ASX News LIVE | XJO Falls; J Powell Speech Signals Tightening, US 10-year Hits 5%, Oil and Gold Climb Higher

That’s all from me this week,

Things to keep an eye on next week:

• NZ is on holiday on Monday for Labour Day
• Hong Kong is also on holiday on Monday
• Manufacturing and services PMI data out Tuesday will help shape RBA decision
• Wednesday has US Manufacturing PMI data and, importantly, CPI data for Australia will be the biggest scheduled event
• New home sales for the US on Thursday and another speech from Fed Chair J Powell and Michele Bullock
• Producer Price Index for Australia out on Friday.

We’ll be here to cover all these events and more next week.

Until then, have a great weekend!

Here’s today’s latest AI-generated image showing the safe haven flows to gold this week.

The ASX 200 closed down -1.16% today at 6,900.7. This put the week at a -2.68% loss for the benchmark while it is still holding ground (just) at +2.53% in the past 12 months.

The only sector not in the red today was Energy (+0.16%), with gains from Santos (+2.36%) and Whitehaven Coal (1.27%) doing the heavy lifting today.

Oil continued to climb, with Brent up 1.03%, while WTI was flat.

The biggest gainer today was Weebit Nano, holding up +13.55%, while the heavy losses were seen by Liontown Resources (-31.90%) as it came out of trading halt after Albermale abandoned its takeover plans after Australia’s richest person Gina Rinehart bought a blocking stake in the company.

Gold also climbed over trading today, reaching US$1990/oz, setting an Australian gold price record of $3150/oz.

Bitcoin also climbed 3.51% today as the SEC abandoned its court case against Ripple, which set bulls running.

The Australian dollar slipped slightly, falling -0.23% to US 63.15 cents.

There has been a lot of talk circulating finance circles in recent months that the RBA is planning on raising rates on Melbourne Cup day in November.

A lot of this chat has circulated for months without any basis beyond the rumour mill, but now recent speeches and fireside chats by Michele Bullock may give the speculators more ammunition.

The RBA boss has indicated that she is keeping an eye on price rises that regularly impact consumers. She says the “million-dollar question” facing the central bank is how do people’s inflation expectations adjust to higher prices for common items. In her recent fireside, she commented that:

“At the moment, inflation expectations for the very near term, like the next year, are elevated, they’re high,” Bullock said.

“That’s not unexpected because a lot of these things that are in people’s faces when they are doing the shopping – petrol prices, food prices, rents – all these sorts of things are going up.”

The idea of embedded inflation has circulated in many central bank speeches in recent weeks, showing that in this next phase in the battle against inflation, the RBA may move aggressively to dislodge consumers’ internalised inflation expectations if it thinks the economy can handle it.

The decision will also be influenced by the September-quarter CPI data, due for release next Wednesday. Most economists expect annual inflation to continue easing from 6% in the June quarter to somewhere between 5% and 5.4%. Bond yields will also be a significant factor in the next moves as the 10-year notes move back into dangerously high points not seen since mid-2011 in Australia.

Michelle Bullock and Assistant Governor Christopher Kent will testify at the Senate Economics Legislation Committee next Thursday, providing a better indication of their next move.

However, if inflation comes in above those forecasts, it could increase the chances of a rate rise in November. Current market pricing has the odds of a November interest rate rise at about 25%, up significantly in the past four days.

Source: ASX RBA Rate Tracker

RBA the only major CB with another rate hike fully priced. Very rare in recent years, helping A$ on crosses for now. But where will it be after Aust Q3 CPI on Wednesday?#ausbiz pic.twitter.com/MZRpOWYHoG

— Sean Callow (@seandcallow) October 19, 2023

Chat GPT owner OpenAI is in talks with employees to sell their shares at a potential IPO launch that could value the company at a US$136 billion valuation.

The artificial intelligence start-up has rocketed onto the scene after the significant release of Chat GPT-3 took the world by storm last year. So far, nothing has been confirmed or finalised but the move could be another important bell-weather event for the U.S. tech industry after similar moves by British Arm IPO launch in August this year.

While Arm’s launch was successful, the share price has fallen below the IPO price and has been under significant pressure.

