The ASX is down again today after hawkish Reserve Bank of Australia (RBA) minutes suggested a strong case for leaving rates unchanged.
The S&P/ASX200 dropped 27.3 points or 0.35% to 7,723.40, crossing below its 50-day moving average. The index has lost 1.43% for the last five days but sits 2.32% below its 52-week high.
Bottom-performing stocks in this index are Lovisa Holdings Ltd and The Star Entertainment Group Ltd, down 4.11% and 3.54% respectively.
One of the better performers on the market today was Liontown Resources (ASX:LTR), which gained 8.99%.
Looking at the sectors, only Energy was in the green gaining 2.10%. The worst performers were Real Estate which dipped 1.37% and Consumer Discretionary down 0.92%.
As for the small-cap market, the S&P/ASX Small Ordinaries is down 0.20% to 2,949.10. Over the last five days, it is down 1.79%.
Liontown roars
Liontown rose after securing $US250 million ($379 million) in funding and a 10-year offtake deal extension for its Kathleen Valley Project in Western Australia from South Korea's LG Energy.
The funding comes through five-year convertible notes at a conversion price of $1.80 per share, with a coupon linked to the Secured Overnight Financing Rate (SOFR). If converted today, these notes would grant LG Energy an 8% stake in Liontown.
Gina Rinehart also holds a significant stake in the company following her intervention to block a $6.6 billion takeover by US company Albemarle.
The LG deal increases Liontown's total cash reserves to $501 million, bolstering its balance sheet to support Kathleen Valley’s goal of reaching 3 million tonnes per annum (mtpa) in production.
First production is expected by the end of this month. Additionally, the existing five-year offtake agreement with LG Energy Solution has been extended to 15 years.
Liontown and LG Energy will also investigate the feasibility of establishing a lithium refinery, potentially creating long-term value. Managing director Tony Ottaviano emphasised that the funding was crucial for ramping up to 3mtpa and supporting early works for a possible expansion to 4mtpa.
Liontown aims to become a major global provider of battery minerals as part of the low-carbon transition.
Mixed reaction to RBA minutes
The RBA isn’t in a hurry to move the cash rate, which is likely to remain on hold in August.
eToro market analyst Josh Gilbert said, "Today’s RBA minutes show that the board won’t be in a rush to raise rates further despite inflation remaining stubborn in the first six months of the year.
“The board asserted that they remain vigilant to the upside risks of inflation, which have reared their heads in recent weeks.
"Today's meeting minutes indicate the Q2 CPI reading towards the end of July carries huge significance ahead of August’s rate call.
"The data points over the next month are crucial for the data-dependent RBA, which, on top of Q2 CPI includes retail sales later this week and employment data on July 18.
“What’s clear is that investors will need to accept the view of higher for longer rates and the prospect of rate cuts continues to be kicked further along the trail, at least for now.
"The minutes also reiterate that the board isn’t willing to rule anything in or out, meaning another rate hike in 2024 is still quite clearly on the cards. However, it seems as though the board is certainly leaning towards leaving rates at current levels rather than hiking further."
Taking a less positive position is Citi, which says the RBA risks credibility if it doesn’t hike.
"It would now be difficult for the RBA Board to maintain the current cash rate after having these trigger conditions at least partially met by higher inflation data," Citi Australia chief economist Josh Williamson said.
"Not raising rates risks policy credibility and would signal a dilution in importance of inflation, which would be unheralded.
"On balance, we expect the patient RBA Board will need to respond to the prospect of higher inflation for longer," Williamson adds.
"This comes from the threat of an elevation in inflation expectations as households respond to stickier prices."
Citi says a 0.25% hike is still on the cards.
ANZ sees “no smoking gun”.
"It is difficult to discern from these minutes the extent to which that outcome would require a monetary policy response," says ANZ head of Australian economics Adam Boyton.
"This likely reflects a desire by the board to take full account of all available information, including the Q2 CPI data, the June labour force survey and the updated RBA staff forecasts."
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