• The ASX 200 has ended the week 1.5% lower
  • The small cap index ends 1% down
  • Octava Minerals has listed, and done it well 

 

That was an exciting week.

Global equity markets took a nasty tumble on Tuesday and never got their mojo back.

The Emerging Companies (XEC) index ended the week down 1%, while the benchmark ASX 200 closed business 1.5% shorter. Not too terrible considering everything that went on…

The largest falls in two years on Wall Street hoovered up all the optimistic gains and the optimism of the previous week as US inflation made an unwelcome entrance, stage right on the upside, smothering hopes of an easy exit from the current price pressures and rekindling the fire with a bucket of fuel that the US Federal Reserve will be back at it next week with a monstrous rate hike.

Naturally, the carnage in New York spread south with the dawn, Australian markets retreated back to their lows of the previous week. The benchmark lost 2.5% during the sell-offs of the following session, while the small caps index only gave away 1%.

All the 11 sectors on the main index were impacted. With the REITs and property stocks, consumer staples and discretionary, as well as healthcare and industrial sectors all feeling the worst of it.

In the the tectonic plates of the market – US bond yields – continued to drift further apart as the length, breadth and height of short-term interest rates came into calculations.

Dr Shane Oliver at AMP Capital says global sharemarkets remain at high risk of further falls in the short-term on the back of inflation, interest rate rises, recession and geopolitical risks.

“And as we have seen in the last week if US shares head down, Australian shares will follow even if the RBA takes a less hawkish path,” he said.

“There is a danger in exaggerating the mid-week plunge in share markets because it just took shares back to where they were a week ago.

“Nevertheless, the speed of the fall highlights the vulnerability of share markets in the short term as inflation remains high, global central banks are still hawkish, recession risks are high, geopolitical tensions remain high and the period out to mid-October is known for share market weakness.”

In particular, on the inflation front US core inflation came in far higher than expected at 6.3% year on year as the breadth of high inflation continued to increase and it was a similar story in the UK with core inflation in the UK also rising further to 6.3%.

Via AMP Capital

Dr Oliver says that this, along with hawkish Fed commentary and a still stonkingly robust US jobs market likely keeps the Fed on track for another 0.75% hike in the week ahead and also keeps the BoE on track for another 0.5% hike in the week ahead too.

“The danger is that the Fed and other central banks have become locked into supersized rate hikes based on backward looking data and a loss of confidence in their ability to forecast inflation at a time when they should really be giving more attention to monetary policy lags and slowing the pace of hikes.”

Bad enough, but the country’s greatest economic mind with the least sense of fashion economy warns that this also increases the risk of a potentially deep recession as, “it may make it hard to slow down rate hikes” just as they need to be.

“And technically,” he adds, “the rebound in shares from their June lows has lacked the cyclical leadership normally seen in new bull markets and earnings revisions remain negative.”

At home this week, that canny measurement of how you feel buying stuff – The Westpac-MI survey of consumer confidence – also surprised to the upside, in what. the bank’s Eliot Clarke called “a pleasing result.”

The headline index gained 3.9% in defiance of mega uncertainty around the cost of living, the domestic rate outlook and global growth.

“Though, at 84.4, the index remains near historic lows typically only seen during recessions and major economic disturbances,” Clarke says.

However the key difference between now and these other periods is that the Australian labour market is also particularly tight, with the jobless rate at 50-year lows.

“Nominal wage growth is also strengthening, which is perhaps, in part, why ‘family finance expectations for the year ahead’ rose 5% in September even as ‘family finances versus a year ago’ declined 5% to a 10-year low. Notably, ‘time to buy a major household item’ is still 34% below average and our quarterly ‘wisest place for savings’ questions point to intense risk aversion.”

Here’s some of Westpac’s latest sentimental bullies to keep you going:

  • Consumer Sentiment up 3.9% but at 84.4 remains near historic lows
  • Labour market confidence preventing further falls
  • Even after the RBA’s latest hike, 57% still expect rates to rise by 1% or more
  • ‘Time to buy a dwelling’ index up 2.9% but still very weak
  • House Price Expectations lift 3.6%, gains centred on NSW and Victoria
  • Queenslanders most pessimistic on house price outlook
  • Safe-havens – deposits, ‘pay down debt’ – still heavily favoured

This week’s jobs data wasn’t bad either. Despite lingering imapct of COVID-19, a solid increase in participation led to an up-tick in the unemployment rate to 3.5%. But the bones are strong, everyone seems to agree.

And finally,  NAB’s latest business survey, has brave Aussie firms drawing strength and optimism from a weak and pessimistic situation.

NAB says conditions are rising –  up 1 point to +20 and confidence up 2 points to +10 in August – both well above average reads.

Importantly, Clarke notes, the momentum in NAB’s business conditions “looks to be broad-based” across both state lines and across different industries.

 

Next week

3 out of 5 ain’t bad for the central bank’s of the world’s largest economies to get together and muck about with rate decision meetings in the week ahead.

We’ve got the US, Japan and the UK, but really its The Fed we’re all watching after the market’s tanty following that higher than anticipated and could certainly cope with inflation data.

