Wednesday, December 7, 2022
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ASX hits 6-month high amidst news the Fed is slowing down interest rate hikes

The ASX has opened slightly higher on the back of the news that the Federal Reserve is looking to give out smaller rate hikes as inflation is slowing down.

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The Australian stock market has now reached another 6-month high, as it is looking to recover losses seen this year. The ASX is now just 1.89 per cent lower for the year.

Nick Scali (ASX:NCK) has performed well today, amidst the reports that it expects to increase its net profit after tax for the first half of the financial year of 2023 to $56-$59 million. This represents roughly a 60 per cent increase on the first half of the same time last year.

In bleaker news, Whitehaven Coal (ASX:WHC) has seen its share price fall 7.8 per cent, after its Chief Executive, Paul Flynn sold 900,000 shares equating to $8m for “personal reasons”.

Overall, at noon, the S&P/ASX 200 is 0.39 per cent or 28.00 points higher at 7259.80.

The SPI futures are pointing to a rise of 24 points.

Best and worst performers

The best-performing sector is Information Technology, up 1.44 per cent. The worst-performing sector is Energy, down 1.03 per cent.

The best-performing stock in the S&P/ASX 200 is St Barbara (ASX:SBM), trading 7.44 per cent higher at $0.65. It is followed by shares in Evolution Mining (ASX:EVN) and Chalice Mining (ASX:CHN).

The worst-performing stock in the S&P/ASX 200 is Whitehaven Coal (ASX:WHC), trading 6.24 per cent lower at $9.02. It is followed by shares in New Hope Corporation (ASX:NHC) and Coronado Global Res (ASX:CRN).

Asian news

Markets in the Asia-Pacific traded higher as the US Federal Reserve said they expect to switch to smaller rate hikes “soon”, according to minutes released on Wednesday.

The Bank of Korea opted for a smaller 25 basis point hike, widely in line with expectations. The Kospi rose 0.54 per cent and the Korean won slightly strengthened against the US dollar to stand at 1,337.9 as the decision was announced.

The Nikkei 225 rose 1.31 per cent and the Topix also traded 1.3 per cent higher.

Waiting for Thanksgiving

Stocks largely extended Tuesday’s push higher heading into the Thanksgiving holiday. Lower rate backdrop seemed to help. Bonds strength was underpinned by peak inflation momentum with dampened price pressures in the flash PMIs, lower one-year inflation expectations in the University of Michigan survey and the latest selloff in oil. In addition, some thoughts FOMC minutes leaned dovish though no real surprises given the constant barrage of Fedspeak. Also some talk about how CTA momentum has flipped positive again, while Deutsche Bank had bullish comments on positioning earlier in the week. The Tesla upgrade helped the growth factor. Earnings a mixed (to worse) bag and nothing really new from a thematic perspective, including the latest cost-cutting/restructuring headlines. China Covid developments continued to play into global growth concerns, though today has seen reports that new property support measures are being put into action and there were hints of a RRR cut to support economic growth out of the latest State Council meeting.

Markit PMIs show easing prices while near-term consumer inflation expectations dip

Flash reading for Markit’s November Services PMI dropped to 46.1 from prior month’s 47.8 amid weaker demand and a decline in new business; Manufacturing PMI hit a 30-month low, dropping to 47.6 from 50.4. Release noted new orders fell at the fastest pace since first pandemic wave in May 2020 but observed firms raised selling prices at slowest rate in nearly two years (with input price inflation slowing as well). Elsewhere, the final reading of November’s UMich consumer sentiment index rose to 56.8 from preliminary 54.6, ahead of the 54.7 consensus but below October’s final 59.9. Five-year inflation expectations remained unchanged at 3.0 per cent while one-year inflation expectations ticked down to 4.9 per cent from 5.1 per cent in the preliminary read. Finally, October new-home sales printed at a 632K SAAR, ahead of consensus for 572K and September’s downwardly revised 588K (was 603K). Up 7.5 per cent m/m but 5.8 per cent lower y/y. Median sale price up 8.1 per cent m/m to $493K.

