ASX in a holding pattern: Aus shares 0.2% higher at noon

The S&P/ASX 200 traded flat by midday in Sydney as traders prepared themselves for the busiest week of corporate earnings in the US, Thursday’s Federal Reserve meeting and tomorrow’s CPI print. Resources sectors are leading, as they did in the US, with Energy and Materials up over 1 per cent.

At noon, the S&P/ASX 200 is 0.15 per cent or 10.50 points higher at 6800.40.

The SPI futures are pointing to a rise of 4 points.

Global markets

The S&P 500 added 0.1 per cent, closing at 3,966.84. The Dow Jones Industrial Average climbed 90.75 points, or 0.3 per cent, to 31,990.04. The tech-heavy Nasdaq Composite lagged, sliding 0.4 per cent to 11,782.67. All of the major averages are on track for their best month of the year.

Almost a third of the S&P 500 is set to report quarterly earnings this week as well, including Apple, Alphabet and Microsoft. This all comes as investors fret about the potential of an economic recession.

Tech stocks fell Monday on the heels of a warning by Snap, which reported disappointing earnings last week, causing investors to worry about declining digital ad spending in the current economic climate. This continues to cast a shadow across social media platforms.

On the flip side, energy stocks were the best-performing sector as oil prices rose over 2.1 per cent on Monday, bolstered by supply fears and a dip in the US dollar.

Chevron was the top gainer in the Dow, up nearly 3 per cent.

Elsewhere, shares of Newmont Corporation slid 13.2 per cent after the mining company reported a quarterly loss that was down nearly 41 per cent from a year ago, hurt by a drop in gold prices.

After market, Walmart cut its quarterly and full-year profit guidance, saying inflation was changing how its customers spend. The big-box retailer said it now expects same-store sales to rise by about 6 per cent in the second quarter, excluding fuel, as consumers buy more groceries instead of higher-margin discretionary items. Shares of the company fell about 7 per cent after hours. It also dragged down other retailers’ stocks, including Target, which was down by more than 4 per cent.

US contracts are lower, with the WMT-US selling off in extended trade after cutting profit guidance.

Asian equities are mixed. The Hang Seng is leading Chinese markets following tech-driven declines on Monday. The Nikkei is little changed and the Kospi is higher.

Markets are in waiting mode ahead of Wednesday’s Fed meeting. While a 75 bp rate hike is largely baked in, a bigger question is the extent to which the Fed will guide expectations for September and beyond. Markets are pricing in a slower pace of tightening before the Fed pivots to an easing stance in 2023. However, Chair Powell is seen as pushing back against a recession outcome while highlighting an outsized focus on combating inflation.

Walmart’s guidance downgrade is fuelling concerns inflation is leading consumption patterns away from big-ticket items towards staples. The company is having to cut prices to reduce merchandise levels, which plays into broader concerns around excess retail inventories. This follows a similar downgrade by Target in June and heightens concerns over other retailers, with Costco, Best Buy, The Home Depot and Amazon all sustaining declines after hours.

In regional developments, the South Korean GDP beat is seen as emboldening the Bank of Korea to continue tightening. June Bank of Japan meeting minutes noted a view among members that the economy needed strong financial support amid headwinds from commodities and Covid. US-China tensions are ratcheting higher over Pelosi’s planned visit to Taiwan. China’s Covid outbreak is an ongoing concern after Shenzhen-based companies including Foxconn reportedly began closed-loop systems.

Best and worst performers

The best-performing sector is Energy, up 2.34 per cent. The worst-performing sector is Consumer Discretionary, down 1.69 per cent.

The best-performing stock in the S&P/ASX 200 is Zip Co (ASX:ZIP), trading 15.20 per cent higher at $0.98. It is followed by shares in Paladin Energy (ASX:PDN) and South32 (ASX:S32).

The worst-performing stock in the S&P/ASX 200 is IRESS (ASX:IRE), trading 10.98 per cent lower at $10.46. It is followed by shares in Flight Centre Travel Group (ASX:FLT) and EML Payments (ASX:EML).

Local economic news

Bonds are mixed, with Treasury and Aussie curves bull flattening while JGB and New Zealand rates are higher.

