ASX Live News | ASX Closes 0.13 Higher; Lake Resources, Megaport Spike

A recent survey by the Federal Reserve Bank of New York showed Americans are expecting less inflation in the coming years.

The New York Fed reported:

Median one- and three-year-ahead inflation expectations both declined sharply in July, from 6.8 percent and 3.6 percent in June to 6.2 percent and 3.2 percent, respectively.

Both decreases were broad-based across income groups, but largest among respondents with annual household incomes under $50,000 and respondents with no more than a high school education.

Median five-year ahead inflation expectations, which have been elicited in the monthly SCE core survey on an ad-hoc basis since the beginning of this year, also declined to 2.3 percent from 2.8 percent in June.

Expectations about year-ahead price increases for gas and food fell sharply. Home price growth expectations and year-ahead spending growth expectations continued to pull back from recent series highs. Households’ income growth expectations improved.

The Reserve Bank of Australia announced on Tuesday it will explore use cases for a Central Bank Digital Currency (CBDC) in collaboration with the Digital Finance Cooperative Research Centre (DFCRC).

The RBA noted it has undertaken ‘considerable research’ into CBDCs, in particular the use of new technologies like distributed ledger technology.

RBA’s research will focus on ‘innovative use cases and business models that could be supported by the issuance of a CBDC.’

Importantly, the central bank’s research collaborator, the DFCRC, acknowledged a central bank digital currency is no longer a purely academic subject.

Dr Andreas Furche, CEO of the DFCRC, said:

CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.

RBA’s research project will take about a year to complete and will involve a pilot operating in a ‘ring-fenced environment’.

The central bank intends to involve a pilot CBDC ‘that is a real claim on the Reserve Bank.’

 

How should we go about analysing businesses? And how should we go about analysing stocks?

As investors, we can distil these questions into something more direct — what are the predictors of great stock returns?

How useful are earnings?

The income statement is probably the financial statement consulted most — by the financial press and analysts alike.

And net income is one of the most common figures bandied about when analysing companies…not to mention that net income is one-half of the ubiquitous P/E ratio.

But how useful are earnings in analysing a stock and its prospects?

Often, earnings can be ‘managed,’ ‘smoothed,’ or ‘adjusted’ by executives in a corporate version of catfishing.

The malleable nature of earnings leads some analysts to focus on cash flows, which some consider more grounded in reality.

As a 2017 Financial Analysts Journal paper noted:

‘Although the income statement has long been at the centre of financial statement analysis, well-documented shortcomings call into question the efficacy of relying on its components to value stocks and predict stock returns. Notorious bankruptcies, including Enron and WorldCom, graphically illustrate that profitable GAAP income statements can coexist with negative operating or free cash flows for the same company for long periods.

‘More specifically, we believe that existing GAAP requirements permit too many alternative types of financial statement presentations; such information is too aggregated and can be inconsistently presented, making it difficult for users to understand the relationship between how accounting information is presented and the underlying economic results of the company. Novy-Marx’s (2013) intuition in this area certainly rings true: The farther down the income statement one goes, the more “polluted” profitability measures become and the less related to “true” or economic profitability.’

But the Enrons and WorldComs of the corporate world are outliers, infamous precisely because of the irregularity, improbability, and scale of the deception.

In the vast majority of cases, earnings are reported faithfully under reasonable assumptions, providing useful insights.

Read the full article here.

https://www.moneymorning.com.au/20220809/predictors-of-stock-returns-roe-cash-flow-earnings.html

REA Group (ASX:REA), up 6.5% in late afternoon trade after releasing its FY22 results, warned that house prices will likely continue to soften as interest rates rise.

In its FY22 presentation, REA noted that while property prices are likely to moderate further, the current market retains ‘strong fundamentals’:

The Australian residential property market is likely to continue to moderate as interest rates rise. While this adjustment has already impacted property prices, the current market reflects strong fundamentals including record low unemployment, high household savings and increasing migration, which should continue to support demand.

 

Lake Resources (ASX:LKE) is the biggest market mover on Tuesday afternoon trade.

• Lake Resources is up 26%
• Incannex Healthcare (ASX:IHL) is up 13%
• Airtasker (ASX:ART) is up 11%
• Cettire (ASX:CTT) is up 10.5%
• Megaport (ASX:MP1) is up 9.5%
• Core Lithium (ASX:CXO) is up 9%
• Piedmont Lithium (ASX:PLL) is up 8%

Step One Clothing (ASX:STP), Ecograf (ASX:EGR), and Booktopia (ASX:BKG) were the worst performing stocks in afternoon trade, all down over 6%, with Step One down 11%.

Demand for electric vehicles continues to spur demand in battery metals like lithium.

"One of the most sought-after substances in the world right now."

In the deserts of Western Australia, a handful of lithium miners are suddenly in vogue as the electric vehicle industry clamors for a metal it can’t do without. @harrybrumpton reports https://t.co/N51beHNmLW pic.twitter.com/LGozOAJnfc

— Bloomberg Originals (@bbgoriginals) August 8, 2022

BNPL stock Openpay (ASX:OPY) is currently up 5% after releasing its July market update, trading at 30 cents a share.

The stock, which jumped from 12 cents to 50 cents last month in a wider — and unexpected — BNPL rally, reported record total transaction volume of $39.9 million in July, up 58% year-on-year.

July revenue came in at $3 million, up 73% YoY.

OPY’s new segment — a software platform helping businesses manage trade accounts — grew its TTV by 451% YoY to $8.4 million.

Active customer growth was less stellar, rising 20% YoY to 323,000.

OPY’s net transaction loss came in at -0.5%. Openpay said the average net transaction loss to date in CY22 is -0.9%.

Net bad debts were 1.1% of its TTV.

Looking at prior months, in its June monthly update, OPY reported TTV of $35.4 million and revenue of $2.9 million.

Going a few months back, OPY posted $3 million in revenue on TTV of $33 million in May.

OPY also issued a correction to its Q4 FY22 report, noting its quarterly net bad debts came in at 1.9% and not the previously reported 1.5%.

 

Lithium junior Lake Resources (ASX:LKE) continued a recent rally, opening 11% higher on Tuesday.

Lake Resources closed 15% higher on Monday and is now trading over $1 a share after falling to 60 cents last month.

The LKE stock has now gained 100% since the July low.