ASX LIVE | ASX Plunges; RBA Keeps Rates on Hold, Aussie Dollar Plunges, Global Bond Yields Surge

Argentina is pushing to levy a new tax on lithium producers and require them to reserve some of their production for domestic battery projects. The aim is to tap the profits of lithium companies to build infrastructure and avoid the resource curse that has plagued other commodity-rich countries in South America.

Provincial and federal officials are proposing an annual tax on lithium profits and a quota of up to 20% of output to be kept for domestic battery projects. The quota would be discussed with each producer individually.

Argentina is the world’s fastest-growing producer of lithium, a key component in batteries for electric vehicles and other renewable energy technologies. The country has attracted investors from around the world, including the UK, South Korea and Australia.

The new tax and quota measures are controversial, with some lithium companies expressing concerns that they could discourage investment. However, the Argentine government is determined to benefit from the country’s lithium resources and build a domestic battery industry.

It will be worth watching ASX Lithium company’s response to this in the coming months.

Argentina is pushing to levy a new tax on lithium producers and require them to reserve some of their production for domestic battery projects. The aim is to tap the profits of lithium companies to build infrastructure and avoid the resource curse that has plagued other commodity-rich countries in South America.

Provincial and federal officials are proposing an annual tax on lithium profits and a quota of up to 20% of output to be kept for domestic battery projects. The quota would be discussed with each producer individually.

Argentina is the world’s fastest-growing producer of lithium, a key component in batteries for electric vehicles and other renewable energy technologies. The country has attracted investors from around the world, including the UK, South Korea and Australia.

The new tax and quota measures are controversial, with some lithium companies expressing concerns that they could discourage investment. However, the Argentine government is determined to benefit from the country’s lithium resources and build a domestic battery industry.

It will be worth watching ASX Lithium company’s response to this in the coming months.

Birkenstock, the iconic German sandal maker, is set to go public in an IPO that could raise up to $1.58 billion. The company has set a price range of $44 to $49 per share, which would value it at up to $9.2 billion.

Birkenstock was founded in 1774 to make orthopedic shoes, and its sandals have since become a coveted fashion item. The company’s stock flotation marks a milestone for its long and storied history.

Birkenstock has been around for over 250 years and has long been known for its comfortable sandals. However, the sandals only became a fashionable item when model Kate Moss wore them in a fashion shoot in the 90s,

Since then, they have been featured on the red carpet at the Oscars and the most recent Barbie movie.

Birkenstock pulled revenues of $1.17 billion in the nine months ending 30th June, up 21 from the same prior period.

The IPO is expected around the 11th of October.

Birkenstock, the iconic German sandal maker, is set to go public in an IPO that could raise up to $1.58 billion. The company has set a price range of $44 to $49 per share, which would value it at up to $9.2 billion.

Birkenstock was founded in 1774 to make orthopedic shoes, and its sandals have since become a coveted fashion item. The company’s stock flotation marks a milestone for its long and storied history.

Birkenstock has been around for over 250 years and has long been known for its comfortable sandals. However, the sandals only became a fashionable item when model Kate Moss wore them in a fashion shoot in the 90s,

Since then, they have been featured on the red carpet at the Oscars and the most recent Barbie movie.

Birkenstock pulled revenues of $1.17 billion in the nine months ending 30th June, up 21 from the same prior period.

The IPO is expected around the 11th of October.

The ASX 200 closed down 1.28% at 6,943.4, a six-month low that saw 10 of the 11 sectors in the red.

Only Health Care (+0.24%) was up today, largely carried by Neuren Pharmaceuticals (+2.46%) and CSL (+0.56%).

The worst sector performance was seen in Energy (-3.69%) and Utilities (-2.88%) hurt by the stronger US dollar.

Woodside Energy (-3.7%) and Santos lost (4.3%).

Mining giants took a hit today with BHP (-1.7%) while Rio Tinto fell (-1.8%), Fortescue also fell (-1.6%)

The RBA kept rates unchanged today, in a move that was unsurprising. However hawkish rhetoric from both the RBA and US Fed have embedded the idea of ‘higher rates for longer’ into traders thinking.

Australian 10-year notes were up 10 bps this morning to 4.58% and eased slightly after the RBA’s call to its current 4.54%.

The ASX 200 closed down 1.28% at 6,943.4, a six-month low that saw 10 of the 11 sectors in the red.

Only Health Care (+0.24%) was up today, largely carried by Neuren Pharmaceuticals (+2.46%) and CSL (+0.56%).

