ASX edges lower in lacklustre trading: Aus shares down 0.1% at noon

At noon, the S&P/ASX 200 is 0.13 per cent or 8.50 points lower at 6783.00.

Asian equities are mixed Monday. Japanese stocks are logging mild declines while Korea is little changed.

On Friday the Dow Jones Industrial Average lost 137.61 points, or 0.43 per cent, to 31,899.29. The S&P 500 declined 0.93 per cent to 3,961.63, while the Nasdaq Composite traded 1.87 per cent lower to 11,834.11.

US equities saw a second straight week of outflows, although the Bank of America said there is still no sign of investor pessimism in flow data.

Friday’s losses cut into weekly gains for all three major averages, with the Dow closing out the week nearly 2 per cent higher. The S&P 500 advanced about 2.6 per cent, and the Nasdaq capped the week up 3.3 per cent. Across the sectors investors got defensive, with the best-performing sectors being utilities, real estate and consumer staples.

An earnings miss from Snap, which sent shares tumbling about 39.1 per cent, halted this week’s Nasdaq rally. One analyst said “Snap has managed to snap the uptrend in the Nasdaq by reporting disappointing earnings, which has created a cascading effect on the S&P”. The results from the Snapchat parent were followed by a slew of analyst downgrades on the stock. Snap’s quarterly report also weighed on other social media and tech stocks, which investors feared could face slowing online advertising sales.

Shares of Meta Platforms and Pinterest fell about 7.6 per cent and 13.5 per cent, respectively, while Alphabet lost 5.6 per cent.

Twitter rose 0.8 per cent despite reporting disappointing second-quarter results that missed on earnings, revenue and user growth. The social media company blamed challenges in the ad industry, as well as “uncertainty” around Elon Musk’s acquisition of the company, for the miss.

Verizon was the worst-performing member of the Dow after reporting earnings. The wireless network operator dropped 6.7 per cent after cutting its full-year forecast, as higher prices dented phone subscriber growth.

About 21 per cent of S&P 500 companies have reported earnings so far. Of those, nearly 70 per cent have beaten analyst expectations, according to FactSet. Five sectors, including energy, health care, technology, utilities and consumer staples, are expected to post higher earnings than expected on June 30.

The pace of the second-quarter earnings season hits its peak this week, with 174 S&P 500 companies scheduled to release results. This includes the likes of Apple, Amazon, Meta, Alphabet, McDonalds, Colgate Palmolive, Procter and Gamble, Pfizer, Mastercard, and Anglo American, to name a few.

The SPI futures are pointing to a fall of 12 points.

Best and worst performers

The best-performing sector is Materials, up 1.00 per cent. The worst-performing sector is Information Technology, down 1.47 per cent.

The best-performing stock in the S&P/ASX 200 is Flight Centre Travel Group (ASX:FLT), trading 4.62 per cent higher at $17.90. It is followed by shares in Corporate Travel Management (ASX:CTD) and Bega Cheese (ASX:BGA).

The worst-performing stock in the S&P/ASX 200 is EML Payments (ASX:EML), trading 20.92 per cent lower at $0.95. It is followed by shares in Nanosonics (ASX:NAN) and PointsBet Holdings (ASX:PBH).

Local economic news

Bonds are mixed with JGB, Australian and New Zealand bonds rallying while Treasury rates are up 1-2 basis points. Commodities are mixed with crude up marginally and base metals pulling lower.

The dollar is advancing on major crosses, strongest against commodity currencies.

The focus remains on the Fed’s hiking path, with a 75 basis point rate hike priced in for this week.

However, weakening economic momentum and corporate hiring freeze announcements, along with continued pullback in inflation expectations, are driving forecasts of a slowdown in pace of tightening.

Inverting yield curves are also playing into the recession debate, with Treasury 2/10 spread near its most negative territory since 2000.

While the threat of lockdowns looms over major cities, Shanghai and Beijing have so far avoided community outbreaks. China’s health authorities are also stepping up efforts to get people vaccinated, saying state and party leaders have been inoculated with domestically produced shots.

There is more scrutiny on China’s property developers, with the mortgage boycott development still playing out and Evergrande in a management shake-up ahead of a month-end deadline for a restructuring proposal.

US-China relations are another focus, with FT noting the latest Chinese proposal to avoid delisting from American exchanges.

Another FT piece highlighted unusually strong warning by Beijing against Pelosi’s planned visit to Taiwan, including the suggestion of possible military response.

Company news

Queensland renewable energy developer Genex Power (ASX:GNX) has received a conditional, non-binding, bid from Atlassian billionaire Scott Farquhar, as reported in The Australian. The indicative proposal from Mr Farquhar’s Skip Essential Infrastructure Fund and US-based investment firm Stonepeak Partners is for 23c per share cash. Mr Farquhar’s investment fund Skip is headed up by the tech executive’s wife Kim Jackson, and now owns a 19.99 per cent stake in Genex. The deal is subject to a number of approvals, including from the Foreign Investment Review Board. Shares in GNX are currently trading up 48.15 per cent at 20c.

