As expected, the ASX is lower today.
The S&P/ASX200 had dropped 121.50 points or 1.65% to 7,220.90 at time of writing.
The index has lost 2.34% for the last five days, but has gained 5.82% over the last 52 weeks.
The bottom performing stocks in this index are currently Whitehaven Coal Ltd down 8.14% and Paladin Energy Ltd (ASX:PDN) down 7.80%.
Other losers include, Whitehaven Coal down 6.3% having recovered from an 8% fall after cutting its production forecast for the full year by 5% due to heavy weather and Covid-related labour shortages.
BHP Group PLC (LSE:BHP) fell 2.4% and Rio Tinto Ltd slid 2.1% after the Serbian government abandoned the company's lithium mine following protests.
Software firm Nuix slumped 13% to $1.79 on the back of substantially lower earnings for the first half of the financial year 2022.
Blame it on Rio
Serbian Prime Minister Ana Brnabić has effectively shut down Rio’s proposed multi-billion-dollar Jadar lithium mine project in the nation's Loznica region.
Ms Brnabić said in a televised address in Serbia that, “Everything about the Jadar project is finished”.
Thousands of Serbians had protested the project. One wonders if Novak Djokovic being thrown out of Australia made them even angrier.
Rio Tinto is now weighing up its legal options.
"Rio Tinto is extremely concerned about the statement of the Prime Minister of the Republic of Serbia, Ana Brnabić," according to a translation of a Rio statement.
"During our work on the "Jadar" Project, we have always respected the laws of the Republic of Serbia. Rio Tinto is considering the legal basis for making this decision and the implications it may have for our activities and our people in Serbia."
WA border closure to get ugly
The WA Chamber of Commerce and Industry has called for the West Australian government to explain the terms under which it would be prepared to reopen.
Last night Premier Mark McGowan closed borders indefinitely after planning to open up on February 5.
"Unfortunately, the world changed in December; Omicron arrived," McGowan said.
"Omicron is a whole new ball game.
"We can't just shut our eyes and hope that it is different."
The lobby group wants clarity on a new opening date.
“It is critical the Government provide clarity as soon as possible on a new date, as well as the conditions under which businesses should expect to operate," chamber chief executive Chris Rodwell said.
"We should not underestimate how difficult this news is to digest for thousands of WA businesses that rely deeply on markets outside of their home state."
According to Rodwell businesses in the international education, tourism, events and other sectors would be deeply disappointed as will businesses who were looking to relief to acute skill shortages and supply chain pressures.
"More generally, businesses have been relying on the certainty of the February 5 date, with various operational decisions and investments made on this basis," Rodwell said.
A plan to reopen is now business’ biggest concern.
"The delay also provides strong argument that some businesses experiencing long term decline as a result of the hard border will require financial support.
"While we recognise that other States are facing immediate health pressures, businesses in these States will also be the first to emerge from the current wave of COVID infections and have a clear advantage in redeveloping important national and international markets. WA faces the prospect now of trailing by many months in re-engaging with critical markets.
"Ultimately, this puts a handbrake on growth and diversification of our economy."
The conversation about inflation
Portfolio Specialist in the Equity Division at T. Rowe Price Laurence Taylor has given his insight into current inflation woes and while he expects inflation to ease this year, there is still potential risks around COVID 19 variants and China’s policy on Omicron.
“Energy prices rising by a third have contributed meaningfully to higher inflation, although we expect this pressure to ease into 2022-23,” Taylor says. “However, wages are now rising by over 4% in the US with good breadth, which could get sticky or accelerate inflation – a big point of debate. 4%+ wage growth certainly does not imply a near-zero interest rate, and the sudden shift in expectations around Fed policy in 2022 have caused a very dramatic rotation within the market over the past four to six weeks.
“The inflation debate is complex, but the foundation for rising prices lies partly in the rebuilding of consumer balance sheets during an extended period of lockdown. In combination with heavy fiscal stimulus during this period, this has created the foundation for an outpouring of consumption. This upturn in demand has accelerated amid on-going supply chain issues due to new Covid-19 variants. An expansion of demand without expanding supply will likely lead to higher inflation.
“We expect inflation to fade from its high levels in 2022. In our opinion, the sharp changes in energy prices are supply driven, and we do not believe we are in short supply of oil or gas over the medium to long term. Furthermore, broader supply chain issues should also ease as we work through to the Spring. For example, the approximately 30% increase in used car prices over the past 18 months is because new cars are not shipping or available to buy due to the short supply of semiconductors. There have also been very large increases in the US minimum wage which are more one-off than permanent.
“These factors lean our opinion towards an inflation peak that is expected to fade in the coming quarters, although potential risks include new Covid-19 variants as well as China’s policy on Omicron. China’s response to a variant of COVID that is much harder to control and the resultant impact on the economy is an important data point for the global supply chain, which we will continue to observe in the near future.