The worst sector performance was seen in Energy (-3.69%) and Utilities (-2.88%) hurt by the stronger US dollar.

Woodside Energy (-3.7%) and Santos lost (4.3%).

Mining giants took a hit today with BHP (-1.7%) while Rio Tinto fell (-1.8%), Fortescue also fell (-1.6%)

The RBA kept rates unchanged today, in a move that was unsurprising. However hawkish rhetoric from both the RBA and US Fed have embedded the idea of ‘higher rates for longer’ into traders thinking.

Australian 10-year notes were up 10 bps this morning to 4.58% and eased slightly after the RBA’s call to its current 4.54%.

The remarks from economists are starting to come in, and there are differing views on next month’s interest rate decision. Some think the RBA will definitely lift rates next month; others don’t.

The elephant in the room is high oil prices. With production cuts from OPEC+ to remain until the very least December, and likely longer, the cost of everything will face pressure.

Some market participants think high oil prices will therefore push inflation higher.

David Fyfe, chief economist at Argus Media, said rising oil prices’ clearly risk pushing … inflation slightly higher again. It is something that may encourage, through the end of the year, further interest rate hikes‘.

There is a large caveat to that point, however. There may be a limit to how much companies can shift the rising costs onto consumers. While there is still an expectation of inflation, and therefore, companies can raise prices without consumer shock and plummeting demand, there is a limit. At this point in the cycle, when disposable income is being eaten by mortgage, rent and fuel costs alone, consumers could be more sensitive to price shifts.

Currently, households have cut back on retail spending for things like clothing and appliances. Retail spending volumes are in their most prolonged contraction since the global financial crisis.

This could mean that— more so than in the recent past — company margins may take more of a hit as they struggle to pass on those costs to consumers without hurting demand. This kind of shift would lead to cost-cutting and reductions of headcounts that would be painful to many but could be the balm that the RBA is looking for.

Senior economist at ANZ Adelaide Timbrell expects rates to remain unchanged until November next year but commented:

Ms Timbrell said the RBA has intentionally “kept their options open” should future rate increases be delivered in the coming months.

‘I don’t think that they want to provide us certainty that rates are done, and of course, because of the data is always going to give a little surprise now and then, they are not going to be 100 per cent sure that they’re done either,” she said.

Here are Ms Bullock’s comments today:

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome

The remarks from economists are starting to come in, and there are differing views on next month’s interest rate decision. Some think the RBA will definitely lift rates next month; others don’t.

The elephant in the room is high oil prices. With production cuts from OPEC+ to remain until the very least December, and likely longer, the cost of everything will face pressure.

Some market participants think high oil prices will therefore push inflation higher.

David Fyfe, chief economist at Argus Media, said rising oil prices’ clearly risk pushing … inflation slightly higher again. It is something that may encourage, through the end of the year, further interest rate hikes‘.

There is a large caveat to that point, however. There may be a limit to how much companies can shift the rising costs onto consumers. While there is still an expectation of inflation, and therefore, companies can raise prices without consumer shock and plummeting demand, there is a limit. At this point in the cycle, when disposable income is being eaten by mortgage, rent and fuel costs alone, consumers could be more sensitive to price shifts.

Currently, households have cut back on retail spending for things like clothing and appliances. Retail spending volumes are in their most prolonged contraction since the global financial crisis.

This could mean that— more so than in the recent past — company margins may take more of a hit as they struggle to pass on those costs to consumers without hurting demand. This kind of shift would lead to cost-cutting and reductions of headcounts that would be painful to many but could be the balm that the RBA is looking for.

Senior economist at ANZ Adelaide Timbrell expects rates to remain unchanged until November next year but commented:

Ms Timbrell said the RBA has intentionally “kept their options open” should future rate increases be delivered in the coming months.

‘I don’t think that they want to provide us certainty that rates are done, and of course, because of the data is always going to give a little surprise now and then, they are not going to be 100 per cent sure that they’re done either,” she said.

Here are Ms Bullock’s comments today:

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome

As widely expected, the Reserve Bank of Australia left the cash rate at 4.1% for a fourth straight month. The decision leaves the cash rate unchanged at its highest level since April 2012.

It was the first RBA board meeting with Michele Bullock at the helm.

Interestingly, recent changes at the RBA, which were brought in after the conflagration of ex-Governor Dr. Philip Lowe’s approval, meant that the board, rather than Ms Bullock, issued the post-decision statement.

Highlights of the statement include:

“Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.”

