Middle East tensions bond yields October 2023 stock market
October 21, 2023
Market wrap: ASX 200 plunges below 7000 on rising Middle East tensions and bond yields

A combination of worsening tensions in the Middle East, rising US bond yields and falling US shares led to an almost across-the-board wipeout on the Australian market on Friday.

The 7000-point marker was left way back in the rear vision mirror as the ASX 200 fell 96 points, or 1.4% to 6981.6 points at the close with a clean sweep of all but one industry sector trading in the red.

The deadly blast at a Gaza hospital made any chance of a fast or contained resolution to the Middle East conflict shrink, leaving traders to worry about the risks of interest rates staying higher for longer and retreating US share prices.

That wiped out all of the optimism from last week and saw only energy stocks show a weak 0.16% rise with the defensive utilities and consumer stocks the “least worst” losers in the other market sectors.

Hotter than expected US economic data fed into higher bond yields in the US, which has now turned into a reliable proxy for falling share prices as investors continue to cash up and move to other safe haven assets.

Gold miners one of the rare safe havens

One of those was obviously gold, with shares in local gold miners Northern Star (ASX: NST) up 1.25% and Evolution Mining (ASX: EVN) up 2.2% chasing the gold price higher.

At the other extreme the technology stocks fell hard as growth took a back seat to higher interest rates.

As a sector, technology stocks fell 1.8%, mirroring a 1.6% fall in the technology dominated Nasdaq market in the US.

Low unemployment pressures rate rise

Not helping matters was a fall in Australia’s jobless rate to 3.6% in September, showing that the jobs market remained tight, although analysts are not convinced the lower-than-expected number will lead to an official interest rate increase in November.

That still remains a possibility though, with all eyes next week on the local inflation numbers which will reflect continuing high energy costs.

Elsewhere on the market the banks and industrials were all hit hard, although not as hard as the technology sector.

Lithium sector down

Lithium miners were also something of an anchor as shares in lithium developer Liontown Resources (ASX: LTR) fell 31.9% as it prepared for an equity raising after a failed buyout offer from US giant Albemarle.

Other lithium miners followed the weaker lead, with shares in IGO (ASX: IGO) down 2.1%, Pilbara Minerals (ASX PLS) unchanged and Mineral Resources (ASX: MIN) down 2.4%.

Origin Energy (ASX: ORG) shares fell 0.3% after an independent expert valued shares at between $8.45 and $9.48 after Origin’s board had backed a buyout offer priced at about $8.81 a share from Toronto-based Brookfield and Washington-based EIG.

Qantas flies fares higher

Shares in Qantas (ASX: QAN) rose 0.63% after it decided to raise airfares to reflect higher oil prices and abandoned its proposed takeover of Alliance Aviation (ASX: AQZ), which had got a thumbs down from the consumer watchdog, the ACCC.

In other market news, shares in market operator ASX Limited (ASX: ASX) fell 1.8% after shareholders delivered a hefty 21.2% protest vote against the company’s remuneration report.

Small cap stock action

The Small Ords index fell 2.15% for the week to close at 2,628.9 points.

ASX 200 vs Small Ords

Small cap companies making headlines this week were:

Pinnacle Minerals (ASX: PIM)

Pinnacle Minerals is set to acquire a 75% interest in the Adina East Lithium Project, located in Quebec’s James Bay lithium region, from Electrification and Decarbonisation AIE LP fund managed by Waratah Capital Advisors Ltd.

The project, spanning 72.7km2, is adjacent to several other lithium projects and has potential for lithium and gold discoveries.

As part of the acquisition, the E&D Fund will pre-pay US $500,000 to Pinnacle for the right to purchase 25% of minerals extracted from the project.

The partnership with Waratah’s E&D Fund aims to expand Pinnacle’s reach in Quebec and other regions with potential for lithium mineralisation.

Sunstone Metals (ASX: STM)

Sunstone Metals revealed a remarkable 269 metre intersection at its Limon discovery within the Bramaderos project in southern Ecuador, significantly increasing the size of Limon.

