US tech earnings weighing down Aus tech sector: ASX falls 0.62% at noon

Market Reports

by Lauren Hayes

Disappointing earnings from major US tech companies, including Meta, Apple and Amazon, has caused the Information Technology sector on the ASX to fall by 2.17 per cent.

Major Australian tech companies WiseTech Global (ASX:WTC), Xero (ASX:XRO) and Brainchip Holdings (ASX:BRN) are down 1.52 per cent, 3.19 per cent and 15 per cent respectively.

In other news, according to a global survey compiled by the Bank of International Settlements, the Australian dollar has slipped one notch to the sixth most traded currency globally. The Australian dollar has held that number 5 spot since 2010, however it was overtaken by the Chinese renminbi.

Major mining companies were down due to the iron ore prices falling to their lowest levels since May 2020. Fortescue Metals (ASX:FMG) decreased 5.1 per cent to $15.24, BHP (ASX:BHP) lost 2.7 per cent to $38.39 and Rio Tinto (ASX:RIO) fell 3.1 per cent to $89.73.

At noon, the S&P/ASX 200 is 0.62 per cent or 42.10 points lower at 6,803.00.

The SPI futures are pointing to a fall of 46 points or 0.67 per cent.

Best and worst performers

The best-performing sector is Utilities, up 1.08 per cent. The worst-performing sector is Materials, down 3.33 per cent.

The best-performing stock in the S&P/ASX 200 is Qube Holdings (ASX:QUB), trading 5.47 per cent higher at $2.70. It is followed by shares in Macquarie Group (ASX:MQG) and Vicinity Centres (ASX:VCX).

The worst-performing stock in the S&P/ASX 200 is Brainchip (ASX:BRN), trading 14.12 per cent lower at $0.73. It is followed by shares in Silver Lake Resources (ASX:SLR) and Pinnacle Investments (ASX:PNI).

Asian news

Shares in the Asia-Pacific have fallen in early trade ahead of the Bank of Japan’s interest rate decision and a slew of companies in the region reporting earnings.

The Nikkei 225 in Japan has fallen 0.89 per cent so far, while the Topix has dipped 0.51 per cent. The Japanese yen was trading at 146-levels, stronger than levels seen last week, before an intervention reportedly took place.

The Bank of Japan is expected to keep rates at ultra-low levels, according to forecasts in a Reuters poll. South Korea’s Kospi has shed 0.44 per cent and the Kosdaq has slipped 0.67 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan has so far declined 0.26 per cent.

Some Chinese airlines listed in Hong Kong will report earnings, along with electric vehicle maker BYD. South Korea’s LG Electronics is also scheduled to report earnings.

Earnings risk and monetary policy shift

The market is still dealing with a lot of moving pieces. Earnings risk has ratcheted up with the disappointing results and guidance out of big tech. This has put more focus on the need for sticky consensus estimates to come down. Morgan Stanley noted NTM S&P 500 EPS consensus down only 2 per cent from peak in late June. However, some think that the market may be cushioned from a broader earnings reset by the extent of the multiple contraction that has already taken place. The bigger issue for the market seems to be the recognition that the Fed-led global tightening cycle is getting closer to the end. Even shifts at the margin have been flagged as having the potential to unleash a pain trade to the upside given depressed positioning and sentiment dynamics. However, the Fed is also cognisant of the market's outsized monetary policy focus/obsession and likely to remain unrelenting in its higher-for-longer messaging (and pushback against rate cut talk) to curb a meaningful easing in financial conditions.

Fed almost certain to hike by 75 basis points in November, but some pullback of expectations into 2023

A number of recent press articles all but confirmed the Fed to hike by 75 basis points in November. However, there has been some recalibration of rate path expectations in recent days despite another week of hawkish Fedspeak. Reuters said that sentiment is building within the Fed to take a breather, citing admissions by some of the more hawkish members, like St Louis' Bullard, that the economy needs time to catch up with the tightening already underway. Bloomberg also cited analysts who see a pullback to 50 basis points in November could give the Fed more room to hike in 2023 if inflation doesn't come down as quickly as expected. CME's FedWatch also shows a peak fed funds rate of 4.75-5.0 per cent by February, down by one 25 basis points hike since Thursday, when a WSJ Timiraos article said the Fed will entertain a 50 basis points hike in December. However, some economists still see upside risk to rate path including UBS, who still see a terminal rate of 5.0-5.25 per cent in 2023, citing continuous upside surprises from inflation data and a reaction function that has shifted to reflect more urgency to bring down inflation.

