Rising global rates send markets lower

Rising global interest rates send equity markets lower in September 2022

A plethora of central banks trying to outdo each other with rate hikes finally overwhelmed the Australian stock market on Friday, resulting in a sharp 1.9% decline.

The 125.52 point drop to 6574.7 points brought the running total down 2.4% for the week and 6% for the month.

A third straight Fed hike of 75 basis points to a 3-3.25% range was the main reason markets fell, but there were plenty of rate-hiking firms including Sweden’s Risbank, which posted a full 1% rate hike, UK and Norway up 0.5% and Switzerland decisively ended its push into negative rates with a 0.75% hike from -0.25% to 0.5%.

In the UK, the Bank of England hiked interest rates by 0.5% while acknowledging that the country is already in recession.

Developing countries also joined the party with strong gains from Vietnam (1%), Indonesia (0.5%) and South Africa (0.75%), confirming that the fight against inflation has now gone fully global.

Rising bond yields in the US

This led to slumps on Wall Street as bond yields continued to climb to decade highs as investors belatedly realized that not even recessions would halt the rise in interest rates around the world as central banks continued to lean heavily on their blunt tool of rate hikes stubbornly fighting upward inflation.

Given this atmosphere, it would have been a miracle if the Australian market had managed to do anything but fall, and it did – replicating the US market in depreciating tech stocks the most.

Australian 10-year bond yields also rose 28 basis points to 3.61% as market implied maximum interest rates in Australia are now set to rise to as high as 4.2%.

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Consumers, technology and real estate have been hit hardest

Consumer, technology and real estate companies were hit hard including Wesfarmers (ASX:WES) down 4.2%, Woolworths (ASX:WOW) down 1.7%, Block (ASX:SQ2) down a Down 8.9%, accounting software company Xero (ASX : XRO) fell 7.8%, while shares in Goodman Group (ASX : GMG) fell 3.7%.

Many real estate funds hit lows for the year as their rental prospects and differential yield versus cash both declined.

The only slight glimmer of hope came from iron ore miners on the rise in iron ore price with shares of BHP (ASX:BHP) up 0.6%, Rio Tinto (ASX:RIO) up 1.9% and Fortescue Metals ( ASX : FMG) shares up 1.3%.

Some coal miners also managed to swim against the tide, with New Hope Corporation (ASX:NHC) up 2.8% on nice results.

Small Cap Stock Action

The Small Ords Index fell 4.33% on the week to close at 2694.1 points.

Sept chart asx 200 small orders 2022
ASX 200 against small orders

Small-cap companies that made headlines this week were:

LiveHire (ASX:LVH)

Human resources technology provider LiveHire has signed a $1.3 million deal with US company Hiregenics to provide its direct procurement recruitment platform to an undisclosed Hiregenics customer, which is also one of the world’s largest oil and gas companies.

The client is a Fortune 500 oil and gas company and spends $743 million on temporary workers in the US, with an additional $510 million on payroll expenses.

Hiregenics anticipates that approximately 25% of the client’s contingent wages will be sourced through the LiveHire platform once fully ramped up within the first 24 months of the initial three year term.

At this rate, LiveHire expects the contract to bring in approximately $1.3 million per year.

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Ragusa Minerals (ASX:RAS)

The Northern Territory Mining Authority this week approved Ragusa Minerals’ application for property EL33150, part of its lithium project, located 60 kilometers south of Darwin.

The property has been granted for a period of six years and complements four existing exploration licenses within the “Supergroup” project.

Ragusa identified the property as prospective for lithium based on historical geological mapping and interpreted continuation of geological rock types found at neighboring lithium projects.

The NT lithium project area is located in the Litchfield Pegmatite Belt, which also hosts projects held by companies such as Core Lithium (ASX:CXO), Lithium Plus Minerals (ASX:LPM) and Charger Metals (ASX:CHR).

Avenira (ASX: AEV)

Junior Explorer Avenira has signed a non-binding agreement with global lithium iron phosphate (LFP) cathode manufacturer Advanced Lithium Electrochemistry Ltd (Aleees) and the Government of NT to work towards the development of an LFP battery cathode manufacturing facility in Darwin.

The plant will utilize phosphoric acid from Avenira’s high-grade Wonarah project near Tennant Creek.

It will have a phased production capacity, starting at up to 10,000 tons per year in 2023-2024 and potentially increasing to 200,000 tons per year by 2032.

Aleees is one of the few companies outside of China with full LFP cathode material manufacturing capacity and patents for electric vehicles and stationary storage batteries.

It develops various LFP products (including high-quality, low-cost, long-life cathode materials) together with more than 40 customers worldwide.

Tamburah Metals (ASX:TMB)

Tambourah Metals this week confirmed the presence of large pegmatic swarms at its Russian Jack lithium project in WA using data compiled from the WAROX (Western Australian Rocks) government database.

The Company plans to follow this up with mapping and rock chip sampling over the coming weeks.

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In addition, high-grade rock chip samples collected during sampling and mapping at the Tambourah gold field in the June quarter were returned.

Four of 20 samples returned elevated gold values ​​with a high grade of 16.9 g/t gold reported from an area with no previous elevated grade history.

Next week

International markets are likely to be the leading factor for Australia over the coming week, with little local economic news of note.

One is the final release of the 2021-22 federal budget position, although the punchline has already been delivered by Treasurer Jim Chalmers with a $50 billion improvement over previous estimates.

Coupled with the better-than-expected fiscal position, buckets of cold water have come to any expectations of an increase in government spending, with Mr Chalmers warning that the budget is still locked in a structural deficit and increased revenues from booming mining exports may not be a given going forward.

Other local things to watch for during the week are consumer confidence, retail manufacturing numbers, engineering, job vacancies, the monthly CPI indicator and household wealth, which is likely to fall somewhat in line with lower house prices is.

Looking abroad, an inflation estimate for the US is likely to be the main interest, with a few other releases including store sales, new home sales, consumer confidence and business indices.

In the Australian context, Chinese numbers will be important as the ongoing COVID-19 lockdowns are likely to put pressure on industrial profits, while the PMI is likely to show continued pressure on factory orders.

This week’s top stocks

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