are alarmed by reports of a new China export ban
Central banks:
  • PBOC-backed news outlet says more stimulus is needed to boost economic growth
  • RBNZ set for the fourth 50 bp rate hike of the cycle, but the terminal rate could be lower than policymaker forecast
  • US, South Korea and Japan hold missile defence exercises
  • Beijing holds more drills near Taiwan as a US lawmaker's visit to Taipei continues 
  • Next Singapore PM warns that the US and China could sleepwalk into conflict
  • China's chip output has shrunk 17 per cent in July amid supply chain pressure
Chinese consumer caution weighs on outlook for household spending

China's economic slowdown continues to have a dampening effect on consumer spending. Bloomberg noted cautious consumers accumulated CNY10.3T in deposits over H1 2022, up 13 per cent y/y and the largest increase on record. In comparison, debt grew around 8 per cent, the slowest pace since 2007. Falling house prices, rising unemployment, and Covid lockdown uncertainty are fuelling consumer pessimism, with retail sales contracting almost 1 per cent in H1 as incomes grew just 1.9 per cent vs the 10.7 per cent growth recorded in H1 2021. Beijing's clampdown on debt is a contributing factor to weaker spending, with household debt-to-GDP ratio stagnant at 60 per cent after more than doubling in the decade prior to the pandemic. The scope for large-scale monetary easing to stimulate consumption is limited amid policy constraints from high inflation and the risk of capital outflows, leaving China facing a slow growth economic environment.

China reduces US Treasury holdings for seventh month

Reuters reported China's holdings of US Treasuries fell to $967.8B in June from $980.8B in the prior month. This marks the seventh straight drop and the lowest level since May 2010. ING attributed the trend to Chinese FX intervention to keep the USD and CNY stable in a strong dollar environment and believes this will continue after Russia's invasion of Ukraine and the seizure of Russian FX reserves.

The article also noted the data precedes a flare-up in US-China tensions over Taiwan, though did not specify thoughts on potential implications for China's FX reserves.

In contrast, Japan increased its holdings of Treasuries to $1.236T in June, from a revised $1.224T in May. Total foreign holdings rose to $7.430T in June from a revised $7.426T in May as Treasuries saw net inflows for a second straight month and were generally in line with a decline in benchmark 10-year yields at the time.

Company news

Kingston Resources (ASX:KSN) has reported that assays from the first round of diamond drilling at the SOZ underground have delivered outstanding high-grade base metal and gold results. Drilling transitioned to SOZ following completion of the drill program at Pearse North. The eight-hole program at SOZ has been designed to test and extend the spatial location and tenor of mineralisation, and the geological interpretation within the upper portions of SOZ. Shares in KSN are currently trading up 3.45 per cent at 9 cents.

Latin Resources (ASX:LRS) has provided an update on resource definition drilling and other studies currently ongoing at the company’s 100 per cent owned high-grade Colina Prospect. The exploration team reports a new lithium spodumene discovery, with the recently completed hole approximately 500m west of the Colina Prospect. The drilling has discovered an intersection of a new swarm of spodumene-bearing pegmatites, including one of 18.75m in thickness. This discovery at Colina West has significant scale implications for the Salinas Lithium Project, if drilling confirms the presence of additional parallel mineralised pegmatite systems in close vicinity to the main Colina Prospect. Shares in LRS are currently trading up 13.04 per cent at 13 cents.

Junior miner Cobre (ASX:CBE) today announced the fourth 1km step out hole of the ongoing diamond drill program at the Ngami Copper Project in the Kalahari Copper Belt, Botswana, has returned another significant copper intersection. Cobre Executive Chairman and Managing Director Martin Holland, said: “We’re delighted with the results from the latest drill hole at NCP, which have significantly extended the known footprint of mineralisation over more than 4km. Importantly, all the results so far indicate that the target remains open-ended to the northeast and is larger than previously anticipated." Shares in CBE are currently trading up 30 per cent at 19.5 cents.

BHP Group (ASX:BHP) will pay record full-year dividends after reporting the second-biggest profit in the company’s history in the year to June 30. The company told the ASX on Tuesday that shareholders will receive a total of US$16.3 billion ($23.2 billion) of dividends for the year to June. The company reported a 26 per cent rise in underlying profit from continuing operations to US$21.3 billion. Even though the final of US$1.75 a share was down from the record US$2 a share a year ago, the total for the year of US$3.25 a share was a record and it, and the underlying profit was better than the market had been forecasting. The interim in February was a record US$1.50 a share. Underlying profit from continuing operations for the year was up from US$16.99 billion a year earlier, topping forecasts around US$20.8 billion. “These strong results were due to safe and reliable operations, project delivery and capital discipline, which allowed us to capture the value of strong commodity prices,” BHP CEO Mike Henry said. “BHP remains the lowest-cost iron ore producer globally, and we delivered record annual sales from Western Australia." Shares in BHP are currently trading up 4.45 per cent at $40.65.

Home furnishing e-commerce company Temple & Webster Group (ASX:TPW) has topped its margin guidance for FY2022, but profits fell due to reinvestment in technology, its new website aimed at the DIY market, and higher logistics costs. Shares in TPW are currently trading up 18.64 per cent at $5.22.

Gascoyne Resources (ASX:GCY) today announced the discovery of a substantial new high-grade lode system on the immediate western flank of the company's new Gilbey’s North prospect, located less than 1km from the 2.5Mtpa processing plant at its 100 per cent-owned Dalgaranga Gold Project in Western Australia. Together with other recently reported results from this newly discovered east-west oriented mineralised position, the standout intercepts reported in this announcement confirm the consistent width and continuity of the high-grade “Never Never” lode, part of the exciting Gilbey’s North near-mine discovery. Shares in GCY are currently trading up 25.93 per cent at 34 cents.

Commodities and the dollar

Gold is trading at US$1780.19 an ounce.
Iron ore is 4.1 per cent lower at US$104.40 a tonne.
Iron ore futures are pointing to a fall of 0.8 per cent.
One Australian dollar is buying 70.20 US cents.

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