“Over the past few years, our view of inflation has centered on structural factors that have largely been deflationary in nature, and these factors (technology, moderating industrialization in China, excess supply of commodities) have not disappeared in the space of a year. However, one of our disinflationary forces (cheap credit, which for years was recycled into unlocking more capacity) has certainly swung to being inflationary in the current environment, especially when joined with the sudden strength in consumer balance sheets.
“We expect fading inflation to coincide with rising interest rates, as central banks respond to high inflation data points. Central banks are currently trying to balance the need to support economies with a growing need to bring up the cost of money, which has been abnormally distorted by Covid-19. In short, this is the lift-off point for interest rates out of necessity, as letting inflation and speculation run out of control is not a good option. But recovery is still in its early stages and dramatic increases in rates will likely disrupt the improvement pattern and unduly stress balance sheets somewhere in the global financial system. Rates moving slowly and steadily with three to four hikes in 2022 remains consensus for the moment.”
Microsoft makes bold bid
eToro's Global Market Strategist, Ben Laidler has given his thoughts on Microsoft; s bid for gaming giant Activision.
“Microsoft’s $69 billion bid for troubled video games developer Activision Blizzard is a game-changing move. It accelerates the rush to the metaverse, will drive more gaming sector takeovers, and showcases the huge financial flexibility of big-tech.
“The bid is a strong validation, and acceleration, of the new virtual reality metaverse world. It is now seeing huge investments from the largest tech names, from Apple to Meta, and now Microsoft.
“Microsoft’s greater involvement in the gaming business, alongside its existing Xbox business, will pile pressure on the leading incumbents and drive more consolidation. Competitors from Sony down will increasingly need to decide whether to compete or capitulate.
“Microsoft’s biggest ever acquisition also shows big-tech’s financial flexibility. The potential purchase price represents only 3% of its $2.3 trillion market capitalisation and half the $130 billion cash it has on its balance sheet.”
UK baulks at CBDC
The UK’s upper chamber, the House of Lords has dismissed the idea of a UK CBDC (Central Bank Digital Currency).
According to eToro’s Simon Peters, “The Economic Affairs Committee looked at CBDCs and found that while some advantages existed, it would create significant financial stability issues. The committee also said it had concerns over privacy for users.
“Committee chair Lord Forsyth of Drumlean said: ‘We took evidence from a variety of witnesses and none of them were able to give us a compelling reason for why the UK needed a central bank digital currency. The concept seems to present a lot of risk for very little reward. We concluded that the idea was a solution in search of a problem’.
“The report comes however at a time when other countries are already trying CBDCs, with some proving a success.
“The Swiss National Bank announced on Thursday that it had conducted a successful test, where it settled transactions with five commercial banks using a CBDC.
“The trial included major investment bank names including Credit Suisse, Citigroup, Goldman Sachs (NYSE:GS), Hypothekarbank Lenzburg and UBS. The trial demonstrated the execution of instant payments of between 100,000 and 5 million Swiss francs.
“Switzerland is one of the most advanced nations in CBDC terms, with ‘Project Helvetia’ as it is known looking close to paving the way to a fully-functional digital currency for the Alpine nation.
“Benoit Coeuré, head of the Bank for International Settlements (BIS) Innovation Hub, which participated in the trial, commented: “We have demonstrated that innovation can be harnessed to preserve the best elements of the current financial system, including settlement in central bank money, while also potentially unlocking new benefits.”
The best and worst performing sectors this week
The best performing sectors include Energy up over 2% followed by Materials up over 1% and Consumer Discretionary, which is just in the green.
The worst performing sectors include Information Technology down over 2% followed by Healthcare and Financials, which are down over 1%.
The best performers in the S&P/ASX top 100 stocks include Worley up over 7% followed by JB Hi-Fi up over 6% while IGO, Northern Star Resources and Orica are all up over 4%.
The worst performing stocks include BlueScope Steel (ASX:BSL) down over 6% followed by Medibank Private down over 5% and Reece down over 4% with many other stocks pulling back.
What's next for the Australian share market?
Wealth Within analyst and founder Dale Gillham gives his take on what to expect on the Australian share market.
“Last week I mentioned that the All Ordinaries Index was not as bullish as we might like to think and this week’s move confirmed that as our market is currently down.
“So, once again, I would encourage everyone to exercise caution when selecting stocks, as the current move down could last a few more weeks.
“Given that our market has not experienced a major fall since the COVID crash in February 2020 and has only fallen around 6% on two occasions since then, we need to be mindful that the current fall may be longer in both time and price.
“Given this, it is possible that our market will fall below 7,000 points. That said, one thing I would like to make clear is that I do not believe our market will crash this year, so investors would be wise not to make any rash decisions.”
On the small cap front
Nickelsearch Ltd is 2.33% higher after releasing a positive quarterly.
Australian Gold and Copper Ltd (ASX:AGC) is 1.02% higher. AGC has closed the books on one drilling campaign and started up another along the 15-kilometre-long Boxdale-Carlisle Reefs gold trend at the Moorefield Project in central NSW.