US may be easing off plans for global price cap on Russian crude

Bloomberg reports the US moving off plans for strict international price cap on Russian crude exports, favouring a more loosely policed cap at a higher price. It is worth noting that while US officials had discussed a $40-60/barrel range, current plans may be nearer $63-64/barrel. This shift in thinking is likely to raise EU frustrations, with some officials believing the US is not prepared to face economic consequences of a price cap (Putin says Russia will not sell crude to any country participating, which Bloomberg says US now sees as a viable threat). However, Treasury officials said the US has never discussed a range with allies and is "staying the course" (Reuters). Developments come ahead of EU's ban on Russian oil imports starting 5 December, when it was hoped a G7-led price cap could also go into effect. Widespread scepticism about effectiveness of a global price cap, with the World Bank saying cap would need much broader participation to be effective.

Company news

Chimeric Therapeutics (ASX:CHM), a clinical stage cell therapy company and an Australian leader in cell therapy, today released its quarterly activities report for the quarter ended ended 30 September 2022. Some highlights include: the Japan patent office has granted a patent covering CLTX CAR T; Dr Jason B Litten has been appointed as CMO; Cassandra Harrison has been appointed as VP, Clinical Operations and Data Management; Dr H Astrow has been appointed as VP, Translational Sciences. Shares are trading down 1.2 per cent at 9 cents.

INOVIQ (ASX:IIQ) has released its Quarterly Business Update for the quarter ended 30 September 2022 (Q1 FY23). During the quarter, Percorso Life Sciences (Pennsylvania, USA) was appointed to provide sales, inventory, logistics and warehousing services for the commercial roll out of EXO-NET. The sales team will cover the key east-coast, west-coast and mid-west US regions, and target academia and biopharma customers in its sales and marketing of EXO-NET research tools. Since the appointment, INOVIQ has worked with Percorso to develop marketing and training materials and to upskill Percorso staff to detail the product attributes. The global exosome research market was valued at US$144 million in 2021 and is expected to reach US$661 million by 2026, growing at a CAGR of 35.6 per cent. North America is the largest geographic segment, representing 41.5 per cent of the market followed by Europe at 20 per cent. The Kits and Reagents product segment in which INOVIQ’s EXO-NET research tools fit, was valued at US$71 million in 2021 and is forecast to reach US$311 million by 2026. Shares are trading unchanged at 55 cents.

Green Technology Metals (ASX:GT1) today announced inaugural assay results from its 100 per cent-owned Root Project, located approximately 200km west of GT1’s flagship Seymour Project. Inaugural Phase 1 diamond drilling at McCombe (Root Project) has intersected thick and continuous high-grade spodumene pegmatites from surface. Nineteen holes have been drilled to date, all intersecting spodumene-bearing pegmatites. Two diamond drill rigs are now operating 24/7 due to the drill success. The initial program will be expanded along strike and down dip. GT1 Chief Executive Officer, Luke Cox, commented: “Because Root hasn’t been properly explored since 1950, substantial opportunity exists to undertake systematic and modern exploration of this tenure. These initial assay results and intercept thicknesses from McCombe are outstanding, and together with mapping of new untested pegmatites, clearly justify the ramping up of our drilling and broader activities at Root over the coming months.” Shares are trading up 1.6 per cent at 96 cents.