“The prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late”

“Returning inflation to target within a reasonable timeframe remains the Board’s priority.”

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe.”

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

“Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.“

As widely expected, the Reserve Bank of Australia left the cash rate at 4.1% for a fourth straight month. The decision leaves the cash rate unchanged at its highest level since April 2012.

It was the first RBA board meeting with Michele Bullock at the helm.

Interestingly, recent changes at the RBA, which were brought in after the conflagration of ex-Governor Dr. Philip Lowe’s approval, meant that the board, rather than Ms Bullock, issued the post-decision statement.

Highlights of the statement include:

“Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.”

“The prices of many services are continuing to rise briskly and fuel prices have risen noticeably of late”

“Returning inflation to target within a reasonable timeframe remains the Board’s priority.”

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe.”

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

“Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.“

As a consequence of rising bond yields, Gold has been under pressure in the past month, down -6.26% in the past month and down 1.52% in today’s trading.

The last time gold was as oversold as today was in 2018 at $1,200/oz.

But short-term pressure could turn around into structural strength.

Borrowing costs for the US Government in a low bond price market are set only to grow. US government debt is currently around US$33.1 trillion and growing faster than the economy.

CBO projections show US federal debt rising by US$5.2 billion per day for the next 1o years. Nearly one-third of all outstanding US debt is set to mature over the next 12 months.

52% is set to mature over the next 36 months, meaning this debt needs to be refinanced. However, since this debt was last financed, debt service costs have doubled from 1.5% to 3.0%.

This means that maintaining this debt is now 2x as expensive, and it will soon be 3x as expensive if rates rise. If doubts arise about the ability of the US to maintain this, then a flight to safety could mean big things for alternatives like Gold and BTC.

In the short term, these alternatives are likely to see downsides, but in the longer term, they could prove a useful hedge.

As a consequence of rising bond yields, Gold has been under pressure in the past month, down -6.26% in the past month and down 1.52% in today’s trading.

The last time gold was as oversold as today was in 2018 at $1,200/oz.

But short-term pressure could turn around into structural strength.

Borrowing costs for the US Government in a low bond price market are set only to grow. US government debt is currently around US$33.1 trillion and growing faster than the economy.

CBO projections show US federal debt rising by US$5.2 billion per day for the next 1o years. Nearly one-third of all outstanding US debt is set to mature over the next 12 months.

52% is set to mature over the next 36 months, meaning this debt needs to be refinanced. However, since this debt was last financed, debt service costs have doubled from 1.5% to 3.0%.

This means that maintaining this debt is now 2x as expensive, and it will soon be 3x as expensive if rates rise. If doubts arise about the ability of the US to maintain this, then a flight to safety could mean big things for alternatives like Gold and BTC.

In the short term, these alternatives are likely to see downsides, but in the longer term, they could prove a useful hedge.

Leo Lithium [ASX:LLL] shares are once again suspended today, this marks day 68 of paused trading in the past two and a half months for the company, which has gone dark on all communications.

This appears to include the ASX as well, which suspended the company today for failing to reply to queries.

Previous halts in trading have been voluntary by the company as it attempted to resolve the impasse between it and the Mali Junta government, which is attempting to impose new laws that would see the company lose a majority stake in its joint venture in the Goulamina Lithium Project with Chinese lithium giant Ganfeng.

Ganfeng owns a 55% stake in the project, but after the details of the new law came to light, it was revealed that the Mali government intended to take a 35% stake in the project.

This would dilute Leo’s share in its one and only project to only 27.5%.

The Goulamina Lithium Project is one of the world’s largest undeveloped hard rock lithium deposits, with a Measured, Indicated and inferred Mineral Resource of 211 million tonnes at 1.37% Li₂O.

Shareholders will be waiting in the coming days or week a Q&A response to questions from the ASX, which will hopefully shed light on the negotiations.

‘Higher for longer’ seems to continue to be in the spotlight for investors.

US Treasury yields rose sharply overnight, with the 5-year to 30-year yields increasing by 10 basis points. The 10-year benchmark bond yield hit the highest level since 2007, reaching 4.7%, and the 30-year yield topped 4.81%, the highest since 2010.

Source:Bloomberg

This rise in yields comes as investors anticipate that the US Federal Reserve will continue to raise interest rates aggressively in an effort to combat inflation. Goldman Sachs’ portfolio research team estimates there is now a 20% chance that the 10-year Treasury yield will end 2023 above 5%.

