Inflation has peaked: ASX 0.45% cent higher at noon

Market Reports

by Peter Milios

The head of economic analysis at the Reserve Bank of Australia (RBA), Marion Kohler, has announced that inflation has peaked at around 8 per cent at the end of 2022 and will start to ease this year.

The RBA will release its revised forecasts next week and is focused on returning inflation to target and achieving a sustainable balance of demand and supply in the Australian economy.

And the Australian dollar rose 3.5 per cent in January to US70.50¢, reaching a level last seen in June, due to optimism about the reopening of China's economy and the belief that central banks were near the end of their tightening cycles.

The Federal Reserve is expected to lift its policy rate to 4.5 per cent to 4.75 per cent at its meeting on Thursday, but investors are bearish on the US economy and expect the Fed to cut rates back to 4.5 per cent by the end of the year.

At noon, the S&P/ASX 200 is 0.45 per cent or 4 points higher at 7,510.60.

The SPI futures are pointing to a rise of 28 points.

Best and worst performers

The best-performing sector is REITs, up 1.49 per cent. The worst-performing sector is Energy, down 0.61 per cent.

The best-performing large cap is Lynas Rare Earths (ASX:LYC), trading 4.26 per cent higher at $9.79. It is followed by shares in The Lottery Corporation (ASX:TLC) and James Hardie Industries (ASX:JHX).

The worst-performing large cap is Meridian Energy (ASX:MEZ), trading 2.02 per cent lower at $4.85. It is followed by shares in REA Group (ASX:REA) and (ASX:CAR).

Asian news

Asia-Pacific shares traded higher as investors looked ahead to the Federal Reserve’s Wednesday meeting, as well as some economic data in the region.

Japan’s Nikkei 225 gained 0.8 per cent and the Topix climbed 0.7 per cent in its first hour of trade. South Korea’s Kospi advanced 0.8 per cent and the Kosdaq rose 0.78 per cent, as South Korea’s export numbers in January fell 16.6 per cent on an annualised basis.

Hong Kong is set to release its fourth quarter GDP data later in the day. China’s Caixin manufacturing PMI data is also scheduled for release.

Employment Cost Index softer than expected, while Consumer Confidence misses

Q4 employment cost index fell 0.2pp q/q to 1.0 per cent, below consensus 1.1 per cent, a third-straight decline and slowest growth since Q4-21. Annualised ECI up 0.1pp to 5.1 per cent y/y, in line with Street, up for a ninth-straight quarter but little changed from Q2 and Q3 levels. Economists said softening earnings growth reflects easing labor market tightness, which could have Fed implications given focus on relationship between wages and inflation (particularly services). January Consumer Confidence down 1.2 points m/m to 107.1, missing 109 consensus. Present situation index up 3.5 points m/m to 150.9, though expectations index down 5.6 points m/m to 77.8, with report noting a print below 80 signals recession within next year. Inflation expectations over next 12 months ticked up 0.2pp to 6.8 per cent, though still below 7.9 per cent peak in June. Labor market differential (those who say jobs are plentiful vs hard to get) improved 1.2pp from December to 36.3 per cent. January Chicago PMI down 0.6 points to 44.3, missing consensus 45.4, with slowdowns in new orders, employment, inventories.

Tuesday puts and takes

A few things to think about for today. Earnings takeaways seem mixed to better with some help from lower bar (this seems to be the case for a number of industrial names), along with more focus on cost-cutting/expense control. Big tech reports on Wednesday and Thursday and while the weak earnings dynamic is widely understood, the group has been a recent beneficiary of a pickup in buying interest. More support for the disinflation narrative with the moderation in the Q4 Employment Cost Index, while Whole Foods pushing supplies to help bring prices down (WSJ). Some thoughts FOMC tomorrow could be largely de-risked given widespread expectations for Powell to strike a hawkish tone. Some expectations for selling in equities related to month-end rebalancing, though BofA has pointed out that the bigger rotations may be within fixed income, while only part of the rebalancing is likely to be performed at month-end. Outside the US, China January PMI data came in firmer though the China reopening rally that has been a tailwind for global risk sentiment has lost momentum coming out of the LNY holidays.

