ASX LIVE | XJO Recovers; ASX to Watch: Azure Minerals, Block; Wall St Earnings: Apple Down, Amazon Up

That’s all from me have a great weekend everyone!

Stem cell biotech Mesoblast had a brutal day in the markets today, falling over 50% at the FDA again delaying its remestemcel-L drug.

The product has been in development for over a decade as a treatment for graft vs host disease, which is a severe immune reaction that can occur in bone marrow transplant patients.

The FDA has asked for more data from the company. Mesoblast said that to obtain the data it will conduct a controlled study in the highest-risk adults with the greatest mortality.

Mesoblast’s chief executive, Silviu Itescu, remains optimistic that it is only a matter of time before remestemcel-L will be approved. He said:

‘FDA’s inspection of our manufacturing process resulted in no observed concerns, the Agency raised no safety issues across more than 1300 patients who have received remestemcel-L to date, and acknowledged improvements to our potency assay. We remain steadfast in making remestemcel-L available to both children and adults suffering from this devastating disease, and have received substantial clarity in how to bring this much-needed product to these patients.’

China has announced that it will drop anti-dumping and anti-subsidy tariffs on Australian barley imports.

The tariffs had been in place for three years and had affected billions of dollars of trade between the two countries.

The decision to lift the tariffs comes as China and Australia are working to repair their strained relations.

In April, the two countries agreed to suspend a case at the World Trade Organization (WTO) over the tariffs.

The tariffs will be lifted starting on Saturday, China’s Ministry of Commerce said. The ministry cited a changing situation in China’s barley market as the reason for the decision.

Beijing imposed the tariffs in May 2020, wiping out imports of Australian barley.

The move was seen as retaliation for Australia’s calls for an independent inquiry into the origins of the COVID-19 pandemic.

The tariffs had a significant impact on Australian barley farmers, who lost millions of dollars in sales. They also disrupted the global barley market, as Chinese buyers turned to other suppliers.

The lifting of the tariffs is a positive development for Australian barley farmers and the Australian economy as a whole.

It is also a sign that China and Australia’s relations could be warming

The ASX 200 recovered within 15 minutes before close today, up 0.19%, at 7,325.4, thanks to Information Technology and Energy sectors.

Despite this, the ASX 200 posted a weekly loss of 1.75%, its first in three weeks of gains.

ASX 200 Sector Top Performance

• Information Technology up +1.25%
• Energy up +1.09%
• Discretionary up +0.78%

ASX 200 Sector Worst Performance

• Real Estate down -0.64%
• Utilities down -0.70%
• Discretionary up +1.0%

The best individual performers:

• Domino’s Pizza [ASX:DMP], up +3.91%
• New Hope Corporation [ASX:NHC], up +3.17%
• Treasury Wine Estates [ASX:TWE], up +3.14%
• Tabcorp Holdings [ASX:TAH], up +3.11%
• Beach Energy [ASX:BPT], up +2.65%

The worst performers:

• Resmed Inc [ASX:RMD], down -9.42%
• Block Inc [ASX:SQ2], down -5.57%
• Sayona Mining [ASX:SYA], down -3.33%
• Pinnacle Investment Management Group [ASX:PNI], down -2.89%
• Neuren Pharmaceuticals [ASX:NEU], down -2.82%

Many market analysts are now guessing that the RBA has come to the end of its tightening cycle, with some even forecasting easing as early as next year.

That may be a little earlier than I would think, but with the changing of the guard at the RBA and the new mindset of the Reserve Bank to incorporate the goal of full employment into their calculations, it’s anyone’s guess.

Two charts that I think support the idea that the RBA has done enough and we are at peak interest rates despite the tight labour market are these:

Source: ABS

The quarterly share of disposable income seen above is usually underreported by the ABS as it aggregates entire households, and therefore the averages hide a much higher number for individual incomes.

This has been enough of a drag on spending already as we see consumption spending dropping across the board as folks avoid going out or putting off that next big cost or replacing that fridge.

But overall, the pain hasn’t been that bad as many people dipped into their savings that accrued over the Pandemic, as they stayed in and squirrelled away money, boosting savings.

But that has run out. Australian household savings ratio has reached a 15-year low of 3.7%.

Source: ABS

PRD Chief Economist Dr Asti Mardiasmo said the decline in household savings is a major concern given our long-term running average is approximately 5%.

‘Rapid cash rate rises and cost of living increases have directly impacted our savings levels with more of us either not saving as much, or dipping into our savings,’ Dr Mardiasmo said.

‘The scary part is that the household savings ratio is at an aggregate level – that is, the whole of Australia.’

‘That means at a distribution level – so different demographics, different incomes – there will be households that have less than 4.5% in their savings.’

 

Here’s an excerpt from our commodities and mining expert, James Cooper. You can find his latest article at the bottom, with tips on how to make the most of less.

“Broken supply chains, geopolitical tensions, war, inflation, rising energy costs, food crisis, droughts, famine, depleting mines…welcome to the 2020s!