BlackRock CEO Larry Fink also expects 10-year Treasury yields to top 5%, citing geopolitical shifts and supply chain disruptions as factors that will make inflation more persistent.

Here’s an interesting chat by Rick Santelli outlining how far bond yields could go. Mind you, this is outlining a worst-case scenario.

Could 10-year Treasury rates hit 13%?@RickSantelli charts the path to much, much higher yields, and warns that the Fed is running out of tricks pic.twitter.com/51DfL2R6HF

— CNBC's Fast Money (@CNBCFastMoney) October 2, 2023

Last week, the price for West Texas Intermediate crude oil rose to a new one-year high.

At one point, WTI crude was trading about US$94 a barrel.

Worries about renewed inflationary pressures stoked by rising oil prices are spreading. Oil prices have been rising in recent months due to a number of factors, including the war in Ukraine, supply disruptions, and strong demand. This is raising concerns that inflation, which is already high in many countries, could spiral further out of control.

Rising oil prices have a direct impact on inflation, as they increase the cost of transportation and other goods and services that rely on oil. Additionally, oil is a key ingredient in many products, including plastics and fertilizers, so higher oil prices can also lead to higher prices for these products.

The current rise in oil prices is particularly concerning because it comes at a time when inflation is already at high levels in many countries. For example, in the United States, inflation is at a 40-year high. If oil prices continue to rise, it could push inflation even higher, making it more difficult for central banks to bring it under control.

So, what does the current rise in oil prices mean for our time?

Click below to read on.

https://www.moneymorning.com.au/20231003/mm-tues.html

On this bloodbath of a day on the share market, only 23 stocks on the ASX 200 index are in the green, including Graincorp, Neuren Pharmaceuticals and Computershare.

The ASX 200 is down -1.38% to 6,936.1 to a six-month low after US Treasury bond price collapse inflicts pain across markets.

There are far more stocks in the red, including miners like Sayona Mining, De Grey Mining and Perseus Mining, and energy stocks like Beach Energy and Santos.

But it’s the mega-cap stocks that are down the most on the share market: BHP (-2.18%), Rio Tinto (-1.75%), Fortescue Metals (-1.76%) and NAB (-1.04%).

The other “big three” banks are down between 0.6% and 1%.

• ASX 200 down -1.6% to 6,921.4
• $AUD down -1.14% to 63.60 US cents
• ASX futures down -1.13% to 6,968.5
• S&P 500 flat
• NASDAQ up +0.67%
• DOW down -0.22%
• FTSE down -1.28%
• STOXX down -0.85%
• SSE up +0.10%
• Bitcoin down 1.17% to $US 27,549.77
• Spot gold down -1.42% to $US 1,822.1
• Iron ore flat -0.04% to $US 120.79
• Brent Crude down -0.25% to $US 90.48pb

All figures shown are from 10:33am AEST

Good morning all,

Busy day on the markets today. Let’s get into it.

The ASX 200 futures point to a ~1% plunge in the index at open.

This dramatic movement comes after overnight markets had another mixed showing.

The Dow finished down -0.22%, while the tech-heavy Nasdaq was up 0.67% and the S&P 500 ended flat.

Apple gained +1.5%, Amazon +1.8%, Tesla +0.6%.

The mixed moves overnight came after US Federal Reserve vice chairman for supervision said the big question for Central Banks was how long to leave interest rates elevated. At the same time, Michelle Bowman, Fed governor, reiterated her call for multiple rate increases.

In Australia, Michele Bullock is preparing to reside over her first Reserve Bank of Australia board meeting as governor. The RBA decision will be announced at 2.30pm and it is widely expected to leave rates on hold.

Here are the market estimates for rates as reported by Bloomberg last night.

The Aussie dollar continues to weaken falling, reaching AU/USD 63.67 cents, an 11-month low, as the USD mirrored, hitting an 11-month high.

That was because of a sell-off in the Bond market, which has pushed up US borrowing costs to the highest levels since 2007.

US Treasury Yields on 5-year to 30-year rose 10 basis points overnight. The 10-year hit its highest levels since 2007, reaching 4.7%, and the 30-year hit 4.81%, its highest since 2010.

Some market analysts, such as Goldman Sachs and Blackrock, expect 10-year yields to climb to 5% or higher because of ‘embedded inflation’.

Australian Yields also climbed sharply, rising 10 basis points in 10-year Treasury notes to 4.59%. The recent sharp climb is concerning some, with yields gaining 70 bps in the past year. 58 of those bps have been in the past month alone.