The Australian Q2 CPI on Wednesday looms as a key macro catalyst. Headline inflation is forecast to have risen to a 32-year high of 6.3 per cent y/y (1.9 per cent q/q), from 5.1 per cent in Q1. Trimmed mean inflation is estimated to have jumped to 4.7 per cent y/y from 3.7 per cent in Q1. Futures are currently pricing in consecutive 50 bp RBA rate hikes in August and September. While Governor Lowe has downplayed the idea of tightening by more than 50 bp increments, some economists believe a hotter-than-expected inflation could swing market pricing towards a 75 bp hike in August, particularly if this week’s Fed policy outcome is more hawkish than anticipated. This comes after Lowe recently said the cash rate remains well below an estimated nominal neutral rate of at least 2.50 per cent. Some thought a stronger-than-expected CPI that pushes up inflation expectations could drive neutral rate estimates higher and prompt more aggressive cash rate forecasts.

Commodities and the dollar

Crude and copper are leading commodity market gains.

Gold is trading at US$1727.99 an ounce.
Iron ore is 3.6 per cent higher at US$104.00 a tonne.
Iron ore futures are pointing to a rise of 1.41 per cent.
One Australian dollar is buying 69.80 US cents.

The dollar is weakening against other currencies.

Cryptos are under pressure following a report by Coinbase Global being probed by the Securities and Exchange Commission.

Company news

Andromeda (ASX:ADN) has signed a legally binding offtake agreement with Vietnam- and Hong Kong-based Asia Minerals Resources (AMR) to supply halloysite-kaolin from the Great White Kaolin Project. The binding agreement is for up to a total of 38,500 tonnes of Great White KCM 90 over the first three years of production at a price in excess of the Definitive Feasibility Study pricing. The agreement includes sales into the ceramics sector covering Vietnam, Malaysia, Singapore, Bangladesh, India, Pakistan, Philippines, South Korea, Indonesia, Thailand and the UAE. Andromeda’s Managing Director James Marsh, said: “This Agreement with AMR is a significant milestone for Andromeda as it is the first one for our initial Great White KCM 90 product with a leader in the world of high-quality ceramics which confirms the quality and value of the unique Great White resource”. Shares in ADN are currently trading up 12.36 per cent at 10 cents.

Vulcan Energy Resources (ASX:VUL) has received new work approvals for its Zero Carbon Lithium project in Germany and further expanded its exploration licence area in the region. The company was given permission by eight local councils to undertake a 3D seismic survey, which it said it would use to assist in future development drill planning. In addition, Vulcan was granted a new exploration licence in the area, increasing its presence in the Upper Rhine Valley Brine Field by 277 square kilometres to 1440 square kilometres. Vulcan Managing Director Francis Wedin said the positive support for Vulcan’s planned work was a strong endorsement of the project. “We are now well-positioned to progress work in this area more efficiently and cost-effectively, at a time of unprecedented demand for lithium for electric vehicles, and for renewable energy in Europe,” Dr Wedin said. Shares in VUL are currently trading up 4.5 per cent at $7.43.

Myer Holdings (ASX:MYR) today provided a trading update and results guidance for the 52 weeks to 30 July 2022. Myer is now on track to report its strongest net profit since 2017, with its online platform driving strong sales growth and its cash on hand swelling to more than $155m. Their second half profit for 2022 for the 26 weeks to July 30 would be between $23m and $28m, up between 160 per cent and 217 per cent compared to the net profit of $8.8m for the 27 weeks to 31 July  2021. MYR shares are currently trading up 21.75 per cent at 48.7 cents.

Power giant Origin (ASX:ORG) will invest an additional £94m ($163m) in UK group Octopus Energy Group to maintain its 20 per cent equity interest and support its rapid expansion. Origin’s price of investment is the same as during a previous round in September last year. Canada Pension Plan Investment Board, Generation Investment Management and Tokyo Gas also invested a total £175m in the latest funding round. Octopus is now valued at more than £3.5bn, representing close to a four-fold increase in value since Origin’s initial investment in May 2020. The latest funding takes Origin’s investment since May 2020 to $712m, including transaction costs. Shares in ORG are currently trading up 1.59 per cent at $5.75.

INOVIQ (ASX:IIQ) today announced that a feasibility study to evaluate the use of SubB2M as an immunohistochemistry reagent to aid in discriminating between benign skin lesions, malignant and metastatic melanoma has been successfully completed. In a study of 144 tissue samples (13 normal, 17 benign, 92 malignant and 22 metastatic), SubB2M staining scores were significantly greater in malignant and metastatic samples when compared to benign skin lesions. Cells staining positive for SubB2M approached 100 per cent in malignant and metastatic tissues. The cell staining was independently scored by Dr Ian Katz, Senior Pathologist at Southern Sun Pathology and Senior Lecturer at the School of Clinical Medicine, University of Queensland. The research stage SubB2M IHC test has a sensitivity of 91 per cent of detection of malignant and metastatic melanoma tissue samples. Shares in IIQ are currently trading up 3.03 per cent at 68 cents.