TerraCom (ASX:TER) has announced a record operating EBITDA of $224 million for the June Quarter. Blair Athol achieved an operating EBITDA of $174 million as export coal prices remained high during the June Quarter, resulting in an operating cash margin of $278 per sold tonne. The South African operations achieved an operating EBITDA of $50 million, resulting in an operating cash margin of $32 per sold tonne. There was a record average coal price of $403 per sold tonne achieved at Blair Athol for the June Quarter and $250 per sold tonne achieved for FY2022. Strong demand continues from the Japanese and South Korean energy markets and Indian sponge iron market. Shares in TER are currently trading down 1.26 per cent at 78.5c.

Odyssey Gold (ASX:ODY) today announced progress drill results from Reverse Circulation drilling recently completed at the Maybelle Deposit, part of the Tuckanarra Project in the Murchison Goldfields of Western Australia. Commenting on this stunning intersection from Maybelle, Managing Director Matt Briggs said: “The result of 4m @ 53.9g/t Au is the highest gram metre result ever drilled at Maybelle and successfully confirms and extends the interpreted high-grade shoots below the Maybelle Pit. Structural analysis and modelling by our geologists identified the plunge as more steeply dipping than previously interpreted as confirmed by this latest hole. This latest high-grade intersection is very encouraging and demonstrates the clear potential to establish a quality resource footprint at Maybelle. Historic mining has barely scratched the surface with mineralisation now continuous from the base of the 30m deep pit to 100m below surface.” Shares in ODY are currently trading up 25 per cent at 5c.

South32 (ASX:S32) has come within a whisker of hitting its revised annual output guidance target, despite the impact of Covid-19 and global supply chain issues, with record production at its Worsley Alumina operations in WA underpinning the company’s performance. South32 achieved 99 per cent of its revised guidance on a copper equivalent basis, despite a broader fall in production across most of its operations. The company released its June quarter production report on Monday, with total alumina production down 1 per cent to 5.29 million tonnes, but aluminium output was up slightly to 992,000 tonnes, from 982,000 tonnes the previous financial year. South32’s nickel production was up 22 per cent to 41,700 tonnes, but lead, silver and zinc were all down. Shares in S32 are currently trading up 2.41 per cent at $3.615.

The Directors of Nickel Industries (ASX:NIC) today announced that the company’s 80 per cent-owned Angel Nickel Project has commenced commissioning of its 380MW power plant within the Indonesia Weda Bay Industrial Park (IWIP) on Halmahera Island. The commissioning of the Angel Nickel power plant is ahead of schedule and follows the early commissioning of the Project’s four RKEF lines between January to May this year, well ahead of the contracted delivery month of October 2022. Angel Nickel has been operating at approximately 80 per cent of nameplate capacity, restricted by power availability within the IWIP electricity grid. However, with its own power source coming online, production levels at the project are expected to increase to approximately 130 per cent of nameplate capacity, in line with the historical outperformance above nameplate capacity of the company’s established Hengjaya and Ranger RKEF projects. Additionally, by having its own power source, Angel Nickel’s four RKEF lines are expected to benefit from a saving of approximately 20 per cent on electricity charges, which currently account for approximately 25 per cent of total operating cash costs. Shares in NIC are currently trading up 2.5% per cent at $1.025.

Travel business Flight Centre (ASX:FLT) says it expects to report an underlying EBITDA loss between $180 million and $190 million for the full year. That compares to previous guidance between $195 million and $225 million. “After an incredibly challenging period, we were pleased to achieve our goal of returning to monthly underlying EBITDA profitability in both the corporate and leisure sectors late in the year,” the group’s Managing Director Graham Turner said. “The scale of our recovery exceeded our initial expectations and meant that we should now exceed our preliminary FY22 result target, with early trading results pointing to a breakeven second half result and a healthy fourth quarter profit (underlying EBITDA).” Shares in FLT are currently trading up 4.68 per cent at $17.91.

EML Payments’ (ASX:EML) Irish subsidiary has made adjustments to its remediation program after Irish regulators identified “shortcomings” following a review of the company’s risk assessment framework. In an update to the market, embattled EML, which this month lost its long-running chief executive, said the additional work, as ordered by the Central Bank of Ireland, may result in further controls being embedded into its internal control framework. “EML’s Irish subsidiary, PFS Card Services (Ireland) Limited (‘PCSIL’), has been undertaking a remediation programme at the direction of Central Bank of Ireland since July 2021, with the assistance of external expert advisors,” the company said on Monday.
Share in EML are currently trading down 20.50 per cent at 95c.

Commodities and the dollar

Coal will remain the primary source of energy for China over the next 10 to 15 years. Coal’s dominant role as the mainstay source of energy for China is unlikely to change for a decade or more, as China coal consumption is not expected to peak until 2025. Capital spending on thermal power generation rose 72 per cent in the first six months of the year and more projects are on the way as the authorities speed up new approvals. China’s clean energy and climate action plans remain impacted by energy security, mainly due to power shortages and the spike in prices caused by Ukraine-Russia war (Bloomberg).

Gold is trading at US$1724.86 an ounce.
Iron ore is 4.1 per cent higher at US$100.35 a tonne.
Iron ore futures are pointing to a rise of 7.45 per cent.
One Australian dollar is buying 69.05 US cents.