ASX posts fifth straight gain: Aus shares close 0.7% higher

Market Reports

by Paul Sanger

The ASX posted its fifth straight gain on Monday, following a strong finish on Wall Street on Friday night. At the closing bell, the S&P/ASX 200 was 0.69 per cent or 47.80 points higher at 6993.00.

The Dow Jones futures are pointing to a fall of 122 points.
The S&P 500 futures are pointing to a fall of 16 points.
he Nasdaq futures are pointing to a fall of 49.25 points.
The SPI futures are pointing to a rise of 32 points when the market next opens.

Goldman sees risk of recession in Australia and New Zealand: Bloomberg cited research from Goldman Sachs that sees a 25 per cent probability of Australia entering recession over the 12 months and a 30-35 per cent chance of a downturn in New Zealand. While its base case sees both countries avoiding recession, the countries are facing downside risks from weaker global activity, inflation and tighter financial conditions. Goldman's model found a higher 2/10Y yield spread, quickening headline inflation and falling real equity prices were historically leading indicators of recessions in the two economies.

Australian home prices fall at fastest pace since 2008 financial crisis: CoreLogic's national home value index fell another 1.3 per cent m/m in July with its recent rate of decline comparable to the onset of the 2008 financial crisis. Sydney's housing downturn was the steepest in almost 40 years, with prices there falling 2.2 per cent last month. CoreLogic anticipates housing market conditions are likely to worsen as interest rates continue to climb while very high inflation may have an additional downside impact on balance sheets and sentiment.

Australian gas shortfall projected to be bigger, government urged to intervene: The Australian Competition and Consumer Commission (ACCC) July 2022 interim gas report forecasts the east coast could face a gas shortfall of 56 PJ in 2023. The outlook had worsened significantly from last year, when the ACCC was predicting a shortfall of 2 PJ. The ACCC recommended the government trigger the first step of the Australian Domestic Gas Security Mechanism (ADGSM) aimed at ensuring enough gas is available to the domestic market before it is exported.

Australia's government enjoys usual post-election honeymoon ratings: The Australian cited the first Newspoll following the May election, which showed the Labor government's primary vote has lifted from 32 per cent to 37 per cent while the Coalition's fell from 36 per cent to 33 per cent. Labor widened its lead on a two-party preferred basis to 56-44 per cent from 53-47 per cent on election day. Prime Minister Albanese's net satisfaction rose to +35 per cent from -5 per cent just prior to the election while new opposition leader Peter Dutton's sat at -13 per cent. Albanese led Dutton on who'd make the better PM, 59-25 per cent.

Global markets

Mainland China stocks rose along with most other Asia-Pacific indexes on Monday as a private survey on Chinese factory activity showed slight growth. China’s Caixin/Markit manufacturing Purchasing Managers’ Index for July stood at 50.4, compared with the 51.5 predicted in a Reuters poll. In June, the reading was 51.7. Still, the reading was better than China’s official Purchasing Managers’ Index data released over the weekend, which showed a contraction in factory activity.

Mainland China markets gained. The Shanghai Composite was 0.16 per cent higher and the Shenzhen Component advanced 1.109 per cent. PMI readings are sequential and represent month-on-month expansion or contraction. The 50 mark separates growth from decline. "The contraction in China’s official manufacturing PMI to 49.0 in July from 50.2 in June underscores the extent of the uncertainty around growth stemming from a rise in Covid cases, slowing global demand and property market risks," Venkateswaran Lavanya, an economist at Mizuho Bank, wrote in a Monday note. “The poor start to Q3 further amplifies the risk that China will miss its 2022 GDP growth target of ‘around 5.5 per cent.’ This against a backdrop of the authorities signaling last week that no big stimulus would be forthcoming even as the country sticks to its ‘dynamic zero-Covid’ policy."

Hong Kong’s Hang Seng index pared some losses but still shed 0.32 per cent as shares of tech giant Alibaba lost 2.2 per cent. The stock fell more than 5 per cent earlier in the 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 was Utilities, up 1.95 per cent. The worst-performing sector was Information Technology, down 0.42 per cent.

The best-performing stock in the S&P/ASX 200 was Allkem (ASX:AKE), closing 4.52 per cent higher at $11.79. It was followed by shares in Lynas Rare Earths (ASX:LYC) and Elders (ASX:ELD).

The worst-performing stock in the S&P/ASX 200 was United Malt Group (ASX:UMG), closing 17.17 per cent lower at $3.04. It was followed by shares in Megaport (ASX:MP1) and PointsBet Holdings (ASX:PBH).

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 closed 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 closed down 2.33 per cent at 21 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 closed up 150 per cent per cent at 21.5 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 closed up 79.41 per cent at 30.5 cents.

Commodities and the dollar

Gold is trading at US$1761.55 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 0.12 per cent.
Light crude is trading $0.96 lower at US$97.66 a barrel.
One Australian dollar is buying 69.89 US cents.

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.