ASX in the green but off from early morning highs: Aus shares 0.3% higher at noon

Market Reports

by Paul Sanger

The ASX opened strongly on Wednesday, taking its lead from positive moves in the US overnight, before pulling back as US futures traded lower after market on mixed earnings results.

The BNPL sector today has continued an extraordinary bounce as the sector surges higher, albeit from very depressed levels -- with very little stock-specific news other than some scrapped merger activity between Zip (ASX:ZIP) and Sezzle (ASX:SZL) and perhaps a short squeeze on short sellers.

All BNPL stocks are higher this morning. ZIP (ASX:ZIP) is up 16.13 per cent, Sezzle (ASX:SZL) is up 21.28 per cent, Openpay (ASX:OPY) is up 35.82 per cent, Laybuy (ASX:LBY) is up 55.84 per cent and Splitit (ASX:SPT) is 5.77 per cent higher.

At noon, the S&P/ASX 200 is 0.32 per cent or 21.70 points higher at 6844.90.

US equities were sharply higher in Wednesday trading with support from better-than-feared big tech earnings and clarity around interest rates after the Fed’s 75 basis point rate rise announcement. Stocks hit their highs of the session in the afternoon as Fed Chairman Jerome Powell left the door open about the size of the central bank’s rate move at its next meeting in September and noted it would eventually slow the magnitude of rate hikes. The market currently expects a 50 basis point move. Investors were also encouraged after Powell noted that he doesn’t believe the economy is currently in a recession. The second-quarter GDP reading is due on Thursday and will confirm this one way or another.

The Dow Jones Industrial Average jumped 436.05 points, or nearly 1.4 per cent, to 32,197.59. The S&P 500 gained 2.62 per cent to close at 4,023.61. The Nasdaq Composite climbed 4.06 per cent to 12,032.42.

Overnight, in rare bipartisan fashion, the US Senate passed an expansive $280 billion bill aimed at building up America's manufacturing and technological edge to counter China.

Stocks started the day on a high note after getting a boost from tech earnings. Tech stocks added to those gains as the overall market rallied. The strength in tech stocks was reflected across the sectors, with communication services, IT and consumer discretionary significantly outperforming. Alphabet shares rose about 7.7 per cent after the tech giant’s quarterly report showed strong revenue from Google’s search business.

Microsoft gained close to 6.7 per cent after reporting a 40 per cent jump in revenue growth. Microsoft’s profits, while below expectations, were still up. Sales of its signature software products, like Office, rose 13 percent. Its cloud services were up 40 percent. And LinkedIn, the professional social network Microsoft bought in 2016, grew 26 percent from a year ago, continuing to benefit from the tightest job market in decades.

Meta Platforms shares rose nearly 6.6 per cent, ahead of its earnings scheduled for after the bell. The stock is currently down 4 per cent after market post its earnings report.

Amazon advanced more than 5 per cent after getting hit by the retail carnage Tuesday. Apple added 3.4 per cent.

Retailers rallied too as inflation concerns softened Wednesday afternoon. Walmart, which led retail declines in the previous session, climbed about 3.8 per cent and Costco added more than 2 per cent each. The SPDR S&P Retail ETF advanced roughly 2.6 per cent.

Early Fed takeaways lean dovish, with bonds rallying and the dollar coming under pressure. Particular focus was on Chair Powell acknowledging slowing economic momentum, scrapping forward guidance, stressing data dependency and noting that it may be appropriate to slow the pace of tightening at some stage. Futures are pricing in a 50 basis point rate hike in September and a lower peak funds rate than June SEP forecasts.

Some concern bullish market reaction to Powell was overdone given the Fed reaffirmed its priority is curbing inflation. Expected contraction in US Q2 GDP tonight may also firm recession expectations as the Treasury yield curve inversion deepens. Aggressive central banks, softening macro indicators, corporate warnings on consumer demand, Europe's energy crisis and China Covid uncertainty are also posing economic headwinds.

Asian equities are advancing. The Nikkei is up 0.51 per cent, and the Kospi is up 1.12 per cent. Markets are off highs as US contracts trade lower after hours.

The China Politburo meeting is coming up, where leaders will set out economic priorities for H2. There is some interest in whether commitment to 2022 growth target is softened in light of Covid-induced slowdown. The market is also eyeing additional policy support and any bring-forward of special bond issuance for infrastructure projects. Other areas of interest will be whether policymakers loosen language on housing. The meeting is expected to reaffirm commitment to Covid Zero but could highlight better efforts to minimise economic harm.

Best and worst performers

The best-performing sector is Materials, up 1.26 per cent. The worst-performing sector is Health Care, down 0.72 per cent.

The best-performing stock in the S&P/ASX 200 is Zip Co (ASX:ZIP), trading 14.11 per cent higher at $1.42. It is followed by shares in St Barbara (ASX:SBM) and Novonix (ASX:NVX).

