The ASX recovered early losses to finish the day in the green, supported by gains in iron ore miners and the major banks.
The S&P/ASX200 gained 31.50 points or 0.44% to 7,188.20. The index has lost 1.24% for the last five days but has gained 2.12% over the last year to date.
The best-performed sector was Financials up 1.28%, while Healthcare dragged down 0.83%.
The top-performing stocks in this index are Syrah Resources and Link Administration Holdings Limited Ltd, up 7.89% and 4.67% respectively.
Graphite miner Syrah's shares surged on the company's approval for a US$150 million loan from the US International Development Finance Corporation. The funds are earmarked for capital requirements at its Balama operations in Mozambique.
Concurrently, the company reported a US$38.6 million loss for the half-year ending June 30, primarily due to reduced production and sales at Balama amidst waning Chinese demand and market instability.
This interim result stands in contrast to the US$9.9 million after-tax loss posted in the first half of Fiscal Year 2022. Revenue reached US$28.4 million, below the FY22 interim result of US$49.7 million, while the cost of sales marginally increased to US$40.8 million from last year's US$40.6 million.
Balama's production was limited to 56,300 tonnes, compared to 89,900 tonnes in the previous period. The downturn was attributed to existing inventory and reduced Chinese demand, leading to a halt in plant operations and zero production in May and June. Sales from Balama amounted to 44,700 tonnes, down from 79,300 tonnes in H1 2022.
Additionally, approximately 2,200 tonnes were transported from Balama to its Vidalia Active Anode Material facility in the US. A final investment decision on a US$190 million expansion of the facility is expected by year-end.
Meanwhile, iron ore had a better day today, but Morgan Stanley (NYSE:NYSE:MS) is staying cautious on Australian iron ore miners and other bulk commodity producers.
The investment bank and financial services company prefers the energy sector as OPEC's production cuts support the crude oil outlook.
"The continued debate around risks of China entering a debt-deflation loop is alive and it is these elevated risks that keep us in a mood to continue to fade any Bulk resource sector bounces that are triggered by stimulus evolution," Morgan Stanley (NYSE:MS) equity strategist Chris Nicol said.
Morgan Stanley stated that it was surprised by iron ore fundamentals, the banker believes iron ore prices will take a hit if China announces more steel production cuts despite potentially resilient steel output.
Currently, the bank has a $US90/tonne target price for iron ore in the December quarter, but says it "may be overcautious".
Upside risks remain if steel production cuts don't happen, but Morgan Stanley is "increasingly sceptical" about the market consensus view that China will keep its steel output flat this year.
Iron ore is currently priced at approximately US$118 per tonne, a figure that does not yet fully account for anticipated reductions in steel production. A significant disparity exists between the performance of iron ore equities and the actual commodity, largely due to investor apprehensions concerning China's long-term growth prospects and potential deflationary risks.
China economy looks to be stabilising
China's economy shows indications of stabilisation as deflationary pressures have somewhat abated and a rise in credit demand is anticipated. Data revealed a marginal increase in consumer prices for August, following a decline in July.
A decrease in factory-gate prices has also been noted. Financial analysts predict that authorities will report a surge in loans for the previous month.
Raymond Yeung, chief economist for Greater China at ANZ, commented, "Current data suggests that the rate of economic decline may decelerate in the near future." Signs of easing in the country's export and manufacturing sectors further support this view. "We anticipate stabilisation rather than a full rebound," he added.
Attempting to recover amid an ongoing property crisis and waning consumer confidence, the world's second-largest economy faces risks in meeting its annual growth target of approximately 5%. Dismal data from July showed consumer prices entering deflationary territory and a 14-year low in monthly loans, prompting governmental initiatives to stimulate economic activity.
September economic outlook
While the RBA delivered homeowners a Spring reprieve last week, the tightening cycle will remain in place for much of next year, according to Bendigo Bank’s chief economist David Robertson.
In his September Economic Update, Robertson said while economic data was headed in the right direction, there was a long way to go to get to 2-3% core inflation.
“The RBA interest rate pause continues into spring and economic data suggests more of the same ahead but there is still the risk of one more hike ahead,” Robertson said.
“The third RBA pause at 4.1% rounded out Philip Lowe’s seven-year term as governor, and he passes the baton to Michele Bullock with an economy that is still growing in real terms (albeit at a decelerating pace), and with unemployment still near 50-year lows, but the best of labour markets clearly behind us.