The age of abundance is dead.

The patterns defining this decade suggest more volatility is on the way…especially in the things that matter most — food, energy, and shelter.

It’s why you must own commodities.

But so far, we’ve been focusing on critical minerals…

Stocks developing graphite, rare earth, lithium, nickel, and copper mines…the companies set to benefit as the global economy attempts to end its reliance on fossil fuels.

Critical minerals are a major theme, yet they represent just a tiny segment of the overall commodities market.

That means there are other avenues to tap as we head into the pointy end of this emerging commodity cycle.

A perfect storm of tight supply that spans minerals, oil, gas, food, and water is approaching.

The modern world has been spoiled with years of cheap and plentiful supply.

But that’s set to change.

Decades of underinvestment in the old economy means we are embarking on a new era of shortages.

Mines are being depleted without replacement reserves in sight…

Oil, gas, and groundwater deposits are turning into giant underground voids…

Global crop production is declining alongside severe droughts and war in the Northern Hemisphere.

All this while the planet adds around 1 billion people every decade!

And all this while humanity embarks on its most ambitious project yet…ending its 100-year reliance on fossil fuels.

Demand for commodities is not going to stay still in the years ahead — it will surge!

And the timing couldn’t be worse.

We’re on a collision course for global shortages just as the world demands more.”

https://commodities.fattail.com.au/sneak-peak-an-emerging-food-crisis-and-how-to-play-it/2023/08/04/

With the market betting on a soft landing despite high interest rates winding their way through the economy, are markets expecting a free lunch?

And are they prepared for when the bill comes due?

In today’s episode of What’s Not Priced In, Greg Canavan and I discuss the outlook for interest rates, stretched stock valuations, the Aussie market’s paltry equity risk premium, US tech stocks, and moves in the energy market.

What’s not priced in?

The cost of lunch.

https://www.moneymorning.com.au/20230804/whats-not-priced-in-11-asx-stocks-are-pricier-than-you-think.html

Approximately 82% of S&P 500 companies’ earnings have beaten expectations, but the market is no longer looking at just earnings.

This interesting chart shows that investors aren’t responding to just earnings beats anymore and are looking for something more.

With stocks appearing overpriced to some and bond yields rising, what’s the next step for Wall Street?

#Earnings update!
Nearly 82% of S&P 500 Index companies beat earnings expectations this reporting season. But as the chart attached shows, the price reaction has been negative for most sectors (each dot is one of the major sectors, white = Materials)
The reason for the muted… pic.twitter.com/uC0McOpNgI

— jeroen blokland (@jsblokland) August 3, 2023

As the chart below illustrates, the past few days have seen Wall St equities struggle against rising bond yields in the US.

That change came after rating agency Fitch downgraded US credit from AAA to AA+, in a move the US Treasury called ‘arbitrary’, and with ‘old data’.

Regardless of Fitch’s reasons, the effect was a chain reaction that has sent 10-year bond yields rising above 4%, taking the steam out of the stock market.

While this move is unlikely to have a long-lasting effect, the timing could be significant for US markets as August is historically the worst month for stock performance — with data going back to 1986.

The old Wall Street adage says, ‘Sell in May and go away,’ because the summer is when many traders go on holiday.

The reduced trader numbers can lead to increased volatility and are often where previous market bull runs face doldrums.

US 10-year bond yield (orange) vs S&P 500 & Nasdaq

Source: TradingView

Saudi Arabia announced today that it is extending its voluntary supply curbs along with Russia for another month.

OPEC+ leaders have pushed cuts to prop up oil prices with cuts over the past year, creating tensions with the US.

Saudi Arabia will prolong its one million barrels a day production cut— first implemented in July.

The Saudi cuts could also be extended or increased, according to the country’s Ministry of Energy.

The move would go beyond what OPEC+ leaders had agreed to in their formal meeting, despite oil prices rallying 14% in July to near US$85 per barrel.

Russian crude has also sat above its sanctioned cap of $60 per barrel since early July, with the price of Urals Crude currently at $70 per barrel.

The sanctions were put in place by G7 members in December of 2022 as a response to the war in Ukraine.

The hope was to reduce Russia’s ability to finance the war and curb inflation, however, Western nations have struggled to gain support from non-aligned nations.

The trade of Ural Crude has continued to China and India, with both nations offering their tanker fleets to fill the transport gaps by Western companies’ withdrawal.

https://www.moneymorning.com.au/20230803/biden-reneges-on-oil-reserve-resupply-as-prices-soar.html

ASX 200 remains flat around midday, at 7,309.9, with the Healthcare Sector the worst performer, down 1.73%.

Meanwhile, the Energy sector is up 0.93% as oil prices climb on news that Saudi Arabia will extend its one million barrels per day cut into September.

The Materials sector is up 0.33%, recovering from yesterday’s heavy losses despite iron ore and gold prices down today.

