Market predicts RBA will pause tomorrow. Picture Getty
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Aussie shares are poised to open much higher on Monday on expectation that the RBA will keep rates steady at its meeting tomorrow. At 8am AEDT, the ASX 200 index futures was pointing up by +0.9%.
Australia’s cash rate is still well below other advanced economies – as the UK, US and NZ cash rates all sit above 5% – and overall, the economy is proving resilient to the hikes, with unemployment still quite low at 3.7%.
“So is the drop in the monthly CPI enough to convince Bullock that the cash rate rises have done their job? That’s probably a question now on many borrowers’ minds,” said a note from Mozo.
Meanwhile, Fed Jerome Powell said on Friday that it was too soon to speculate on interest rates cuts.
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said Friday in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”
To stocks, on Friday the S&P 500 rose by +0.59%, the blue chips Dow Jones index was up by +0.82%, and the tech-heavy Nasdaq rose by +0.55%.
Tesla fell -0.5% after unveiling its long-awaited Cybertruck, with the lowest-grade model starting at US$60,990. The truck has few physical resemblances to a classic pickup truck and is targeted at a specific niche customer.
Pfizer fell -5% as the drugmaker said it won’t move forward with trials for its twice-daily regimen of its weight-loss pill, danuglipron, which was intended to compete with Ozempic and other weight loss drugs in the market.
Other notable movers include Alibaba, which slipped -1% after Morgan Stanley downgraded the e-commerce stock, citing slower turnaround in customer management revenue (CMR).
It’s been a challenging period for Australian small cap investors. Small caps have significantly underperformed large caps by about 20% over the past two years.
Sam Twidale, portfolio manager of the DNR Capital’s Australian Emerging Companies Fund, says the market has gone through a period of high valuations, and with a sharp lift in interest rates, investors are questioning the right valuation to pay for small caps in this environment.
“There is also a lot of disproportionate share price reaction to negative news,” Twidale said.
“No wonder small cap investors are faced with a dilemma today – buy cheap cyclical companies offering value, or look at more expensive defensives that have resilience and earnings but come with high valuations?”
Twidale says he favours quality businesses that have some concerns in the short term, but are well managed with strong balance sheets and well placed in the longer term.
“Investors with a longer term time investment horizon should be looking at these types of companies.
“As the market gets further clarity on the sustainable level of interest rates and the state of economy, the really deep valuation gaps between price and fair value will start to converge over time,” he added.
One such company Twidale likes is IPH (ASX: IPH), a market leader in providing intellectual property (IP) services.
In the discretionary space, he likes the looks Lovisa (ASX: LOV), a leading fast fashion accessories retailer.
“We also like Credit Corp (ASX: CCP). This is a leading debt collection services business in Australia with a growing business in the US,” Twidale said.
Gold price rallied by +1.78% to US$2,071.96 an ounce. Bullion is now very near to all-time high of US$2,074.88 reached in August 2020.
Oil prices fell over -2%, with Brent now trading at US$79.19 a barrel after OPEC+’s decision to cut supply by 1 million barrels a day (bpd).
Prior to last week’s decision, Saudi Arabia, Russia and other members of OPEC+ have already pledged total cuts of about 5 million bpd, in a series of gradual steps that started in late 2022
Iron ore futures traded sideways to US$130.46 a tonne.
The Aussie dollar jumped significantly by almost 1% to US66.67c, the highest level since late July.
The recent rise in AUD is due to the greenback experiencing a decline of more than 3% in November as it sits at three-month lows.
Meanwhile, Bitcoin was up 0.35% in the last 24 hours to US$39,648.
Botanix Pharmaceuticals (ASX:BOT)
Botanix has received the expected feedback from FDA following its “end of review” Type A meeting request, in respect to the Sofdra new drug application (NDA) review. FDA confirmed that the planned content of materials proposed by Botanix would be acceptable for the planned resubmission of the Sofdra NDA package. No additional materials have been requested by FDA as part of the resubmission. The submission of the final component required for FDA approval of Sofdra remains on target for early Q1 2024, with a likely 6-month review process targeting FDA approval in mid-CY2024. Sofdra is BOT’s lead product for the treatment of primary axillary hyperhidrosis.
Turners Automotive (ASX:TRA)
The NZ-based automotive dealer network said it will be added to the NZX 50 Portfolio Index and MidCap Index prior to the opening of trading on December 18. Turners recently announced a record net profit before tax of $25.7m for HY24 (HY23 $23.4M), 10% ahead of same period last year despite material macro economic challenges. The company also reaffirmed guidance from October, that the FY24 result is expected to be ahead of FY23 which was itself a record result for the business.
Tower (ASX:TWR)
The NZ insurer said it was undertaking a strategic review of its ownership structure. The purpose of the review – which is supported by 20% shareholder Bain Capital – is to explore options to maximise value for all Tower shareholders and optimise its capital structure to provide a strong platform for market competitiveness. Tower has engaged Goldman Sachs as financial adviser to assist with the strategic review.
Loyal Lithium (ASX:LLI)
Rock chip assay results from the summer field program have confirmed the discovery of a sixth spodumene bearing pegmatite dyke (Dyke #06) at the Trieste Lithium Project. Dyke #06 is near the five previously discovered spodumene bearing dykes that have reported strong lithium mineralisation with assay results up to 7.60% Li2O. Concealed under heavy vegetation, the east-west lying ridge of Dyke #06 illustrates the potential for more mineralised discoveries across the large scale project.
Fin Resources (ASX:FIN)
Four channel sampled outcrops at the White Bear Lithium Discovery have successfully returned high grade surface Li2O within coarse spodumene mineralisation, including: 23WB001 – 1m @ 2.39% Li2O, and 23WB002 – 1m @ 2.16% Li2O and 1m at 1.23%. Drill testing is now a priority and FIN is fully funded to commence an initial maiden 1,500m drill programme during Q1 2024. FIN has now submitted documents for the approval of an aggressive 5,000m diamond drilling programme.
At Stockhead we tell it like it is. While Fin Resources is a Stockhead advertiser, it did not sponsor this article.
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