ASX Live News | ASX Ends Week 3.9% Lower

The global energy crisis is throwing up important questions about the transition to clean energy.

Renewables may be the future but when will that future come … and what role do fossil fuels play in the interim?

Into the fray entered the Institute for Energy Economics and Financial Analysis, yesterday publishing a report evaluating the usefulness of touted carbon capture technology.

According to IEEFA’s report, a majority of carbon capture projects don’t perform as well as they should.

The report’s authors concluded:

• “Failed/underperforming projects considerably outnumbered successful experiences.

• “Successful CCUS exceptions mainly existed in the natural gas processing sector serving the fossil fuel industry, leading to further emissions.

• “The elephant in the room of the application of CCS/CCUS in the natural gas processing sector: Scope 3 emissions are still not being accounted for.

• “Captured carbon has mostly been used for enhanced oil recovery (EOR): enhancing oil production is not a climate solution.

• “Using carbon capture as a greenlight to extend the life of fossil fuels power plants is a significant financial and technical risk: history confirms this.

• “Some applications of CCS in industries where emissions are hard to abate (such as cement) could be studied as an interim partial solution with careful consideration.”

You can read the full report here.

Rex, Australia’s independent regional airline, announced on Friday that its August bookings saw a 25% increase in passenger numbers and a 38% increase in revenue booking compared to July.

Rex attributed the improved August results to the ‘Golden Triangle’ of routes between Melbourne, Sydney, and Brisbane.

Rex’s Executive Chairman, Lim Kim Hai said:

“Our turnaround now has strong momentum as our key metrics continue to improve monthon-month in this new Financial Year.

“As foreshadowed in our media release of 2 August, our new partnerships with travel agency groups and corporate accounts are now starting to deliver the intended outcomes as reflected in August numbers. We can look forward to even stronger performance in the months ahead when the new arrangements are fully bedded down.”

REX shares were flat on the announcement. The airline is also treading water in the past year, with REX shares down 2% year to date.

The US has banned the export of several AI computing chips to China. This decision is the latest escalation in an emerging arms race for technological superiority between the two nations. But with Taiwan still dominating global production, it seems the US is going all in on investing in local semiconductor manufacturing.

The US’s two leading GPU makers made a shock revelation this week.

Apparently, both NVIDIA and AMD have been mandated by the US government to stop selling certain computing chips to China. This measure seems to be aimed particularly at hampering Chinese artificial intelligence (AI) research.

Here is how Reuters reported the story:

‘The U.S. Department of Commerce would not say what new criteria it has laid out for AI chips that can no longer be shipped to China but said it is reviewing its China-related policies and practices to “keep advanced technologies out of the wrong hands.

‘“While we are not in a position to outline specific policy changes at this time, we are taking a comprehensive approach to implement additional actions necessary related to technologies, end-uses, and end-users to protect U.S. national security and foreign policy interests.”’

In other words, without specifically saying it, the US has just stepped up the tech arms race. And just like the semiconductor shortage of 2020 and 2021, there will be big winners and losers as a result.

This decision could set the tone for major market moves…

https://www.moneymorning.com.au/20220902/the-semiconductor-arms-race-is-about-to-kick-off.html

Fragrance and homeware retailer Dusk (ASX:DSK) is currently up 8.5% after releasing its FY22 results.

• FY22 revenue down 6.9% to $138.4 million
• Net profit down 15.5% to $18.5 million
• Like for like sales down 10.5%, online sales up 2.9%
• Gross margin fell 7.5% to $93.7 million
• Basic earnings per share fell from 35.1 cents to 29.7 cents

DSK said revenue and profit were hampered by store closures in the first half of the year due to lockdowns.

Dusk said it lost 24% of store trading days in 1H22 due to mandated store closures.

So why are DSK shares up?

For the first eight weeks of FY23, total sales were up 33% on the prior year’s relevant period.

That said, CEO Peter King himself noted that such sales comparisons are “less insightful” as Dusk cycles the store closure periods in 1H22.

And if you compare the first eight weeks of FY23 to FY21, total sales are down 6%, albeit up 53% on FY20.

But King was also upbeat the retailer can succeed despite the macroeconomic headwinds:

“Our experience is that strong execution and offering new, exciting and ‘on-point’ product can ‘trump’ economic conditions, and we are seeing this hold true in the current environment.”

However, management was unable to provide FY23 earnings guidance.

How important are online sales to Dusk?

Store closures during lockdowns shrunk total like to like sales 10.5%. In the meantime, online sales went up only 2.9%, representing 8.3% of total FY22 sales.

