ASX LIVE: ASX opens higher; Silver Lake sinks 20pc

Aug 18, 2023

ASX edges 0.1pc higher

$A could jump 0.8pc if RBA lifts rates: CBA

China stock rally picks up as Beijing walks the talk on policy

Market movers

Oil heads for best month since early 2022

Broker rating changes

Alex Gluyas

The S&P/ASX 200 added 6.8 points, or 0.1 per cent, to 7410.4 on Monday, led by the healthcare sector.

Silver Lake Resources plunged 20.2 per cent to 89¢ after flagging it will sell less gold in FY24.

Lynas Rare Earths jumped 2.6 per cent to $6.73 after reporting record quarterly production of neodymium-praseodymium oxide.

Woolworths tumbled 1.3 per cent to $38.62 and Coles dropped 0.9 per cent to $18.19 ahead of the Reserve Bank’s cash rate decision on Tuesday.

Lithium explorer IGO led other lithium stocks lower. IGO declined 4.6 per cent to $13.80 despite posting record quarterly earnings and underlying free cash flow in the June quarter.

Energy stocks were among the best performers, tracking the higher oil price; Ampol added 1.2 per cent to $32.85 and Karoon Energy climbed 0.9 per cent to $2.23.

Bloomberg

US sharemarket traders are almost completely fearless now, which has some strategists bracing for a possible sell-off.

The S&P 500 Index has gained 19 per cent this year, pushing investors off the sidelines and into the market. Traders’ stock exposure is historically high, in the top 28 per cent of all time, according to Deutsche Bank’s analysis of rules-based and discretionary strategies going back to 2010.

Few, however, seem worried enough to hedge. Buying protection against dips in the market is the “cheapest you likely have ever seen”, Bank of America strategists wrote in note last week. Trading volume of call options, used to wager on the market rising, outpaced puts earlier this month by the most since December 2021.

Read more here.

Alex Gluyas

The Australian dollar could gain as much as 0.8 per cent if the Reserve Bank lifts the cash rate by 0.25 of a percentage point on Tuesday, according to Commonwealth Bank.

While financial markets are pricing a very small chance of a rate rise this week, economists are broadly split between forecasting a pause or a rate hike.

CBA says the Aussie can temporarily lift by 0.8 per cent, or about 0.5¢, if the RBA lifts rates as its Australian economics team expects.

However, CBA expects any post-RBA strength in the Aussie to be short-lived given the weak global economic outlook.

Brad Thompson

Lynas Rare Earths will withhold a portion of supply from the market in response to a plunge in prices for the key ingredient in wind turbines, electronics and military applications.

The world’s biggest supplier of rare earths outside of China said the lower prices were linked to softer demand for permanent magnets in Japan, and to oversupply in rival producer China.

Lynas said its stockpiling was also insurance against potential teething problems in duplicating a portion of its downstream processing at Kalgoorlie in Western Australia in response to regulatory demands imposed by Malaysia.

The Lynas downstream operations at Kuantan in Malaysia produced a record 1864 tonnes of neodymium and praseodymium (NdPr) in the June quarter from rare earths mined at Mount Weld in WA, which also achieved record production amid a big expansion.

Read more here.

Bloomberg

Chinese stocks extended their gains from last week as Beijing backed up its pledge to shore up the economy by announcing more measures to boost consumption and support the ailing property sector.

The Hang Seng China Enterprises Index, which tracks the nation’s stocks listed in Hong Kong, jumped as much as 3.2 per cent, adding to its 6.1 per cent surge from last week. The CSI 300 Index climbed up to 1.8 per cent before paring some gains. Both measures were headed for their biggest monthly advance since January. A Bloomberg Intelligence gauge of real estate shares was set to enter a bull market.

Better-than-expected earnings reports, including from battery maker Contemporary Amperex Technology, have added to positive sentiment. Bloomberg

Sentiment towards China’s markets is improving quickly as regulators introduce incremental steps, following through on the promises made at last week’s Politburo meeting. Authorities announced new measures to support consumption on Monday, and a separate report said big cities such as Beijing and Shenzhen may ease restrictions on the property sector. Overseas funds were set to be net buyers of onshore Chinese stocks for a fifth straight session.

Beijing’s actions over the past few days are raising hopes among investors, who have been burned repeatedly in the past as policy promises were not implemented. China should provide easier access for mid- to long-term funds to invest in its sharemarket as “stabilisers” and guide household savings to the market as part of its capital market reform, China Securities Journal said in a front-page commentary on Monday.

Some better-than-expected earnings reports, including those from restaurant operator Haidilao International Holding and battery maker Contemporary Amperex Technology, have added to the positive sentiment.

Elouise Fowler

Australian nickel and lithium miner IGO posted a 19 per cent jump in fourth-quarter earnings, boosted by record production at its flagship Greenbushes lithium mine in Western Australia.

The June-quarter result would have been even better but for lower commodity prices and poor output at its lithium refiner, as well as the performance of IGO’s Nova nickel mine, which produced at the low end of guidance. Its shares dropped 2.9 per cent to $14.04.

The Greenbushes hard-rock lithium mine in Western Australia. Darren Gray

Battery-grade lithium and nickel are essential commodities for decarbonisation and are heavily sought after by electric car makers.

IGO, which owns a majority stake with China’s Tianqi in Greenbushes, said the asset generated a record quarterly production result exceeding guidance. New York-listed Albemarle owns the remaining 49 per cent of Greenbushes mine.

Read more here.

Bloomberg

Oil is on track for its biggest monthly gain in more than a year on signs the market is tightening, with estimates that crude demand is running at a record clip just as OPEC+ cuts production.

West Texas Intermediate held above $US80 a barrel after a run of five weekly gains that lifted prices to the highest since April. The US crude benchmark has rallied 14 per cent this month, putting it on course for the biggest advance since January last year. It’s the best performance for July in almost two decades.

Oil’s string of advances mean futures in New York have erased their year-to-date losses, and expectations the Federal Reserve is close to ending its cycle of monetary tightening are also aiding sentiment as the dollar weakens. US employment data due this week is likely to signal a healthy demand outlook, while top importer China presses on with stimulus to boost its economy.

A reduction of supply from OPEC+ linchpins Saudi Arabia and Russia has improved the outlook for crude. Earlier this month, Russian Deputy Prime Minister Alexander Novak said the country would cut crude exports by 500,000 barrels a day in August. Saudi Arabia is also extending its supply curbs next month.

Bloomberg

Bloomberg

China’s manufacturing activity contracted for a fourth month in July while non-manufacturing activity expanded slower than expected, showing the economy’s recovery remains under pressure.

The official manufacturing purchasing managers’ index rose to 49.3, according to data from the National Bureau of Statistics on Monday, from 49 in June and beating the median estimate of 48.9 in a Bloomberg survey of economists.

Scorching heat in north-eastern cities, including Beijing, has added to strains on China’s economy. AP

The non-manufacturing gauge – which measures activity in the services and construction sectors – eased to 51.5 from 53.2 in June. That was weaker than the reading of 53 expected by economists. A reading below 50 signals contraction from the previous month, while anything above points to expansion.

Adding to existing strains on China’s economy is extreme weather, with heat waves baking north-eastern cities including Beijing and spreading to central coastal regions, while the south-west has been hit by heavy rain and deadly floods. The weather problems threaten to put stress on the energy grid and disrupt logistics, as well as production.

Concerns about the state of China’s recovery have been mounting recently, with early indicators for July showing a weakening of momentum. Economists polled by Bloomberg project growth of 5.2 per cent for 2023, lower than earlier forecasts and more in line with the official target of around 5 per cent.

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