Australias’s competition regulator (ACCC) has rejected ANZ’s $4.9 billion acquisition of Suncorp Bank, saying it would lead to less competition in home loans and business banking in Queensland.

Both banks have said they will appeal the decision, pushing the final outcome for several months.

‘We are naturally disappointed and disagree with the ACCC’s decision. We are closely reviewing the determination and will seek an independent decision through the avenues of review available to us,’ ANZ CEO Shayne Elliot said.

ANZ shares were up 1.15% this morning despite the news.

Azure Minerals [ASX:AZS] shares are up 15.21% this morning after reporting a huge 209m high-grade lithium intersection.

Highlights of the lithium mineralisation intersected in its West Pilbara WA site were:

• 209.4m @ 1.42% Li₂O in hole ANRD0017
• 183.1m @ 1.25% Li₂O in hole ANDD0228

Mineralisation now extends for more than 1,800m along strike and down-sip from surface to depths in excess of 400m.

Source: Azure Minerals Ltd

Block Inc [ASX:SQ2] shares have opened on the ASX down 10% despite raising its financial guidance and beating expectations as headwinds are seen in the sector.

Block reported a rise in second-quarter revenue to US$5.53, beating expectations by US$430 million.

Block chief financial officer Amrita Ahuja mentioned Australia as being a particularly challenging environment relative to other markets.

‘From a geographic perspective, what we’ve seen is some of those macro-related headwinds – which are more pronounced in Australia – in the second quarter,’ Ms Ahuja said, that growth in international markets, excluding buy now, pay later, was on track.

The company also faced issues in Europe, announcing they would shut its buy now, pay later operations in France, Spain, and Italy.

Block was not the only Afterpay company to have a challenging day on the markets, with Paypal down 12.32% after its earnings report overnight.

Overnight, Amazon reported blowout profits for the second quarter and issued optimistic guidance. Shares of the company are up by 8.73% in after-hours trading.

Beating Wall St expectations, Amazon posted revenue growth of 11% to $134.4 billion, its best performance since 2020.

Earnings per share were 89.5% higher than expected, with a reported 65 cents EPS.

The profits were driven by cost-cutting measures implemented by CEO Andy Jassey, and continued growth in Amazon Web Services (AWS)

Jassy has been slashing costs across Amazon since taking over as CEO last year. The company has laid off 27,000 employees and frozen corporate hiring. These measures have helped to reduce Amazon’s operating expenses by 16% year-over-year.

AWS, Amazon’s cloud computing division, also continued to grow in the second quarter. Revenue from AWS climbed 12% to $22.1 billion, above analyst expectations. AWS accounted for 70% of Amazon’s operating profit in the quarter.

Apple’s sales fell 1.4% in the third quarter, but earnings per share rose 5%. The company forecast sales to decline in the current quarter, sending shares down.

Weaker iPhone sales were balanced by strong sales in the services segment. Apple is facing headwinds from increasing competition from Android rivals and a slowing global economy.

However, the company’s services business is growing rapidly, and it is expected to see a bump in product sales as its next big product —the Vision Pro mixed-reality headset announced in June to get into the hands of consumers soon.

Key Takeaways

• Apple’s sales fell 1.4% in the third quarter.
• Earnings per share rose 5%.
• Apple forecast sales to decline in the current quarter.
• Shares fell 0.73% after the forecast and 2.02 in after-hours trading.
• Apple is facing headwinds from increasing competition and a slowing global economy.

NZ Dairy giant Fonterra Co-operative Group has revised its 23/24 season forecast of farmgate milk powder from NZ$7.25-8.75 per kg, to the lower price of NZ$6.25-7.75 per kg.

Fonterra CEO Miles Hurrell says the revised price reflects ongoing reduced demand for whole milk powder from China.

He continued, saying:

‘When we announced our opening 2023/24 season forecast Farmgate Milk Price in May, we noted it reflected an expectation that China’s import demand for whole milk powder would lift over the medium-term.’

‘Since then, overall Global Dairy Trade (GDT) whole milk powder prices have fallen by 12%, and China’s share of whole milk powder volumes on GDT events has tracked below average levels.‘

Morning all, here’s a quick snapshot of markets overnight. ASX 200 is poised to fall again today; we’ll keep you updated as the day continues.

RBA’s monetary policy statement is due out today at 11:30am, so stay tuned for that and all the biggest moves on the ASX.

• $AUD up +0.23% at 65.58 US cents
• ASX futures down -0.86% to 7,236.0
• S&P 500 down -0.25%
• NASDAQ down -0.098%
• DOW down -0.19%
• FTSE down -0.43%
• STOXX down -0.72%
• SSE up +0.58%
• Bitcoin up +0.20% to $US 29,189.68
• Spot gold down -0.05% to $US 1,935.2
• Iron ore down -0.84% to $US 107.41
• Brent Crude up +0.13% to $US 85.25pb

All figures shown are from 09:40am AEST