Other scheduled central bank meetis abound. We’re expecting decisions in the Philippines, Indonesia, Hong Kong, Switzerland, Brazil and Taiwan.

The week fizzles out with some flash PMIs for us here in Australia-land as well as in the UK, the US, Japan and what’s left of the EU.

The PMI’s are pretty timely actually and should give us nerds a decent  idea of what kind of an economic performance we can hope for at the end of Q3.

And don’t forget, the ASX will close the exchange on Thursday September 22 after the PM Anthony ‘Marrickville’ Albanese declared a public holiday to ‘mournebrate’ the death of Queen Elizabeth II.

 

ASX IPOs This Week

Lithium, gold and other things explorer Octava Minerals (ASX:OCT) enjoyed a warm welcome to the ASX this morning, throwing open the doors to investors and climbing +32.5% in a couple of hours.

The rise is more good news for Octava, after a successful $6 million IPO that saw Chinese investors Fuyang Mingjin New Energy Development and Southeast Mingqing Supply Chain (Fuyang) snag about 15% of the company each.

OCT says finds raised will go into exploration on the Company’s flagship East Pilbara Talga lithium JV project – strategically located in the world classy lithium region of the Pilbara and its highly-prospective East Kimberley and Yallalong projects all over on the Other Side in WA.

Octava says there’s lithium mineralisation in pegmatite confirmed at Talga, but there’s been no drilling thus far. Octava has commenced surface mapping and sampling to define drill targets.

This lithium, Platinum Group Metals (PGMs), nickel sulphide and gold explorer has tenements in the Pilbara, with its flagship project the East Pilbara Talga lithium and gold project.

The recent successes by other exploration companies, like Global Lithium Resources (ASX:GL1), has shown that significant lithium bearing pegmatites are prevalent in the region.

Previous exploration at Talga has identified pegmatite within the southern area of Octava’s extensive farm-in and JV Talga lease, with a rock chip sample returning an elevated lithium assay of 0.22%.

This area is approximately 10km northeast of GL1’s Archer lithium deposit where they reported an inferred resource of 10.5mt at 1.0% Li20 in a similar geological setting.

The company also has the Panton North and Copernicus North nickel and PGMs projects as well as the Yallalong PGEs, gold and nickel sulphides project.

 

ASX SMALL CAP LEADERS:

Here are the best performing ASX small cap stocks for September 12 to September 16:

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Up this week some 75%, Critical Resources (ASX:CRR), struck “thick, high-grade intercepts, with sections of exceptionally high-grade lithium oxide” at Mavis Lake.

The numbers speak for themselves.

  • 24.1m @ 1.62% Li2O, from 53m;

  • 8.15m @ 1.70% Li2O from 89m

    • including 1.0m @ 4.32% Li2O from 91m;

  • 8.70m @ 2.18% Li2O from 112.75m; and

  • 23.9m @ 1.55% Li2O from 112.75m

    • including 11.15m @ 2.28% Li2O from 112.75m

    • including 7.05m @ 2.77% Li2O from 129.35m

    • Including 3.80m @ 3.09% Li2O from 131m

 

New Age Exploration (ASX:NAE) has almost doubled this week and it reckons it could be on the cusp of big things at its Lochinvar project in the UK as import bans on Russian coal boost global demand and supercharge prices for metallurgical coal.

Russia had previously supplied some 30% of Europe and the UK’s metallurgical coal needs and the sanctions have resulted in a scramble to secure supplies of the steel-making product.

This shortage has led to express cautious optimism that the regulatory environment for metallurgical coal projects – as opposed to thermal coal used for power generation and heating – will improve.

“In recent months, NAE has received expressions of interest in the Lochinvar project from a range of potential investors, as the economic outlook for metallurgical coal continues to improve,” executive director Joshua Wellisch said.

“NAE remains confident that new technologies that may replace metallurgical coal in the steel sector may not come online for many decades.”

 

Desert Metals (ASX:DM1), excited REE fans this week by unpacking its Innouendy project in WA discovering it plays host to “significant” rare earth elements, after shallow drilling returned “thick, high-grade intersections of clay-hosted mineralisation.”

Assays from the first 1,128m of its recent 12,745m drill program returned notable results such as 8m grading 2,734 parts per million (ppm) total rare earth oxide (TREO) from a down-hole depth of 24m in Hole 80 and 17m at 1,347ppm TREO from 28m including 8m at 2,085ppm TREO) in Hole 130.

Significantly for  the limited results received to date indicate relatively continuous mineralisation – an indication of a potentially significant mineralised system and a positive sign for future resource estimates.

Assays are pending for the remaining 11,617m of the drill program, which has primarily focused on following up earlier reconnaissance drilling REE intersections of up to 20m grading 2,139ppm TREO from 16m within near-surface saprolitic clays.

“This is an outstanding result for the company to confirm a significant rare earth discovery at such an early stage in the exploration programs at the Innouendy project,” managing director Rob Stuart said.

 

ASX SMALL CAP LAGGARDS:

Here are the best performing ASX small cap stocks for September 12 to September 16:

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