Starting the week on a positive note: Aus shares 0.4% higher at noon

Market Reports

by Paul Sanger

The ASX is once again in the green, following on from its strong performance last week. Today’s move comes after a strong finish on Wall Street on Friday night. At noon, the S&P/ASX 200 is 0.35 per cent or 24.20 points higher at 6969.40.

The SPI futures are pointing to a rise of 8 points.

The Dow Jones Industrial Average advanced 315.50 points, or nearly 1 per cent, to 32,845.13. The S&P 500 jumped 1.4 per cent to 4,130.29, and the Nasdaq Composite added about 1.9 per cent to end the day at 12,390.69.

The Dow rose to a 6.7 per cent gain for July. To officially exit its bear market, the average needs to close at or above 32,877.66, which is around 30 points higher. The S&P 500 added 9.1 per cent for the month. The Nasdaq Composite, while still in bear market territory, is up roughly 12.4 per cent, as tracked by Dow Jones Market Data Group — fuelled by better-than-expected results from Microsoft, Amazon and Apple, as well as falling Treasury yields with the 10-year settling at 2.642 per cent on Friday. Those were the biggest monthly gains for all three indexes since 2020.

Across the sectors, the earnings calendar was a big tailwind on Friday, with big tech and energy in focus. Energy rallied on crude and Big Oil earnings with Chevron up 9 per cent and Exxon Mobil up 4.5 per cent, having posted better-than-anticipated results for the previous quarter.

Amazon shares popped nearly 10.4 per cent after the e-commerce giant reported stronger-than-expected sales for the previous quarter. Positive comments from CEO Andrew Jassy and other top executives caused investors to shrug off the fact that the giant internet retailer reported its slowest quarterly sales growth in two decades, and has cut nearly 100,000 workers.

Apple’s quarterly results were also better than expected, as Big Tech’s profits have been resilient even as the economy has slowed.

However, the latest batch of corporate results has been mixed -- particularly in the retail sector. It’s becoming clear that retailers badly misjudged supply and demand. Part of their miscalculation was caused by supply chain delays, which prompted companies to secure products far in advance. Strong consumer spending may have saved the economy from ruin during the pandemic, but it has also led to enormous excess and waste, with retailers now forced to slash prices on inventory in their stores and online.

More than half of S&P 500 companies have reported earnings, with 72 per cent of those names beating expectations, FactSet data shows. Another flurry of reports are coming, with 152 S&P constituents scheduled to report next week.

The Bank of America Flow Show report noted that US equities attracted $9.5B in the week-ended 27 July, the most in six weeks.

Shares in the Asia-Pacific region were mixed on Monday ahead of the release of a private survey on Chinese factory activity for July. Over the weekend, China’s official Purchasing Managers’ Index reading for July came in at 49, down from 50.2 in June and lower than the expected 50.4. Japan’s Nikkei 225 and Topix index were fractionally lower.
The Kospi in South Korea slipped 0.55 per cent and the Kosdaq declined 0.2 per cent.

South Korea's PMI reflected inflationary pressures and sustained supply chain disruption, pushing the overall reading to below 50 for the first time in almost two years. Reduction in new orders and the fastest fall in output levels in nine months are also to blame, with business sentiment also knocked by inflation. The overall figure fell to 49.8 from 51.3 in June. On the positive side, the rate of input price increase and supply chain pressures showed signs of peaking, albeit still at record levels. Separate export data for July showed the country with a trade deficit for the fourth consecutive month and at its second highest deficit on record, despite exports rising 9.4 per cent y/y. Imports rose 21.8 per cent y/y (Yonhap). Separately, the Bank of Korea said Monday it is "appropriate" to raise base interest rate in small increments so long as inflation and growth trends do not deviate from expected paths.

China's official manufacturing PMI fell to 49.0 in July. Activity gauges are indicative of deteriorating internal and external demand, with new orders and new export orders shrinking. Output also went backwards. The weak result is attributed to lingering business cautiousness amid Covid lockdown uncertainty, fiscal and monetary policy restraint, elevated raw material prices that are hurting margins, and a softening global economy that is weighing on exports. The services sector continued to expand, albeit at a slower pace. Non-manufacturing PMI fell to 53.8 from June's 54.7, but was mostly in line with expectations. NBS noted the services sector remains supported by recent policy measures aimed at promoting consumption

On Friday in the US, Alibaba was added to a list of companies at risk of delisting under the Holding Foreign Companies Accountable Act. US-listed shares plunged 11 per cent in the regular trading session.

China's property developers are in focus after Evergrande missed the deadline for a proposal to restructure $300b in liabilities. China's developers were buffeted by multiple headwinds after home sales fell another 30 per cent in July amid mortgage repayment boycotts. Analysts estimate 6-7 per cent of mortgages are at risk, leaving Chinese banks facing $350b of losses in a worst-case scenario of escalating defaults.

