Melt your coins; Nickel breaches $100k; Afterpay’s successor stumbles: What we learned this week
Reserve Bank's band on indefinite hiatus as Myer shows department stores have life yet.
Seemingly worthless? Think again
Heat up the furnace, the metal in your 5-cent coins is soaring in value. The coins are three parts copper and one part nickel. On Tuesday, nickel prices hit $100,000 a tonne amid a short squeeze that forced the 145-year-old London exchange to cease trading. At those prices, the nickel in your 5-cent coin is worth 10 cents. The remaining copper comes in at 3 cents thanks to a 60% jump in copper prices since the pandemic.
Unfortunately for would-be smelters, the minimum lot on the London Metal Exchange is 6 tonnes (or about 6 horses), just under half the weight of all 5 cent coins struck in 2021.
Block falls from the ASX’s heights
A run of poor performance has seen Afterpay-acquirer Block booted from the S&PASX 20—an index of Australia’s largest 20 companies. Locally listed shares in the US payment giant (ASX: SQ2) are down 17% this year, a wild ride that’s involved four swings of more than 10% along the way. Taking the technology innovator’s place is old-world energy company Santos, up 14% this year. The times, they are a-changing.
Reserve Bank breaks up the band
Guy Debelle, Reserve Bank deputy governor and sometimes-frontman for the central bank’s house band “the GFC”, has resigned. He’s been tempted away from Martin Place by Andrew Forrest and will be joining Fortescue Future Industries—Fortescue Metals’ clean energy arm—as chief financial officer. Fortescue Future Industries is investing in zero-carbon green hydrogen, a fuel that is the great hope for replacing fossil fuels in steel making and other industrial processes.
My my Myer
Shares in David Jones’ arch-rival Myer leapt 27% to $0.51 cents on Thursday after sales and profit soared past analyst estimates. Markets also cheered the board’s decision to reinstate dividends for the first time since fiscal 2018, several years ahead of Morningstar’s estimates. The jump is more good news for shareholders who watched their shares drop to lows of $0.10 during the Covid-19 selloff. Morningstar expects the business to successfully transition more sales online. Shares closed on Friday at $0.52 cents, a 26% discount to fair value on Friday.
AGL bidders bid adieu
Tech billionaire Mike Cannon-Brookes and Canadian asset manager Brookfield are “pens down” after AGL’s board rejected an upgraded bid on the ground it was “well below” fair value. The $8.25 per share offer was a 15% premium to the pre-offer closing price of $7.16 and 35% higher than the 7 December closing price. AGL shares have rebounded in line with rising wholesale electricity prices, up 12% in NSW since late February. The board is pushing ahead with its plan to demerge AGL’s fossil fuel assets, up for a vote in mid-June 2022.
Rate hike expectations build
Reserve Bank Governor Philip Lowe had analysts in a tissy on Wednesday after he said a rate hike this year is “plausible”. With fuel prices on the rise, derivatives markets are now pricing in a cash rate of 1.3% by December, potentially six rate hikes. That’s up from around 1.1% earlier in the month. There’s still a wide gulf between the Governor and traders. In his speech to the AFR Business Summit, Lowe reiterated the risk of moving too early and said the bank has time to review incoming information before making any decision.
Aluminium prices round trip
Aluminium prices joined world commodity prices in taking a breath after last week’s breakneck rally. Prices jumped 20% in the days after Russia’s invasion of Ukraine as traders worried about how sanctions would impact one of the world’s largest aluminium producers. Cash contracts on the London Metal Exchange were down 8% on Thursday relative to the end of last week. In a possible sign that long-term issues remain, futures contracts for December 2023 only fell 2% over the same period.
Shares in Alumina (ASX: AWC), a major player in alumina which is used to produce aluminium metal, closed 4% lower this week. Rio Tinto (ASX: RIO), which earnt 12% of its underlying earnings from the metal in 2021, is also lower. Aluminium and its ore precursors were Australia’s seventh-largest export in 2019-2020, worth $12.6 billion.
Oil drives volatile week on the ASX: Market recap
Australia’s share market see-sawed between gains and losses this week amid wild gyrations in oil markets and on-off progress in peace talks between Russia and Ukraine.
The benchmark S&P/ASX 200 closed Friday down 0.94%, having closed higher by more than 1% the prior two days. For the week, the index finished 0.66% lower. All sectors ended the week in the red bar consumer staples and financials, up 0.3% and 2.2%, respectively. Materials and information technology led decliners at 3.4% and 1.8%, respectively.
Markets are moving wildly as soaring energy prices scramble forecasts for economic growth, inflation and central bank rate hike schedules. Higher oil prices are raising the spectre of stagflation, a combination of slowing growth and rising prices, just as central banks prepare to raise interest rates for the first time in years.
“One of the big things to come into focus this week was the concern that the increase in energy prices would lead to demand destruction and a recession,” says Aaron Binsted, a portfolio manager at Lazard. “There were a couple of days when cyclicals sold off and defensives bounced back. Then you had people betting that if growth is down due to an economic slowdown, then interest rates might not go up.”
Bets on lower interest rates unwound on Friday after US inflation hit a 40-year record overnight and a decision from the European Central Bank to accelerate the winddown of its bond-buying program in the face of inflation.
The S&P/ASX 200 All Technology index lost 3.1% on Friday having gained 14% over Tuesday and Wednesday
Markets were buoyed mid-week by comments from Russia’s foreign ministry spokeswoman on Wednesday (Europe) that the country would prefer to achieve its aims via talks. Hopes for a negotiated peace were frustrated a day later as talks stalled between Ukraine and Russia’s foreign minister in Turkey.
Resource heavyweights BHP, Rio Tinto and Fortescue Metals retraced last week’s blockbuster gains to end down between 5.4% and 10.9%. Rio Tinto fell further due to going ex-dividend on Thursday.
Oil prices eased after a blistering week, falling 11.8% from Monday’s close of US$123.2 to US$108.6 as of 4pm AEST on Friday.