ASX nears three-month lows as RBA call looms

After a tough end to a difficult September quarter, history says investors around the world will be hoping to charge into the final three months of the year with a bit of a spring in their step.

Nigel Tupper, quant strategist at Bank of America in Sydney, has analysed global sharemarket returns stretching back to 1988 to confirm that August and September have indeed been the weakest two months for the MSCI World Index.

But the good news is that two-thirds of gains in any given calendar year typically occur in the final 10 weeks of the year.

“Sell in May, go away, and come back on October 12,” Tupper says.

The seasonal trends are surprisingly solid across the globe. While the best month for US equities has historically been April, the best quarter is clearly the December quarter. In the Asia Pacific region (excluding Japan) and Europe the best month for returns is December, while emerging markets tend to finish the year well.

History should be respected, of course. But there are seven reasons why a fourth-quarter rally looks unlikely.

Read more.

Lithium prices are dropping toward the lowest level in two years on concerns over the strength of Chinese demand for the material, a key ingredient in electric vehicle batteries.

Prices of lithium carbonate in China fell to 166,500 yuan ($36,179) a tonne last Wednesday, ahead of the Golden Week holidays, a loss of almost half from the recent peak in early June. The decline has been precipitous. Less than a year ago, the metal reached a record of 598,000 yuan a tonne.

The slump has hammered lithium producers too, with the Sprott Lithium Miners ETF tumbling to the weakest since its inception in February, and Global X Lithium & Battery Tech ETF plunging to the lowest since 2020.

Demand for lithium typically picks up in the fourth quarter in China – the world’s largest EV market – because of strong battery cell production and installation, and manufacturers usually replenish their feedstock ahead of that.

But this year, that hasn’t happened. Sizable restocking has yet to materialise, said Susan Zou, an analyst with researcher Rystad Energy. Battery makers still have plenty of inventory to draw down, she said.

While the drop in prices may curb supply, especially from lepidolite mines in China, the pace of the decline in demand means they could go lower, said Wanyi Shao, an analyst at Guotai Junan Futures “Car and battery manufacturers have been cautious when it comes to restocking” because consumer demand is weaker than expected, she said.

In China, carmakers are struggling to defend their market share amid economic uncertainty. EV sales growth in the Asian nation slowed to 37 per cent in the second quarter from a year earlier, versus a global average of 50 per cent, according to consultancy Counterpoint Research.

Goldman Sachs analysts including Aditi Rai see lithium carbonate prices falling further over the next 12 months.

“For the rest of the year, the fundamental focus appears to be on a seasonal uptick in Chinese EV sales, and we think any disappointment relative to historical norms could put accelerated downward pressure on prices,” they wrote in a note dated Sept. 21.

Still, the current pullback provides a good buying opportunity for lithium stocks as demand growth over the next decade should support long-term prices, Wilsons Advisory said.

There is a big new listener to ASX-listed companies’ twice-a-year earnings calls – the Reserve Bank of Australia.

Realising it needs new sources of information to better track and fight inflation, the RBA is joining fund managers, analysts and retail investors on the calls and webcasts, with the help of artificial intelligence and Facebook owner Meta in a much more systematic way.

Its method is to feed earnings call transcripts into one of Meta’s large language models, and use AI software to pick out information on things like labour costs, consumer demand and supply shortages – basically anything that could affect a company’s input costs, demand or final prices, and give a read on what will happen to prices and inflation.

It back-tested the new AI method all the way back to 2007, running 5500 earnings-call transcripts through the model, and found it matched up well with and added to existing research methods. The calls are typically held by top 300 companies.

Read more.

Battery materials recycler Neometals has dropped more than 5 per cent after news that a planned deal with Jiuxing Titanium Materials has collapsed.

The negotiations for the supply agreement, which began in 2021, have ended with neither company securing mutually agreeable terms.

“Regrettably, the broader macroeconomic backdrop has required Jiuxing to adjust its production plans and shelve further Barrambie related activities,” the company said in a market announcement.

Neometals managing director Chris Reed said the company was further looking at different options with other parties about potential development for the Barrambie titanium project in Western Australia.

Megaport shares rose 2.1 per cent after the cloud connectivity provider said interim CFO Leticia Dorman was formally appointed to the role as of tomorrow.

Dorman first stepped into the role in March, following the shock departure of former CEO Vincent English.

“Leticia has made an impressive contribution to the company as interim CFO, and is an excellent addition to the executive team,” said Michael Reid, Megaport’s chief executive.

Shares fell 14 per cent in March, following the CEO departure, but have since recovered to be up almost 100 per cent since the start of the year.

Shares last traded at $12.02

Shares are trading slightly lower this afternoon, as the market balances an expected higher-for-longer interest rate environment against a narrowly averted US government shutdown.

At midday, the S&P/ASX 200 is just 0.1 per cent lower at 7017.2, with the All Ordinaries also edging slightly lower. In what’s proving a lacklustre day in trading, none of the 11 ASX sectors have moved more than 1 per cent in either direction.