During the 5,483 trading days lost in 1H22 to lockdowns, what did Dusk customers do? Largely waited until physical stores opened up.

Online sales weren’t able to offset a diminished physical store presence. But that’s hardly surprising in Dusk’s case. Its current model and product offering is geared to physical stores and the physical customer experience.

Online shopping still hasn’t bridged the olfactory gap.

But would Dusk like to see its sales diversify further to online? Or with lockdowns politically passé now, is a focus on online largely redundant in management’s view?

Commenting on the FY22 results, CEO Peter King noted:

“For the first eight weeks of FY23, total sales are up 33.2%, or $4.2m versus prior year. We are seeing large channel shifts in our business, with customers returning to stores and sales in the online channel declining materially versus prior year.”

Lotus Resources (ASX:LOT) is currently down 18% after completing a $25 million placement to progress its Kayelekera uranium project in Malawi.

The placement was at 24 cents per share. LOT’s last closing price was around 30 cents a share.

Today’s drop means the uranium stock is currently trading at about the discounted placement issue price.

 

Economists are now arguing that the US Federal Reserve is targeting something a lot less pleasant than a ‘soft landing’ as it battles rising inflation.

Chief economist at KPMG Diane Swonk told Bloomberg that Jerome Powell’s fighting words at Jackson Hole signal dashed hopes of a soft economic landing.

Instead, a more painful ‘growth recession’ is on the cards, with the Fed sacrificing economic growth to tame inflation.

President of the Federal Reserve Bank of Cleveland, Loreta Mester, shared Swonk’s sentiment in a speech earlier this week.

Hardly emotive in style, Mester’s speech still resonated with its import:

“I believe that the Fed has more work to do in order to get inflation under control. This will entail further rate increases to tighten financial conditions, resulting in an economic transition to below-trend growth in nominal output, slower employment growth, and a higher unemployment rate.”

For more on a potential ‘growth recession’, read on here.

In his latest piece for Livewire Markets, our editorial director Greg Canavan argued that the rally that was underway since June was a bear market rally.

The bear trend is still in effect.

But one area of the market holding up quite well is energy, despite oil prices correcting sharply.

But as Greg writes, this presents an opportunity.

US oil prices fell another 3.5% overnight to trade around US$86.50. This could lead to a deeper pullback in energy stocks in the months ahead. In my view, you should use any such correction to accumulate a long term position in energy.

To understand why, you have to go back to the 1970s…

In October 1973, Syria and Egypt launched a surprise attack on Israel. In response, US President Richard Nixon authorised the supply of weapons to Israel.

The Organization of Arab Petroleum Exporting Countries (OAPEC), a subset of OPEC formed in 1968, retaliated by increasing oil prices by 70% and cutting production by 5%.

This didn’t dissuade Nixon, who asked Congress to authorise US$2.2 billion in aid to Israel. It triggered an extreme response from OAPEC — a total oil embargo on the US.

Supply, already tight given strong demand, and the rise of a culture built around the ‘automobile’, was crunched. As a result, prices soared even further. The US economy plunged into recession.

Petrol shortages were widespread, leading to stations around the country displaying sold out signs.

While OAPEC lifted the embargo by March 1974, it profoundly affected US energy security.

President Ford established the Strategic Petroleum Reserve (SPR) in 1975. In 1977, the Department of Energy acquired several existing salt caverns along the Gulf of Mexico to serve as storage sites.

The SPR now consists of 60 salt caverns. According to the US Department of Energy, ‘each cavern is cylindrical in shape with an average diameter of about 200 feet and a height of 2,550 feet’.

The caverns have a storage capacity of 713.5 million barrels.

Now, you’ve probably heard about the SPR before. What you may not know, however, is that President Biden has been using it to increase supply since March this year, to get petrol prices and inflation down ahead of the mid-term elections in November.

As of 26 August, the SPR’s holdings, at 450 million barrels, are at their lowest since 1985! It’s declined by 171 million barrels in the last 12 months alone, and it’s going lower in the months ahead.

How did it get this way?

To read Greg’s full article, click here.

Iron ore futures tumbled a full 8% to US$96.39 a tonne after Chengdu — home to 21 million people — became the latest Chinese city to be locked down.

Beijing’s resolve to keep at its ‘zero-Covid’ policy is making commodity markets jittery as uncertainty hovers over China’s economic recovery.

Iron ore futures slid US$8.37 or 8.0% to US$96.39 a tonne after the lockdown of Chengdu revived fears that the virus will continue to hamper China's economic recovery.

— CommSec (@CommSec) September 1, 2022