• Small caps drops 0.53%, fails to recover from the RBA speech overnight
  • CBA says history shows stocks tend to advance after US midterms
  • US megacap and tech companies had a bit of a rough earnings season

 

Small caps closed 0.53% lower today, with the Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock’s speech overnight focusing on the RBA’s economic forecasts and the key uncertainties. 

Bullock also argued that the RBA was very committed to lowering inflation, despite lowering the pace of rate hikes to 25bp increments in October. 

However, she also said that the RBA would move quickly to tighten if inflation data evolved differently to their expectations. 

CBA expects a final 25bp hike in December to 3.10%, although the risk lies with a higher terminal rate. 

In China, stocks closed lower, ending a recent rally as investors reassessed the prospect of China loosening its strict pandemic rules. New infections in Beijing climbed to the highest level in over five months and new cases across the country also hit a multi-month high. 

In Europe, with midterm elections in the US still not providing investors a clear direction, and with the all-important US inflation reading still to come this week, most traders are opting for quiet, cautious optimism, said Chris Beauchamp, IG Group PLC’s chief market analyst. 

“After the busy weeks of October and early November both the buyers and sellers are generally exhausted,” Beauchamp said.

In general, history shows stocks tend to advance after midterms. The S&P 500 has risen in the trading session following Election Day roughly three-quarters of the time since 1930, with an average gain of 0.4%, according to Dow Jones Market Data. 

The broad benchmark has moved higher in the one-year period following every midterm election since 1942.

Investors are also on high alert for any possible contagion from a selloff in cryptocurrencies, which came after crypto exchange FTX succumbed Tuesday to a sudden liquidity crunch and agreed to be taken over by rival Binance who then walked away from the deal – you can read all about it here courtesy of Stockhead’s Rob Badman.

It’s earnings season in the US, and it looks like sales and revenue estimates have come under pressure from slowing consumer demand, inventory gluts, higher interest rates and rising recession risks.

 


US megacap and growth-orientated tech companies had a bit of a rough earnings season after heavyweights like Alphabet, Microsoft, Meta Platforms and Amazon all issued downbeat sales outlooks.

Interestingly, Meta actually jumped 6.1% after it said it would cut more than 11,000 workers, or 13%, of its staff and Walt Disney shares dropped 13% after reporting weaker-than-expected quarterly results with more losses from its steaming video business.

Many analysts expect a sharper earnings contraction in 2023, incorporating a US recession into their forecasts.

“In our view, should a US recession eventuate next year as predicted, the combined weakening of the economy and easing in price pressures could trigger a life in longer-dated US Government bond prices (yields lower), boosting share prices and their multitples,” CBA senior economist Ryan Felsman said.

“But a potential rebound in equity market returns could be capped by an earnings contraction.

“The decline in earnings may not end until the second half of 2023 with the size of margin compression likely to increase due to still-solid wage growth.

“That said, should consumer spending continue to hold up in the face of cost-of-living pressures and rising borrowing costs, earnings could yet be supported in the near-term.”

 

ASX SMALL CAP WINNERS

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The biggest winner was Invictus Energy (ASX:IVZ) who revealed that drilling at the Mukuyu-1 well in Zimbabwe has been successful, with “elevated mud gas peaks (up to 65 times above background gas baseline) have been observed while drilling through a depth of 3,070 mMD with marked increases from C1 to C5 compounds (methane, ethane, propane, butanes and pentanes)”.

Managing Director Scott Macmillan says the early results are “an exciting development validating our subsurface model.”

“We still have several hundred metres of drilling through our primary targets with additional potential, which will be followed by a comprehensive wireline logging programme to evaluate results, with the aim of confirming the presence of moveable hydrocarbons in multiple zones,” he added.

Next off the mark was OD6 Metals (ASX:OD6) who say initial assay results from drilling at Splinter Rock in WA “represent some of the highest grades and thickest clay-hosted rare earth intersections seen in Australia.”

The assays contain large proportions of magnet rare earths, high value NdPr and heavy REEs, with four significant prospects being identified that are between four and seven kilometres in width which are open in length.

“The scale of these clays is hard to comprehend when you start talking multiple kilometres in one direction at a thickness of between 10 to 30m,” MD Brett Hazelden said.

“The potential is massive.”

ASX SMALL CAP LOSERS

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Icon Energy (ASX:ICN) is having a bad day, after the Department of Resources did not accept its application to renew tenement ATP 855 – the company’s only tenement. Yikes.

ICN is now seeking legal advice. 

 

TRADING HALTS

 

Resolute Mining (ASX:RSG) – Capital raise.

Riversgold (ASX:RGL) – Capital raise

Dundas Minerals (ASX:DUN) – Capital raise.

SECOS Group (ASX:SES) – SES has an announcement in the wings about expansion into a large Australian retailer.

Avenira (ASX:AEV) – Avenira has put things on hold for a moment while it prepares a clarification around its release early this morning. 

 

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