“The last seven years have been characterised by very supportive monetary policy, especially through the pandemic, until the 2022 inflation shock when RBA rates were increased by 4% in 15 months (the fastest pace of hikes since 1985), but still a more moderate profile than comparable economies.
“Fortunately, the impact of tighter policy is playing out as hoped thus far, with retail sales and household spending now falling in real terms, GDP and jobs growth slowing, and demand for credit easing. This slowdown on the demand side is helping to achieve a better balance with damaged supply chains, which are steadily improving and, in our region, appearing more sustainable.
“Headline CPI is down to 4.9% based on the monthly series, but we’ve got a long way to go to get back to 2-3% core inflation. Recent wages data has been more benign than feared, but this will be challenged in the third quarter. Recent increases in house prices, rents and higher energy costs complicate the outlook,” Robertson said.
According to Mr Robertson, the data in September to watch closely will be:
- The next jobs report out on September 14.
- Monthly CPI on September 27.
- Retail trade on September 28.
“We continue to suggest this tightening cycle will last longer than consensus forecasts, and that rate cuts are less imminent than many have predicted. The timing of the next RBA hike (if we are to get one) remains the most uncertain factor.
“One more complication to Australia’s economic outlook continues to come from China, where their property market remains under significant pressure.
"As I mentioned last month this has been a key driver of the Australian Dollar, but amid all the doom and gloom on the Chinese economy, PMI surveys show a slightly rosier picture than feared- but it is very much at the mercy of further policy support.
"Troubled Chinese property developer Country Garden has extended some of its debt repayments but will remain in focus together with the market’s hunger for wider, more effective stimulus measures.
“In summary, the domestic economy and global markets are responding to the impact of sharply higher rates and so far, are absorbing the shock resiliently - but the consensus view of no more RBA rate hikes, a soft landing and imminent cuts appears naively optimistic.
“There remains a less ambitious view of one more hike with a longer tightening cycle, and the risk of a technical recession.
“Nevertheless, economic outperformance for Australia appears a more realistic outlook.”
Five at five
Sunstone Metals strikes two to confirm strong gold-copper porphyry system at El Palmar’s T3 target
Sunstone Metals Ltd (ASX:STM) has, once again, struck strong gold-copper porphyry mineralisation during drilling of a second hole at the T3 porphyry target within its El Palmar project in northern Ecuador.
Read more
Lithium Universe appoints pre-eminent technical lithium expert to board
Lithium Universe Ltd (ASX:LU7) has appointed world-renowned lithium expert Dr Jingyuan Liu as a non-executive director as it weighs up the development of a vertically integrated mine to battery-grade lithium carbonate hub in Québec, Canada.
Read more
Imugene welcomes positive FDA feedback on improved manufacturing process for T-cell therapy azer-cel
Imugene Ltd (ASX:IMU, OTC:IUGNF) has begun incorporating positive FDA feedback into its plans to manufacture azercabtagene zapreleucel (azer-cel), anallogeneic (off the shelf) CD19CAR T-cell therapy, for autologous (auto) CART-relapsed patients with blood cancers.
Read more
Intra Energy Corporation about to kick-off lithium exploration following review at Yalgarra
Intra Energy Corporation Ltd (ASX:IEC) is preparing to put boots on ground to investigate two areas with elevated lithium anomalism at the Yalgarra Nickel-Copper-Platinum Group Elements (PGE) Project in Western Australia.
Read more
Auric Mining declares second gold milling campaign as the “money round”
Auric Mining Ltd (ASX:AWJ) has begun its second gold toll milling campaign at the Greenfields Mill from the first stage pit at the Jeffreys Find Gold Mine near Norseman, WA.
Read more
On your six
Worries of gas scarcity hang over east (and west) coast gas markets
Concerns over a potential gas shortage on Australia's east coast could again gain traction as large producers, including Shell (LON:RDSa) and Santos, are set to reveal forecasts of their uncommitted gas supplies for the next two years.
Read more
The one to watch
Solis Minerals identifies new pegmatite drill targets at Borborema
Solis Minerals Ltd (ASX:SLM, TSX-V:SLMN, OTCQB:SLMFF) executive director Matt Boyes gives Proactive an update on exploration activities at the Estrella prospect, within the Borborema Project area and the Jaguar Project, with two more drill rigs en route to explore the assets.
Watch