ASX reverses early weakness: Aus shares close 0.07% higher

Market Reports

by Paul Sanger

The ASX posted its sixth straight gain on Tuesday. Stocks opened weaker following a small pull back in US markets overnight, but they managed to claw back into positive territory post the RBA rate hike. At the closing bell, the S&P/ASX 200 was 0.07 per cent or 5.10 points higher at 6998.10.

The BNPL sector was in focus again today. Shares in Zip (ASX:ZIP) closed up 15.09 per cent. Sezzle (ASX:SZL) shares closed up 16.48 per cent. Laybuy (ASX:LBY) shares closed 22.22 per cent higher.

The Dow Jones futures are pointing to a fall of 119 points.
The S&P 500 futures are pointing to a fall of 20.25 points.
The Nasdaq futures are pointing to a fall of 60.50 points.
The SPI futures are pointing to a fall of 7 points when the market next opens.

RBA hikes cash rate but notes policy is not on a pre-set path

The RBA raised the cash rate by 50 basis points to 1.85 per cent, as expected. The key takeaway was that the RBA is tweaking forward commentary to note it expects to tighten policy further but is not on a pre-set path. Inflation is expected to hit 7.75 per cent later in 2022 before declining back towards target at around 3 per cent in 2024. The economy is expected to slow, with the RBA predicting GDP growth of 3.25 per cent over 2022, weakening to 1.75 per cent in 2023 and 2024. Some increase in unemployment is expected, with the jobless rate rising to around 4 per cent by the end of 2024.

The global growth outlook is downgraded due to inflation, tightening monetary policy, Russia's invasion, and China Covid restrictions.

The key source of uncertainty remains behaviour of household spending, with the RBA noting falling consumer confidence and housing prices, and pressure from higher rates and inflation. However, it continues to cite support from large savings buffers, a tight labour market, and resilient consumption.

Australian government warns gas producers to ensure domestic supply or face gas trigger

The Financial Review noted the ACCC has been accused by gas producers of unfairly demonising the industry. Producers argue there is no shortage of gas, blaming state regulations that restrict their ability to produce more, particularly bans on conventional gas exploration by Victoria's Labor government. The ACCC report prompted Resources Minister Madeleine King on Monday to announce plans to take the first step in triggering the Australian Domestic Gas Security Mechanism, which could see exporters forced to divert gas domestically.

New Zealand government to loosen rules that restrict borrowers' ability to obtain finance

The New Zealand Herald noted that the government has agreed to further loosen new consumer lending regulation following criticism the rules are making it too difficult for people to obtain loans. Among the changes are narrowing the expenses considered by lenders to more explicitly exclude discretionary items. This comes as RBNZ tightening over the past year slowed the growth in household debt and tipped the housing market into a downturn.

Global markets

Mainland China markets are leading losses in Asia on Tuesday as geopolitical tensions rise over US House Speaker Nancy Pelosi’s visit to Taiwan. The Shanghai Composite has lost 2.22 per cent and the Shenzhen Component shed 2.19 per cent. Hong Kong’s Hang Seng index has fallen 2.25 per cent, with heavyweights like Alibaba and Meituan falling 2.23 per cent and 2.56 per cent respectively. The Hang Seng Tech index has slipped 3.05 per cent. Local media reports citing unnamed sources said Pelosi would go ahead with her visit to Taiwan, a democratic self-ruled island that China sees as a runaway province.

Regarding Pelosi’s trip, Foreign Ministry spokesperson Zhao Lijian said at a press conference on Monday that China's army would “never sit idly by” and will “uphold China’s sovereignty and territorial integrity”. “Pelosi’s visit will significantly raise US-China tensions but is unlikely to produce a Chinese reaction that risks conflict,” Eurasia Group analysts wrote in a Monday note.

Taiwan Semiconductor Manufacturing Company’s shares has fallen 2.78 per cent, compared with a 1.87 per cent loss in the wider Taiex index. Elsewhere in Asia, the Nikkei 225 in Japan has slipped 1.47 per cent, and the Topix index has lost 1.7 per cent. In South Korea, the Kospi has shed 0.73 per cent and the Kosdaq has declined 0.82 per cent.

Consumer prices in South Korea rose 6.3 per cent in July compared with the same period in 2021, official data showed on Tuesday. That’s in line with expectations and the fastest acceleration in prices since November 1998, Reuters reported. The Bank of Korea raised rates by 50 basis points in July.

Bonds are rallying with the Treasury curve steepening.

The yen rally is continuing, trading at a two-month high against the dollar.

Crude is nursing losses amid demand concerns and speculation that the Saudis will push OPEC+ to boost output.

Best and worst performers

The best-performing sector was Consumer Discretionary, up 1.46 per cent. The worst-performing sector was Real Estate Investment Trusts, down 1.60 per cent.

The best-performing stock in the S&P/ASX 200 was Zip Co (ASX:ZIP), closing 15.09 per cent higher at $1.22. It was followed by shares in The A2 Milk Company (ASX:A2M) and St Barbara (ASX:SBM).

The worst-performing stock in the S&P/ASX 200 was United Malt Group (ASX:UMG), closing 6.25 per cent lower at $2.85. It was followed by shares in Champion Iron (ASX:CIA) and Credit Corp Group (ASX:CCP).

Company news

MinRex Resources (ASX:MRR) today announced the granting of an exploration licence and the first pass ground geological mapping and rock chip sampling program over the Sisters Lithium Project. The exploration program identified high grade lithium mineralisation on the ground. MinRex Resources Managing Director Mr Karageorge commented: “We are excited to have ground confirmation of high-grade lithium mineralisation identified from outcropping pegmatites over the Sisters Lithium Project area. These rich spodumene stacked sheeted pegmatites have extensive width, length and untested zonation at depth." Shares in MRR closed down 3.85 per cent at 50 cents.

Musgrave Minerals (ASX:MGV) today announced further high-grade gold assay results. Musgrave Managing Director Rob Waugh said: “It would be hard to find better results from a recent Australian exploration program and the Cue Gold Project is fast becoming one of the richest undeveloped high-grade gold deposits in Australia. Drilling continues to turn up new lodes which we will continue to define with further drilling. We are continuing to grow our understanding of the system and the controls on mineralisation." Shares in MGV closed up 9.62 per cent at 28.5 cents.

Appen (ASX:APX) today issued an update in relation to the company’s half year results for the six months ended 30 June 2022 and FY2022 outlook. The company has confirmed its May 2022 downgrade with confirmation of a continued slowdown of spending from its global customers and their exposure to weaker digital advertising demand. The company however does expect higher volumes in the latter part of the second half due to the delivery of seasonal projects and a ramp up in existing projects. Shares in APX closed down 27.32 per cent at $4.15.

Commodities and the dollar

Gold is trading at US$1773.44 an ounce.
Light crude is trading $0.09 lower at US$93.80 a barrel.
One Australian dollar is buying 69.57 US cents.

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