The worst-performing stock in the S&P/ASX 200 is Atlas Arteria (ASX:ALX), trading 6.76 per cent lower at $7.59. It is followed by shares in Computershare (ASX:CPU) and GrainCorp (ASX:GNC).

Local economic news

Bonds are mixed, with Australian and New Zealand bonds rallying while the Treasury curve is steepening.

Australia's June retail sales are much weaker than expected.

Nominal retail sales rise 0.2 per cent, less than half of Bloomberg's consensus estimate of 0.5 per cent, and well down from a downwardly revised 0.7 per cent for May. While it was the sixth-straight rise in retail turnover, it was the smallest so far this year. This comes as soaring prices potentially mask a deeper slowdown in real sales.

“Results were mixed across the six industries, with turnover rising in three of them and falling in the others, as cost-of-living pressures appear to be slowing the growth in spending," the ABS said.

Company news

Euro Manganese (ASX:EMN) announced today its Positive Feasibility Study Base Case Results for the Chvaletice Manganese Project; with an After-Tax NPV8 per cent of US$1.34 Billion, IRR of 21.9 per cent -with a 4 per cent pay back period on initial CAPEX expenditure of $US757m. Dr Matthew James, Euro Manganese’s President and CEO, commented: “I am extremely pleased with the results of the Feasibility Study, which further validate the financial credibility of the Chvaletice Manganese Project, even in the current inflationary environment and using conservative risk-adjusted pricing. The strength of the Project economics, its green credentials and the forecast demand from the EV industry for our highly specialized products support a wide range of financing alternatives." Shares in Euro Manganese are trading 8.33 per cent higher at 32.5 cents.

ELMO Software (ASX:ELO) today announced its preliminary FY22 results, reporting strong growth in annualised recurring revenue, revenue, cash receipts and improved operating cash flow. Group ARR grew to $108.2 million, representing 29 per cent organic growth from 30 June 2021. Revenue increased to $91.4 million, up 32 per cent pcp. Cash receipts grew to $116.9 million, up 46 per cent pcp. The Group recorded underlying EBITDA of $7.1 million, up $6.5 million pcp and above the top end of the upgraded guidance range. The cash balance was $47.9 million. Total operating cash outflow reduced to negative $17.4 million, a 34 per cent improvement pcp. Commenting on the result, CEO Danny Lessem said that FY22 was a strong year for the ELMO Group underpinned by high growth and increasing operating leverage. ELO shares are currently trading up 9.88 per cent at $2.67.

Fortescue Metals Group (ASX:FMG) has beaten its iron ore export guidance to ship 189 million tonnes to the end of June 30, after steaming home with a record 49.5 million tonne June quarter. The Pilbara iron ore major has lifted output expectations for the current financial year, saying it expects to ship up to 192 million tonnes of ore, including about a million tonnes from its delayed Iron Bridge magnetite project. But the company lifted cost expectations too on the back of ongoing cost inflation in the Australian mining industry, announcing expected average cash costs of $US18 to $US18.75 a tonne for its direct shipping ore in the current financial year. That is up from an average $US15.19 a tonne last financial year, and above the $US17.19 a tonne cost of the June quarter. Shares in FMG are currently trading up 0.94 per cent at $18.35.

Vulcan Energy Resources (ASX:VUL) continues to deliver on its plan to develop the Zero Carbon Lithium Project during the June 2022 Quarter, announcing a strategic investment from a top-tier automaker and signing its first heat offtake agreement, as market fundamentals and macro-policy settings underpinning this project continued to strengthen. Vulcan’s Managing Director Dr Francis Wedin commented, ”A highlight of the June quarter was the equity investment from Stellantis. Their significant, premium investment in Vulcan and the Zero Carbon Lithium Project represents a strong statement by one of the world’s largest automakers regarding sustainable and strategic sourcing of battery materials." Shares in VUL are currently trading up 4.04 per cent at $7.47.

Kogan (ASX:KGN) today announced another year of record gross sales and the return to positive quarterly adjusted EBITDA in 4QFY22 following successful ongoing recalibration of operating costs. Gross profits slipped from $203.7 million in the 2021 financial year to $184.6 million in the year to the end of June. Earnings before interest, tax, depreciation and amortisation, on an adjusted basis, fell more than 40 per cent to $19.1 million in the year. Despite this, the company pointed to the 0.1 per cent growth in gross sales, which pushed the measure to a new record, and profit growth in the final quarter of the financial year as signs of strength. Founder and CEO of Kogan Ruslan Kogan, said: "Times are changing. In uncertain times, people don't want to alter their lifestyle but they are happy to shift the way they shop. We know that in an environment where great value becomes even more important, Kogan.com serves an important need." Shares in KGN are currently trading up 40.58 per cent at $4.40.

Commodities and the dollar

Gold is trading at US$1740.02 an ounce.
Iron ore is 0.6 per cent lower at US$111.05 a tonne.
Iron ore futures are pointing to a rise of 3.51 per cent.
One Australian dollar is buying 69.92 US cents.

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