After the close yesterday, Kazia Therapeutics (NASDAQ:KZIA; ASX:KZA), an oncology-focused drug development company, announced the presentation of new data from an ongoing research collaboration with the Huntsman Cancer Institute at the University of Utah in Salt Lake City, Utah. A poster presentation by Dr Gennie Parkman and colleagues, working in the laboratory of Professor Sheri Holmen, has shown paxalisib to be active in vitro and in vivo against a range of preclinical models of metastatic melanoma, the most aggressive form of skin cancer. “This is among the most promising single agent data that we have seen in our research,” commented Professor Sheri Holmen, lead investigator on the project. “Despite the widespread adoption of immunotherapy in recent years, there remains substantial unmet need in melanoma, particularly in those patients who develop brain metastases.” In the US overnight Kazia’a ADR spiked higher aggressively on the opening on this news. Average daily volume was up over 50 per cent and the day's VWAP was AUD equivalent of around 18c, 15 per cent higher than its closing price on the ASX yesterday. Trading volume spiked by 51x the company's average volume, increasing from 316,162 to 16,262,084. On the Australian market, shares are trading down 6.3 per cent at 15 cents.

Winsome Resources (ASX:WR1) provided an update on its drilling campaigns, which are progressing well, at their projects in Quebec, Canada. All holes drilled to date have intercepted pegmatites, including large intervals close to surface. Winsome’s Managing Director Chris Evans commented: “These early intercepts, some of which appear to be significant pegmatite intervals, continue the positive stories developing at both Cancet and Adina. The early success in intersecting these significant pegmatites at Adina has led us to add more holes to the drill program.” Shares are trading up 43.8 per cent at 53 cents.

Tennant Minerals (ASX:TMS) announced today that the first new drillhole of the Stage 2 diamond drilling program at the company’s high-grade Bluebird copper-gold discovery has intersected a 7m zone of predominantly massive copper-sulphides. This latest diamond drilling intersection on section 448,320mE has extended the thick high-grade dilational zone of mineralisation at Bluebird another 20m to the west of recent high-grade copper-gold intersections previously announced by the company. Shares are trading up 10 per cent to 3 cents.

Cobre (ASX:CBE) has announced that there has been a discovery of a high-grade copper zone at the Comet Target, within the Ngami Copper Project (NCP) in the Kalahari Copper Belt (KCB), Botswana. Significant copper mineralisation, containing both grade and width, has been intersected in drill hole NCP20A from ongoing infill drilling. Commenting on the discovery of this high-grade copper zone, Executive Chairman and Managing Director Martin Holland said: “These results provide further evidence for the team’s current exploration model by demonstrating that high-grade zones of mineralisation occur along this extensive target.” Shares are trading up 33.3 per cent to 20 cents.

Chase Mining Corporation (ASX:CML) provided the following update on Green Critical Minerals today, which Chase Mining has agreed to purchase. Green Critical Minerals (ASX:GCM), which holds earn-in rights for up to 80 per cent of the advanced ultra-high purity McIntosh Graphite Project, announced the findings from a 10-day mapping and sampling program completed at the company’s flagship McIntosh Graphite Project. Nine targets were visited, with outcropping graphite mineralisation identified at seven locations. Findings from the field mapping program are being used to prioritise the targets for future follow-up drilling campaigns. Shares are trading 30 per cent higher at 1 cents.

Knosys (ASX:KNO), a global software-as-a-service (SaaS) information technology company offering a range of software solutions designed to boost productivity, collaboration and connectivity in the digital workplace, has provided its September 2022 quarterly activity report today and update on the company’s operations and business. In Q1 FY23, Knosys received a record high $4.3m in cash receipts from customers, up 45 per cent on Q1 FY22. This was driven by the annual renewal of a major banking customer in Knowledge Management, as well as seasonally high annual subscription renewals across both GreenOrbit and Libero. In Q1 FY23, R&D costs increased by 116 per cent quarter-on-quarter, product manufacturing and operating costs increased by 32 per cent quarter-on-quarter and staff costs increased by 18 per cent, due to an increase in product development resources and sales personnel. Each solution has an updated Product Roadmap with new advanced features, a distinct market positioning and clear target markets. Knosys is developing an updated Library Management solution with advanced features and tailoring the Employee Experience solution to the Health and Retail sectors, where it is believed there are significant opportunities for growth in the years ahead. Shares are trading 11 per cent higher at 10 cents.

Commodities and the dollar

Gold is trading at US$1662.59 an ounce.
Iron ore is 6.0 per cent lower at US$82.50 a tonne.
Iron ore futures are pointing to a fall of 2.5 per cent.
One Australian dollar is buying 64.46 US cents.

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