November FOMC minutes discuss stepped-down hiking pace, overtightening risks

As expected, the minutes from the FOMC’s 1-2 November meeting reflect member discussions about next steps. There was a general acknowledgement inflation risks remained skewed to the upside while risks to the economic outlook are weighted to the downside. However, also noted tentative signs the labour market is coming into better balance and observed inflation expectations remained well anchored. Also noted a high degree of uncertainty due to lagged effects of policy actions. In this climate, participants felt a slower pace of hikes would better allow them to assess progress in the fight against inflation, while several also argued over tightening could raise economic risks. Nevertheless, some said the ultimate level of rates may be higher than first thought. In general, the minutes contained little surprise, especially as Fedspeak has maintained a tight focus on a coming step-down in hikes and a higher-for-longer approach to tamp down on inflation.

Company news

Emerging lithium producer Sayona Mining (ASX:SYA; OTCQB:SYAXF) has further progressed the restart of production at its North American Lithium (NAL) operation in Québec, Canada, with procurement and permitting nearing completion. The NAL operation is on track for recommencement of production in Q1 2023, with procurement 98 per cent completed and permitting 96 per cent finalised as of the end of October 2022. Shares are trading 2.33 per cent higher at $0.22 at noon.

Global semiconductor developer BluGlass (ASX:BLG) has entered into a collaboration agreement with Ganvix, Inc to develop cutting-edge gallium nitride (GaN) vertical cavity surface emitting lasers (VCSELs) for green wavelengths (515 nm-525 nm). Ganvix is a leading developer of nanoporous GaN VCSELs, a type of laser diode. Surface emitting lasers (VCSELs) require distributed Bragg mirrors (DBR) to enable their unique properties, and while highly successful in other materials, have been prohibitively difficult to fabricate in GaN. Jim Haden, BluGlass President, said, “The advantages of BluGlass’ low temperature RPCVD technology provides significant commercial benefits for longer-wavelength lasers, including green. Our unique low temperature, low hydrogen growth technology enables brighter, higher performing green quantum-wells – the key light emitting region in lasers.” Shares are trading 3.33 per cent higher at $0.031 at noon.

Accelerate Resources (ASX:AX8) has announced that the maiden sampling work at its East Pilbara Lithium Project has confirmed the presence of significant outcrops of pegmatites with the potential for lithium mineralisation. The results from the current program will be used to prioritise the targets for follow-up mapping and sampling in early 2023, and to progress to the drilling stage. Shares are trading 27.59 per cent higher at $0.037 at noon.

Auroch Minerals (ASX:AOU) has announced the discovery of high grade lithium mineralisation at their Nepean Nickel Project in Western Australia. Follow up work consisting of mapping, rock chip sampling and drill-hole is planning to commence immediately. In response, Auroch Exploration Manager Robin Cox commented, “We can see the significant potential for high grade LCT pegmatites at Nepean North and are excited to commence the next phase of exploration.” Shares are trading 32.69 per cent higher at $0.069 at noon.

Australian manganese explorer, Black Canyon (ASX:BCA), has announced that their Flanagan Bore Mineral Resource Estimate has increased by 64 per cent. The updated measures adds 67 Mt of resource with an additional 7 Mt of contained manganese. Black Canyon Executive Director, Brendan Cummins, said, “this higher grade zone provides a solid platform for early mining years, maximising potential cashflow during the start-up phases of a mining operation.” Shares are trading 8.33 per cent higher at $0.26 at noon.

Commodities and the dollar

Gold is trading at US$1754.29 an ounce.
Iron ore is 1.1 per cent higher at US$95.20 a tonne.
Iron ore futures are pointing to a rise of 1.59 per cent.
One Australian dollar is buying 67.39 US cents.

Peter Milios

Peter Milios is a recent graduate from the University of Technology – majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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