Latest earnings themes

A few themes to pull from the latest batch of earnings. Expense control and cost-cutting remain bright spots as companies look to cushion margins (UPS, Whirlpool, International Paper). Despite disinflation narrative traction, multiple companies highlighted continued inflation/input cost pressure (McDonald's, Oshkosh). More companies have talked about easing supply chain constraints (General Motors, Polaris), though also still flagged as a headwind (Lennox). Auto sector still a pocket of strength for the economy (General Motors, NXP Semiconductor). De-stocking has been a big Q4 theme though some companies also talking about getting closer to an end (International Paper, AO Smith, Pentair). Softer consumer and mobile demand repeatedly mentioned in the semi space (NXP Semiconductor). Builders have continued to highlight a more recent rebound in housing demand (Pulte, MDC Holdings). Covid normalization has continued to impact healthcare company guidance (Pfizer). While China's zero Covid pivot expected to be a 2023 tailwind, it was a demand headwind in Q4 (Corning).

Company news

Parabellum Resources (ASX:PBL) has announced that their assay results demonstrate strong rare earth oxide mineralization. In response, Chairman Mark Hohnen commented: “We continued to be very impressed with the progress that has been achieved at Khotgor over the past 12 months with the metallurgical testwork, resource modelling, engineering studies and pilot plant construction.” Shares are trading 1 per cent higher at 50 cents.

AML3D (ASX:AL3) enters the US defence industry with large scale sale of their manufacturing metal 3D printing system to support the US Navy. AML3D CEO Ryan Millar said, “This sale is a significant opportunity for AML3D, as it is part of a long-term strategic partnership with the US Navy helping them scale up submarine production with advanced additive manufacturing technology.” Shares are trading 50 per cent higher at 10.5 cents.

Antisense Therapeutics (ASX:ANP) has announced positive outcomes in DMD combination therapy animal study. In response, Dr George Tachas, Director of Drug Discovery and Patents at Antisense Therapeutics said “The encouraging effects observed in our study of the combination treatment on the EDL muscle function suggest the potential for the combination treatment to show benefit beyond monotherapy is on the right track.” Shares are trading 17.1 per cent higher at 9.6 cents.

Trigg Minerals (ASX:TMG) has announced positive results from the 2022 resource definition drilling at Lake Throssell have confirmed the consistency and robustness of the deposit's Sulphate of Potash (SOP) Resource. The results from brine assays and borehole magnetic resonance geophysical logging showed average potassium grades of 4,549 mg/L and sand zones of the Basal Aquifer measuring specific yield of 0.2 to 0.22, respectively. The results will contribute to an upgraded Mineral Resource Estimate targeted for later this month. Shares are trading flat at 3.6 cents.

Argent Minerals (ASX:ARD) has completed the first helicopter-borne rock chip reconnaissance survey over the Mt Palgrave Prospect in Western Australia. The exploration program, which started in November 2022, assessed the logistics for upcoming extensive ground exploration-based programs. The Mt Palgrave Copper Prospect has historical rock chip samples with copper assays ranging from 1.12 per cent to 14.2 per cent, and the copper mineralization has been found in the Discovery Formation Siltstone within bedding planes, fractures, and the matrix. Shares are trading 6.25 per cent higher at 1.7 cents.

Lepidico (ASX:LPD) announced that it has entered into a binding sulphuric acid supply agreement with Interacid Trading S.A. (“Interacid”) for the supply of sulphuric acid for the Company’s planned Phase 1 Project. Interacid is a 100 per cent subsidiary of Sumitomo Corporation and has provided marketing, logistics and terminal services for sulphuric acid for nearly 50 years. Under the agreement Interacid will supply the Company’s high specification sulphuric acid for an initial period of three years. Managing Director Joe Walsh said, “Sulphuric acid is the largest single consumable for Phase 1 and a key reagent in the L-Max® process.” Shares are trading flat at 1.5 cents.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 0.7 per cent lower at US$128.95 a tonne.
Iron ore futures are pointing to a 0.51 per cent rise.
One Australian dollar is buying 70.53 US cents.

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