Market Highlights: ASX to fall as US data stoke rate worries; and 5 ASX small caps to watch today

Aussie shares to open lower after a selloff on Wall Street
US stocks after stronger than expected services sector data
Morningstar explains why moats are better than good managers in companies

Australian shares are set to open lower on Thursday following a selloff on Wall Street overnight. At 8am AEST, the ASX 200 index futures was pointing down by -0.5%.

In New York, the S&P 500 was down by -0.7%, blue chips Dow Jones by -0.57% and tech heavy Nasdaq by -1.06%.

Traders reacted to the stronger-than-expected US services data, which has fuelled concerns of a sticky inflation and more rate hikes by the Fed.

“Growth stocks have been pricing in the idea that inflation has been well anchored and that the Fed’s going to cut. If that idea no longer holds they’re going to be vulnerable,” said Patrick Kaser, portfolio manager at Brandywine Global.

Earlier, the Fed’s Beige Book showed “modest” US economic growth in recent weeks, “subdued job growth,” and “slowing” inflation in most parts of the country.

Elsewhere, the Bank of Canada kept its rate at 5% as expected. The BoC said the Canadian economy had entered a period of weaker growth, but warned that rates would be raised again if inflationary pressures persist.

To stock news, most megacaps declined with Apple down by -3.6%, while Nvidia, Tesla and Amazon fell by around -1% each.

Lockheed Martin tumbled -5% after the company trimmed its F-35 jet delivery outlook. Mining giant Albemarle also slid -5% on concerns about lithium demand from top consumer China.

Back home, the focus for ASX investors today will be on RBA governor Phil Lowe’s speech. This will be his final speech as governor before Michele Bullock takes over on September 18.

Are moats better than good managers?

When forced to choose between management and moats, based on recent stock performance, moats win out, says Morningstar analyst Adam Fleck.

Of course, having smart people running a company is preferable to the alternative, but it can be difficult for even the best corporate leaders to out-manoeuvre competitors in industries where moats are wide, he said.

Morningstar refers to moats as those companies with economic advantages such as durable cost advantage, brand power, and network effects.

“I’d rather invest in a business run by mediocre managers, but operating in a higher-quality end market, than in the best C-suite managing a lower-quality firm,” says Fleck.

Another reason to focus on a moat rather than management is the mixed track record of mergers and acquisitions.

Acquisitions tend to destroy value for shareholders. Even back in 1996, Warren Buffett wrote, “I would say that more dumb acquisitions are made in the name of strategic plans than any other.”

“It’s reasonable to be cautious about announcements of large acquisitions among stocks you own, particularly if there’s not already a moat protecting the economic business’ economic profits,” warned Fleck.

Now read: What Morningstar’s moat rankings mean, and how they can be used to make investment decisions

In other markets …

Gold fell by -0.4% overnight to US$1,917.94 an ounce, mainly due to higher USD.

Crude prices traded at nine-month highs, with Brent rising by another 1% to US$90.64 a barrel.

Iron Ore 62% fe climbed +1.6% to US$118.97/tonne after after Brazilian miner Vale said the outlook for China’s property sector was looking “more encouraging”.

The Aussie dollar was trading steady at US63.83c as the USD rose to a near six-month high against a basket of currencies.

US bond yields rose around 3-4bp after the services sector data release.

Bitcoin meanwhile was flattish in the last 24 hours at US$25,740.

5 ASX small caps to watch today

Perenti (ASX:PRN)
The mining services company says its surface mining business in Africa, AMS, has been awarded a contract for open pit mining services at the Sandfire Resources’ (ASX:SFR) A4 open pit within the larger Motheo Copper Mine in Ghanzi, Botswana. The contract is valued at US$235 million over a term of 73 months.

Elsight (ASX:ELS)
After a challenging four-year certification process, the Halo enabled Airobotics Optimus-1EX drone has become the first and only non-air carrier drone for autonomous security and data capture that has been granted Type Certification by the US Federal Aviation Administration (FAA). Type Certification, recognised as the highest echelon of Airworthiness Certification, will allow for drone fleet deployments across American cities and urban zones for critical functions such as Public Safety and other vital services.

Power Minerals (ASX:PNN)
PNN has secured environmental approvals at its Salta Lithium Project in Argentina. The approval allows the company to progress onground field-work at the priority Rincon and Pocitos salares. The approval at Pocitos is a first-time approval which enables PNN to commence JORC Mineral Resource drilling at Pocitos. The Rincon approval meanwhile is a two-year extension of the previous approval and allows PNN to progress development activities at this advanced salar.

Pursuit Minerals (ASX:PUR)
Pursuit says its CSAMT survey has identified multiple areas highly prospective for lithium brine at Mito Tenement, part of the Rio Grande Sur Project in Salta, Argentina. The CSAMT data has outlined multiple low resistivity (high conductivity) layers from approximately 150m to 500m in depth.

Infinity Lithium (ASX:INF)
Infinity’s wholly owned subsidiary, Infinity GreenTech, has finalised the first stage locked cycle test work to confirm material improvements in recoveries and the production of battery grade lithium hydroxide through the application of INFGT’s Li-Stream RPKTM process. The result confirms 90% lithium recoveries from ROM-toProduct and the production of battery grade lithium hydroxide.

At Stockhead we tell it like it is. While Power Minerals is a Stockhead advertiser, it did not sponsor this article.