Energy, miners and BNPL shares lead the way: Aus shares close 0.3% higher

The S&P/ASX 200 closed marginally higher on Tuesday in a reasonably quiet trading session as investors prepare themselves for the busiest week of corporate earnings in the US and Wednesday’s Fed meeting.

Sezzle (ASX:SZL) and Zip (ASX:ZIP) led the charge in the BNPL sector. Zip shares have doubled in the past month.

At the closing bell, the S&P/ASX 200 was 0.26 per cent or 17.40 points higher at 6807.30.

The Dow Jones futures are pointing to a fall of 106 points.
The S&P 500 futures are pointing to a fall of 9 points.
The Nasdaq futures are pointing to a fall of 38 points.
The SPI futures are pointing to a rise of 23 points when the market next opens.

Global markets

Asian equities are higher today. The Hang Seng is leading Chinese markets, with Alibaba leading tech firms and property developers rallying. Semis are weighing on the Taiex following a report that Foxconn will operate under a “closed loop” system in Shenzhen due to a Covid outbreak. The Nikkei is up 0.05 per cent, the Hang Seng has added 1.47 per cent, and the Shanghai Compposite is trading 0.81 per cent 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. 

Best and worst performers

The best-performing sector was Energy, up 2.82 per cent. The worst-performing sector was Consumer Discretionary, down 1.71 per cent.

The best-performing stock in the S&P/ASX 200 was Zip Co (ASX:ZIP), closing 19.88 per cent higher at $1.02. It was followed by shares in Paladin Energy (ASX:PDN) and Nanosonics (ASX:NAN).

The worst-performing stock in the S&P/ASX 200 was IRESS (ASX:IRE), closing 6.55 per cent lower at $10.98. It was followed by shares in Flight Centre Travel Group (ASX:FLT) and Perseus Mining (ASX:PRU).

Local economic news

Bonds are mixed, with Treasury and Aussie curves bull flattening.

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 , from 5.1 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.

Commodities and the dollar

Gold is trading at US$1723.10 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 4.44 per cent.
Light crude is trading $1.54 higher at US$98.24 a barrel.
One Australian dollar is buying 69.62 US cents.

Iron ore is rebounding, with Dalian-listed futures up 16 per cent from last week’s lows. However, the rebound may prove short-lived as China’s property market woes sap demand.

The rally follows pledges of support by China policymakers, who have emphasised efforts to boost infrastructure. There are reports that authorities are considering a bailout fund for property developers, and this has also been cited as a factor in iron ore’s rebound. However, analysts remain cautious on the longer-term outlook for iron ore (Bloomberg).

Goldman Sachs projects the iron ore market will swing to a surplus of more than 67Mt for the rest of 2022 from a deficit of 56Mt in H1. While spot last traded at $106t, Goldman reduced its three- and six-month price target to $70 and $85, respectively, from previous estimates of $90 and $110.

China’s property sector, which accounts for almost a third of country’s steel and iron ore demand, is facing a deepening malaise, while wider economic activity remains hamstrung by Covid lockdown uncertainty.

Company news

Next Science Limited (ASX:NXS) (Next Science) today announced a strong Quarterly Activity Report. Managing Director Judith Mitchell commented that “I am pleased to report that the revenue tempo in the business has lifted. The strategies to expand market awareness and adoption of our Xbio platform technologies are gaining market traction. We have signed several new distribution agreements in the Quarter to expand our commercial reach and support for clinicians. The accelerated revenue growth for the quarter was underpinned by both expansion of the distribution network and increased sales volumes through the direct business.” Shares in NXS closed up 23.75 per cent at 99c.

Paragon Care (PGC) today updated its earnings guidance for the year ending 30 June 2022. Based on the unaudited accounts, PGC expects to deliver underlying EBITDA of approximately $30 million. This is a 20 per cent increase on the equivalent figure for FY21 and mainly reflects the inclusion of earnings from Quantum since February 2022. FY21 also included $3 million of JobKeeper (nil in FY22). Reported EBITDA is expected to be around $24 million. This includes $3 million in one-off costs in relation to the Quantum merger and the net impact of approximately $3 million of inventory and other one-off adjustments. Pleasingly, PGC’s net debt position has reduced from $69 million in FY21 to approximately $50 million at the end of FY22 . This reflects a strong cash flow from operations and the net cash acquired as part of the Quantum merger process ($9.5 million). As a result, gearing for the PCG group is now comfortably below two times underlying EBITDA. Shares in PGC closed up 10.71 per cent at 31 cents.

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 closed 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 closed up 4.92 per cent at $7.46.

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 closed up 21.25 per cent at 48.5 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 closed up 3.18 per cent at $5.84.

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 closed up 1.52 per cent at 67 cents.