“(Companies) understand that if you come to the IPO market in the near term, you’re going to suffer some of the hangover from the performance of these recent high-profile transactions,” said David Levin, co-head of equity capital markets at Guggenheim Securities.

So, what do recent IPOs in the past year tell us about any future launches planned for next year?

Valuation Expectations

One of the biggest questions facing the IPO market has been valuation. Although the pricing of recent IPOs suggests that market upside remains, early signs indicate that valuations have not rebounded to their pandemic-era peaks.

Companies seeking to access capital markets today—particularly their late-stage lead investors—may need to be prepared to do so at a discount to their last valuations.

The recent IPO market has shifted towards profitability, as companies with solid fundamentals and robust growth prospects can succeed. This is likely due to higher costs of capital, uncertainty in the private financing markets, and decreased investor risk appetite.

While profitability is certainly important, revenue growth is still a key driver of investor interest. Instacart and Klaviyo IPO launches both illustrate that it is possible to prioritise profitability while maintaining robust revenue growth.

Overall, it’s a challenging time to launch a big name into the broader market.

The ASX 200 is down 1.08%, holding around the same numbers as open at 6,905.9.

Only the Energy sector is up +0.75%, while the rest are in the red at midday.

The top gainers are Weebit Nano, +12.05%, while the big loser is Liontown Resources, down -31.81%.

Here’s the latest episode from Greg with special guest Geologist James Cooper.

Here, they talk about the rare timing opportunity we find ourselves in and explore the hidden gems of the junior mining space.

Topics covered in this episode:

• The dynamics driving the firesale of junior miners.
• James Cooper’s expert insights on the current market conditions.
• Evaluating whether it’s a strategic time to invest in junior miners.
• Unveiling potential hidden gems and risks in the junior mining sector.

Here’s an interesting chart from Peter Mallouk, CEO of CPI Wealth and serial chartist.

In the past decade, the average tactical allocation fund gained just 2.3% per year, which was one-third of a typical balanced index of U.S. 60% stocks and 40% bonds. It highlights that timing market movements is less important than simply more time in markets without significantly shiting stocks into defensive positions during expected downturns.

Many of the biggest players, including Morgan Stanley, have admitted mea culpa at similar mistakes made at the start of the year when they put themselves into overly defensive positions and missed out on the huge gains seen in the Nasdaq and S&P 500 in the run-up before the September falls.

It could be understandable, considering the performance of the markets in the past decade, that this is slightly skewered as indexes generally outperform in long positive runs in the markets, while picks can usually be better in downturns to reduce losses, but it highlights the need to not be overly cautious and strike when opportunities are abound when markets are hurting (like now).

Of course, everyone’s situation is different, so consider your own financial position before investing, but remember it’s time in the markets, not timing, that makes the difference.

The average tactical allocation fund gained just 2.3% per year over the decade ending April 30, 2023, a third of the performance of a U.S. 60% stocks/40% bonds mix. What’s more, most of these tactical funds didn’t survive to the end of the period: Of the 34, 22 died along the… pic.twitter.com/ysVs88dORh

— Peter Mallouk (@PeterMallouk) October 17, 2023

Liontown [ASX:LTR] has seen its share price collapse after coming out of a trading halt today, but why?

As we reported earlier in the week, the failure of the proposed takeover by Albemarle Corporation is the biggest factor. Albemarle pulled out of the deal due to the ‘growing complexities’ associated with executing the transaction. This was a clear reference to Gina Rinehart’s Hancock Prospecting business acquiring a blocking stake in Liontown while Albemarle was undertaking its due diligence.

This takeover bid had been keeping the Liontown share price elevated during a period of significant weakness in the lithium industry, so its removal was always going to put significant pressure on the company’s shares.

Liontown has now sourced its funding through a debt financing package and fully underwritten equity raising, but the equity raising is at a sizeable 35.4% discount to the market price, which is weighing on the share price as $376 million fully underwritten institutional placement and $15 million non-underwritten shares dilute the stock.

Commenting on the news, Liontown’s Managing Director and CEO, Tony Ottaviano, said:

“The completion of the Institutional Placement completes the funding package to take Kathleen Valley through to first production and beyond.”