Healthcare stocks are the worst performing, down 0.8 per cent. The sector is being dragged by a 2.4 per cent decline in dual-listed ResMed, which was downgraded to peer performer from outperformer by Wolfe Research over the weekend.

Energy is down 0.6 per cent, with petro-heavyweights Santos and Woodside both down around 1 per cent.

Further afield, futures contracts on the S&P 500 climbed 0.5 per cent after legislation was passed over the weekend to keep the US government running until mid-November.

Markets brace for next RBA call

Tomorrow, the Reserve Bank of Australia will meet, and New Zealand’s central bank will hold its policy meeting on Wednesday.

While both boards are expected to keep rates on hold this week, both have left the door open for further increases depending on the data. National Australia Bank tips the RBA to lift rates to 4.35 per cent in November.

The Australian Financial Review’s survey of 42 economists suggests the Reserve Bank will cut interest rates in August next year, according to the median forecast, compared with previous expectations of May.

Late last year, the survey had forecast the first monetary easing in February next year.

“Underlying inflation pressures are still too hot for comfort, and it will likely be a bumpy downtrend,” said Katrina Ell at Moody’s, who is expecting an easing mid-next year.

Read more.

Stocks to watch

On the benchmark, Coronado has dropped 4.4 per cent after the coal producer revised down its full-year production guidance following disruptions at its Buchanan mine in Virginia, US.

Syrah Resources has jumped 11.7 per cent after flagging “improved natural graphite demand” in the most recent quarter.

Superloop has gained 2.3 per cent after letting its bid for fellow ASX-lister Symbio lapse, following a competing buyout offer from Aussie Broadband late on Friday. Symbio shares jumped 14.4 per cent.

Gold miner De Grey Mining is down 1.6 per cent after completing a $300 million share placement priced at $1.05 a share. Shares last traded at $1.09.

Pacific Edge has warned that proposed changes to US Food and Drug Administration guidelines could result in more red tape for its bladder cancer diagnostic device, Cxbladder. Shares are unmoved at 12.5¢ apiece.

Superloop has gained 1.5 per cent after letting its bid for fellow ASX-lister Symbio lapse, following a competing buyout offer from Aussie Broadband late on Friday. Symbio shares jumped 17.1 per cent.

Oil opened the new quarter on the front foot, edging higher on widespread bets that global demand is running ahead of supply.

West Texas Intermediate advanced above $US91 a barrel after soaring 29 per cent in July-September, the biggest third-quarter gain in almost two decades. Monday holidays in many Asia-Pacific nations, including China and India, may constrain trading volumes in risk assets such as commodities.

Oil has rallied since mid-June after the Organisation of Petroleum Exporting Countries and its allies curbed crude supplies, Russia banned exports of diesel, and official US data confirmed a collapse in crude stockpiles at the vital hub in Cushing, Oklahoma. The surge, which has also been supported by robust demand, rekindled speculation $US100-a-barrel pricing may return.

Widely watched metrics point to tighter conditions. WTI’s prompt spread – the gap between its two nearest contracts – was $US2.01 a barrel in backwardation – a situation in which the spot or cash price of a commodity is higher than the forward price – a bullish pattern. That compares with 80¢ a month ago.

The Adipec summit in Abu Dhabi this week, the biggest Middle Eastern energy conference, may offer fresh insights into what’s in store for the crude market this quarter. Scheduled speakers include United Arab Emirates Energy Minister Suhail Al Mazrouei and Haitham Al-Ghais, secretary-general of OPEC.

Shares in Syrah Resources have jumped following hints of strong demand for the company’s graphite material in the most recent quarter.

In a market announcement responding to an article published by The Australian Financial Review on Sunday, the graphite producer said the “ongoing strength in global electric vehicle sales has seen increased anode production in China and improved natural graphite demand recently”.

More information on production from the company’s Balama project in Mozambique, as well as natural graphite sales and shipments, will be released with the company’s quarterly activities report on Tuesday, October 17.

Demand for the key battery material is expected to send spot prices up by more than 50 per cent, UBS brokers said.

Shares in Coronado are falling after the coal producer revised down its full-year production guidance following disruptions at its Buchanan mine in Virginia, US.

The middle range of the company’s full-year 2023 production guidance has fallen from 17 million tonnes to 16.3 million tonnes.

The company said mining activities at the Buchanan mine were temporarily affected by geological conditions in the coal seam during the September quarter, slowing production rates and impacting yield.

The FY2023 cost-per-tonne forecast grew to about $US99 a tonne from a mid-range of $US85.50.

However, capital expenditure efficiencies have come in below the previous guidance and were revised to $US220 million from $US240 million.

“Notwithstanding these two short-term non-recurring operational challenges, net of the efficiency gains in capital expenditures, we expect this to have a minimal impact on year-end cash on the balance sheet of a maximum $US10million reduction assuming none of the lost production can be recovered,” executive chairman Gerry Spindler said.

Shares last traded 4.1 per cent lower at $1.86 apiece.