This outcome, stemming from drilling at different angles than prior efforts, hints at increased gold-silver mineralisation.

Sunstone’s managing director, Malcolm Norris, emphasised Limon’s growth and its similarities to other open-pit gold operations.

The Limon area, situated near other prospects of the Bramaderos project, showcases potential for a substantial gold-copper-silver development, with Norris suggesting a standalone operation or a starting pit for a larger Bramaderos development.

Aurumin (ASX: AUN) and Beacon Minerals (ASX: BCN)

Aurumin has signed an agreement to sell its Mt Dimer gold tenements in Western Australia to Beacon Minerals.

The sale will provide Aurumin with a $3.5 million cash boost, allowing it to reduce debt and earn royalties once Mt Dimer starts production.

Beacon Minerals will pay $3 million in cash, invest $500,000 in Aurumin shares, and provide a 2% net smelter royalty on gold production above 12,000oz at Mt Dimer.

This deal aligns with Beacon’s strategy to increase the mine life at its Jaurdi project by acquiring complementary deposits.

Vintage Energy (ASX: VEN)

Vintage Energy has developed a remedial plan to address production issues at its Vali gas field in the Cooper Basin and aims to boost gas production.

After identifying excess fluid as the culprit impacting gas flow from the Vali-2 well, the company intends to place a plug to rectify the situation, with operations expected to start in early November.

Meanwhile, both the Vali-1 well and nearby Odin gas field have paused production due to scheduled maintenance, but Odin’s production has met expectations, averaging 5.4 million standard cubic feet per day.

Vintage and its partners recently signed a two-year gas sales agreement, solidifying their commitment to supplying natural gas to the Australian east coast market.

Spenda (ASX: SPX)

Payments tech provider Spenda has entered into a 10-year agreement with automotive group Capricorn Society to supply software and ecommerce payment services. Subject to the completion of a joint digital services delivery initiative,

Spenda will gain $443,000 after the final phase, $1.3 million in development fees for a 2024 launch, and at least $100,000 monthly in software licensing fees.

The DSD initiative aims to modernise Capricorn’s payment system, incorporating Spenda’s features to streamline member and supplier transactions.

Separately, Capricorn may invest $7.2 million in Spenda, potentially acquiring up to 9.97% of the company’s equity.

The week ahead

There is plenty of action in the coming week in Australia with the release of the inflation data on Wednesday the standout feature that will reflect a hefty rise in the price of fuel.

Inflation as measured by the CPI is expected to rise 0.9% in the September quarter and 5.1% for the year, with other price indicators during the week including trade prices and producer prices.

Reserve Bank Governor Michele Bullock is delivering a speech on Tuesday which will be analysed for any indications of a move to raise rates in November.

Interest rate decisions will be handed down by the Bank of Canada and the European Central Bank (ECB) and although both are expected to hold steady, there is always some nervous anticipation of an unexpected change.

In the US, earnings season really hits it straps with just some of the reports due including Alphabet, 3M, Coca-Cola, Dow, General Electric, General Motors, Microsoft, Snap, Spotify, Visa, Boeing, Hilton, IBM, Meta Platforms, Amazon, Harley Davidson, Hershey Foods, MasterCard, Merck, Newmont, UPS, Intel, Ford Motor, ResMed, Chevron, Colgate Palmolive, Exxon Mobil and CBRE.

Two other things to watch out for are the September quarter economic growth (GDP) numbers on Thursday and inflation data on Friday.

Here in Australia, there should be lots of company specific news with a host of shareholder meetings including those for Wesfarmers (ASX: WES), Woolworths (ASX: WOW), JB Hi-Fi (ASX: JBH), Super Retail (ASX: SUL), South 32 (ASX: S32), Boral (ASX: BLD), GUD (ASX: GUD), Reece (ASX: REH) and Whitehaven Coal (ASX: WHC).

There will also be a raft of sales and production updates from many listed companies, although on a macro level, events in the Middle East and the US reaction to them will continue to set the tone.

THIS WEEK’S TOP STOCKS

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