“Notwithstanding the current challenging market conditions, the Placement was met with strong demand and we have achieved our goal of strengthening our share register with the addition of high-quality domestic and international institutional shareholders.”

“I am immensely proud that this funding has attracted such positive domestic and international investment and equity market support which, in turn, demonstrates a strong vote of confidence in the Kathleen Valley Project and the Liontown team.”

“We look forward to getting on with the task of delivering Kathleen Valley on time and on budget with the certainty this funding provides.”

It’s a busy morning for commodities players this morning, with many releasing quarterly updates and trading halts before announcements. Here are some of the bigger companies:

• Magnetic Resources is up 15.29% already this morning after summarising its quarter of strong gold intercepts; highlights include 138m at 2.25g/t from 91m and 37m 6.50g/t from 192m.
• Malaysia-based rare earth miner Lynas posted poor results, with total sales of $128 million in the September quarter, down from $163 million the prior quarter.
• Paladin Energy released quarterly results, showing US$100 million unrestricted cash in hand. The restart of the Langer Heinrich Mine is approximately 80% complete and on budget, first production is scheduled for Q1 CY2024.
• Explorer WA1 Resources’ quarterly report showed a cash balance of AU$23 million. The company reported high-grade Niobium (a potential lithium-ion battery replacement mineral) from 15 RC drill holes at its Luni site at West Aruna Project as well as electromagnetic surveys of its Hidden Valley Project and Madura Project looking for copper-gold deposits but nothing major so far on that end.
• Polymetals Resources released a report outlining its restart of the silver zinc mine Endeavor, in which it forecasts a payback period of 2.3 years with a LOM Revenue of A$1.4 billion. Pre-production CAPEX is forecasted to be $23.7 million.
• Winsome Resources’ quarterly report showed extensions to its flagship Adina Project that has restarted exploration after a wildfire shutdown period. Latest assay highlights include: 1.80% Li₂O over 23.4m from 237m and 1.55% Li₂O over 26.4m from 159m.
• WA gold miner Calidus Resources is in a trading halt relating to a transaction with Pilbara Lithium
• Graphite miner Lincoln Minerals is in a trading halt until next Tuesday.
• Atlantic Lithium is in a trading halt regarding a permit for its Ewoyaa lithium project.

Here are all the company’s movements (click through the top of the chart):

Good morning all,

The ASX 200 opened down -1.07% to 6,907.0, following Wall Street’s third day of losses as patterns move back into September’s down period, with rising oil and bond prices overshadowing equities.

A speech by Jerome Powell last night pushed markets down further as traders read between the lines and decided it signalled further tightening ahead, but more about that later.

This sent US 10-year bond yields up to 5% (4.99% if we are splitting hairs), a 17-year high and left Wall Street closing down around 1%.

Wall Street: The Dow -0.75%, Nasdaq -0.96%, S&P 500 –0.85%, Russell 2000 -1.51%.

Overseas Markets: FTSE -1.17%, STOXX -0.38%, Nikkei -1.91%, SSE -1.74%

Gold is climbing steadily, up +1.19%, now pushing gold into the green in the past 30 days at +1.11% but still down -2.71% for the past six months. Silver gained +0.51%, still down nearly 10% for the past six months.

Oil prices are up again as wider war risks spiked overnight. Brent Crude is up +1.69%, at US$93.05, while WTI crude is up +0.27% at US$89.13.

In the Middle East, a US Navy warship on Thursday (Friday AEDT) shot down three cruise missiles and eight drones launched from Yemen towards Israel. The Iran-aligned Houthi are assumed to be responsible for the attack.

The Pentagon spoke about the incident, saying:

“We cannot say for certain what these missiles and drones were targeting, but they were launched from Yemen heading north along the Red Sea, potentially towards targets in Israel,” Pentagon spokesman Brigadier General Patrick Ryder told reporters.

Iron Ore is down -0.25% to US$119.01, Bitcoin is up +1.19% to US$28,676.13

Australia’s 10-year Treasury bond continued to surge, climbing 14bps to 4.79%.

The Aussie dollar is down -0.24%, at US63.20 cents, now at values seen last November as high US bonds flow currency into the greenback.