ASX flat on the day as it awaits further direction from the US

Market Reports

by Paul Sanger

Australian shares have struggled for momentum as gains in miners on the back of firm commodity prices countered losses in technology and financial stocks. Miners gained 1.1 per cent, with sector majors BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals (ASX:FMG) adding between 1.1 per cent and 2.1 per cent. Technology stocks were the top drag, shedding almost 1 per cent after major Wall Street indexes closed lower on Friday. The market is waiting for more direction from the US, as the pace of the second-quarter earnings season hits its peak this week, with 174 S&P 500 companies scheduled to release earnings. This includes the likes of Apple, Amazon, Meta, Alphabet, McDonalds, Colgate Palmolive, Procter and Gamble, Pfizer, Mastercard and Anglo American, to name a few.

At the closing bell, the S&P/ASX 200 was 0.02 per cent or 1.60 points lower at 6789.90.

Asian equities are weaker Monday. China markets are lagging as tech stocks come under pressure. However, property developers are rebounding following bailout speculation. The Nikkei is sustaining declines, while the Kospi is in positive territory and the Taiex is flat.

The Dow Jones futures are pointing to a fall of 47 points.
The S&P 500 futures are pointing to a fall of 7 points.
The Nasdaq futures are pointing to a fall of 14 points.
The SPI futures are pointing to a fall of 16 points when the market next opens.

Best and worst performers

The best-performing sector was Materials, up 1.08 per cent. The worst-performing sector was Information Technology, down 1.51 per cent.

The best-performing stock in the S&P/ASX 200 was Insurance Australia Group (ASX:IAG), closing 5.94 per cent higher at $4.46. It was followed by shares in Steadfast Group (ASX:SDF) and Evolution Mining (ASX:EVN).

The worst-performing stock in the S&P/ASX 200 was EML Payments (ASX:EML), closing 22.18 per cent lower at $0.93. It was followed by shares in PointsBet Holdings (ASX:PBH) and Imugene (ASX:IMU).

Local economic news

Bonds are mixed with JGB, Australian and New Zealand bonds rallying, while Treasuries are little changed.

Crude and metals are pulling lower.

The dollar is advancing on major crosses, strongest against commodity currencies.

The focus remains on the Fed's hiking path, with a 75 basis point rate hike priced in for this week.

However, weakening economic momentum and corporate hiring freeze announcements, along with continued pullback in inflation expectations, are driving forecasts of a slowdown in pace of tightening.

Inverting yield curves are also playing into the recession debate, with Treasury 2/10 spread near its most negative territory since 2000.

While the threat of lockdowns looms over major cities, Shanghai and Beijing have so far avoided community outbreaks. China's health authorities are also stepping up efforts to get people vaccinated, saying state and party leaders have been inoculated with domestically produced shots.

There is more scrutiny on China's property developers, with the mortgage boycott development still playing out and Evergrande in a management shake-up ahead of a month-end deadline for a restructuring proposal.

US-China relations are another focus, with FT noting the latest Chinese proposal to avoid delisting from American exchanges.

Another FT piece highlighted an unusually strong warning by Beijing against Pelosi's planned visit to Taiwan, including the suggestion of a possible military response.

Company news

Queensland renewable energy developer Genex Power (ASX:GNX) has received a conditional, non-binding, bid from Atlassian billionaire Scott Farquhar, as reported in The Australian. The indicative proposal from Mr Farquhar's Skip Essential Infrastructure Fund and US-based investment firm Stonepeak Partners is for 23c per share cash. Mr Farquhar’s investment fund Skip is headed up by the tech executive’s wife Kim Jackson, and now owns a 19.99 per cent stake in Genex. The deal is subject to a number of approvals, including from the Foreign Investment Review Board. Shares in GNX closed up 44.4 per cent at 19.5c.

TerraCom (ASX:TER) has announced a record operating EBITDA of $224 million for the June Quarter. Blair Athol achieved an operating EBITDA of $174 million as export coal prices remained high during the June Quarter, resulting in an operating cash margin of $278 per sold tonne. The South African operations achieved an operating EBITDA of $50 million, resulting in an operating cash margin of $32 per sold tonne. There was a record average coal price of $403 per sold tonne achieved at Blair Athol for the June Quarter and $250 per sold tonne achieved for FY2022. Strong demand continues from the Japanese and South Korean energy markets and Indian sponge iron market. Shares in TER closed down 0.63 per cent at 79c.