US-China tensions are elevated over Pelosi's potential visit to Taiwan. While Pelosi's Asia itinerary did not confirm whether she will visit Taiwan, China has escalated threats and on Saturday conducted live-fire military drills in the Taiwan Strait. Biden and Xi also exchanged threats over Taiwan in a call last week. However, analysts have downplayed the likelihood of military action and markets have largely ignored the geopolitical tangle.

The peak inflation theme has underpinned market rebound in recent weeks as survey- and market-based inflation expectations continue to come down. The peak-Fed theme has also corresponded with a sizable downshift in bond yields as markets dial back peak rate forecasts and price in easing next year. Still-depressed positioning also helps risk assets, along with US earnings resilience (particularly in tech).

Best and worst performers

The best-performing sector is Utilities, up 0.85 per cent. The worst-performing sector is Consumer Discretionary, down 0.15 per cent.

The best-performing stock in the S&P/ASX 200 is Lake Resources (ASX:LKE), trading 9.26 per cent higher at $0.89. It is followed by shares in Allkem (ASX:AKE) and Sims (ASX:SGM).

The worst-performing stock in the S&P/ASX 200 is United Malt Group (ASX:UMG), trading 12.53 per cent lower at $3.21. It is followed by shares in Megaport (ASX:MP1) and Zip Co (ASX:ZIP).

Company news

Ioneer (ASX:INR) has signed a binding Lithium Offtake Agreement with Prime Planet Energy & Solutions (PPES). PPES is a joint venture battery company between Toyota Motor and Panasonic. The five-year binding agreement is for a total of 4,000 tonnes per annum of Lithium Carbonate from Ioneer’s Rhyolite Ridge Lithium-Boron operation in Nevada. Ioneer’s Executive Chairman, James Calaway said "Ioneer is grateful to announce another key milestone for our company with a Lithium carbonate agreement with PPES. PPES is a world class organisation, and we look forward to being there treated partner. This and the previously announced Ford and EcoPro agreements solidify Ioneer’s focus on the US Electric Vehicle supply chain infrastructure”. Shares in INR are currently trading up 1.79 per cent at 57 cents.

Renewable energy group Genex' (ASX:GNX) board has rejected a $300m bid by Scott Farquhar’s Skip Essential Infrastructure Fund and Stonepeak, saying it undervalues the business, but that there is room for negotiations. While the current offer "is not in the best interests of the holders of Genex shares" and no access will be granted for the requested level of due diligence, the board "is willing to engage constructively" with the consortium to explore whether they can submit a revised proposal capable of being recommended to shareholders. The board is prepared to provide "certain limited due diligence information" on a non-exclusive basis and subject to the consortium entering into a confidentiality agreement containing suitable protections for Genex to develop such a revised proposal. Shares in GNX are currency unchanged at 21.5 cents.

Junior miner Cobre (ASX:CBE) today announced its second intersection is as many weeks of significant copper mineralisation from its ongoing drill program on its KML’s NCP licences. These promising results highlight the district scale opportunity, which includes 57 priority targets across the company's extensive licence holding on the northern margin of the KCB. A third drill hole is currently in progress and is positioned a further 1km along strike to the south west. Commenting on initial drilling results, Cobre Executive Chairman and Managing Director Martin Holland said: “The Ngami Copper Project in Botswana is demonstrating exceptional promise with this outstanding copper intersection which confirms that we are potentially sitting on a new copper discovery within the Kalahari Copper Belt." Shares in CBE are currently trading up 74.42 per cent at 15 cents.

Plexure Group (ASX:PX1) announced today that it has entered into new agreements with its largest customer, McDonald’s Corporation, for Plexure’s digital customer engagement platform. Under the new contracts, PX1 will continue to provide its platform to McDonald’s over the next five years, for a net positive cashflow per annum, subject to operational performance. This compares with previous losses from the PX1 division. PX1’s digital customer engagement platform and unique data-driven capabilities support 147 million customer interactions each day for McDonald’s. Plexure Group CEO Dan Houden said: “We are excited about our continued partnership with McDonald’s and look forward to working collaboratively toward our mutual goal of delivering excellent experiences for McDonald’s customers through our world-leading customer engagement platform.” Shares in PX1 are currently trading up 76.47 per cent at 30 cents.

Commodities and the dollar

Gold is trading at US$1763.97 an ounce.
Iron ore is 3.3 per cent lower at US$114.00 a tonne.
Iron ore futures are pointing to a rise of 1.85 per cent.
One Australian dollar is buying 69.88 US cents.

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