Odyssey Gold (ASX:ODY) today announced progress drill results from Reverse Circulation drilling recently completed at the Maybelle Deposit, part of the Tuckanarra Project in the Murchison Goldfields of Western Australia. Commenting on this stunning intersection from Maybelle, Managing Director Matt Briggs said: “The result of 4m @ 53.9g/t Au is the highest gram metre result ever drilled at Maybelle and successfully confirms and extends the interpreted high-grade shoots below the Maybelle Pit. Structural analysis and modelling by our geologists identified the plunge as more steeply dipping than previously interpreted as confirmed by this latest hole. This latest high-grade intersection is very encouraging and demonstrates the clear potential to establish a quality resource footprint at Maybelle. Historic mining has barely scratched the surface with mineralisation now continuous from the base of the 30m deep pit to 100m below surface." Shares in ODY closed up 20 per cent at 4.8c.

South32 (ASX:S32) has come within a whisker of hitting its revised annual output guidance target, despite the impact of Covid-19 and global supply chain issues, with record production at its Worsley Alumina operations in WA underpinning the company’s performance. South32 achieved 99 per cent of its revised guidance on a copper equivalent basis, despite a broader fall in production across most of its operations. The company released its June quarter production report on Monday, with total alumina production down 1 per cent to 5.29 million tonnes, but aluminium output was up slightly to 992,000 tonnes, from 982,000 tonnes the previous financial year. South32’s nickel production was up 22 per cent to 41,700 tonnes, but lead, silver and zinc were all down. Shares in S32 closed up 0.85 per cent at $3.56.

The Directors of Nickel Industries (ASX:NIC) today announced that the company’s 80 per cent-owned Angel Nickel Project has commenced commissioning of its 380MW power plant within the Indonesia Weda Bay Industrial Park (IWIP) on Halmahera Island. The commissioning of the Angel Nickel power plant is ahead of schedule and follows the early commissioning of the Project’s four RKEF lines between January to May this year, well ahead of the contracted delivery month of October 2022. Angel Nickel has been operating at approximately 80 per cent of nameplate capacity, restricted by power availability within the IWIP electricity grid. However, with its own power source coming online, production levels at the project are expected to increase to approximately 130 per cent of nameplate capacity, in line with the historical outperformance above nameplate capacity of the company’s established Hengjaya and Ranger RKEF projects. Additionally, by having its own power source, Angel Nickel’s four RKEF lines are expected to benefit from a saving of approximately 20 per cent on electricity charges, which currently account for approximately 25 per cent of total operating cash costs. Shares in NIC closed up 3 per cent at $1.03.

Travel business Flight Centre (ASX:FLT) says it expects to report an underlying EBITDA loss between $180 million and $190 million for the full year. That compares to previous guidance between $195 million and $225 million. “After an incredibly challenging period, we were pleased to achieve our goal of returning to monthly underlying EBITDA profitability in both the corporate and leisure sectors late in the year,” the group’s Managing Director Graham Turner said. “The scale of our recovery exceeded our initial expectations and meant that we should now exceed our preliminary FY22 result target, with early trading results pointing to a breakeven second half result and a healthy fourth quarter profit (underlying EBITDA).” Shares in FLT closed up 2.98 per cent at $17.62.

EML Payments' (ASX:EML) Irish subsidiary has made adjustments to its remediation program after Irish regulators identified "shortcomings" following a review of the company's risk assessment framework. In an update to the market, embattled EML, which this month lost its long-running chief executive, said the additional work, as ordered by the Central Bank of Ireland, may result in further controls being embedded into its internal control framework. "EML's Irish subsidiary, PFS Card Services (Ireland) Limited (‘PCSIL’), has been undertaking a remediation programme at the direction of Central Bank of Ireland since July 2021, with the assistance of external expert advisors," the company said on Monday.
Share in EML are currently closed down 22.20 per cent at 93c.

Shares in MoneyMe (ASX:MME) closed up 8.82 per cent higher at 74 cents after the lender said FY 2022 revenue increased 138 per cent to more than $138 million. The company said the strong result partly stemmed from its SocietyOne acquisition that added $15 million in sales from March 15. It said its MoneyMe business made a cash net profit of $10 million on total revenue of $48 million for the six months ended June 30.

Commodities and the dollar

Coal will remain the primary source of energy for China over the next 10 to 15 years. Coal's dominant role as the mainstay source of energy for China is unlikely to change for a decade or more, as China coal consumption is not expected to peak until 2025. Capital spending on thermal power generation rose 72 per cent in the first six months of the year and more projects are on the way as the authorities speed up new approvals. China's clean energy and climate action plans remain impacted by energy security, mainly due to power shortages and the spike in prices caused by Ukraine-Russia war (Bloomberg).

Gold is trading at US$1725.10 an ounce.
Iron ore is 4.1 per cent higher at US$100.35 a tonne.
Iron ore futures are pointing to a rise of 7.07 per cent.
Light crude is trading $1.18 lower at US$93.91 a barrel.
One Australian dollar is buying 69.16 US cents.

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