News - Prospector's Diary

Recession speculation flowing from a potentially rapid rise in interest rates dominated the top end of ASX resource stocks this week while at the bottom end, with the aid of a magnifying glass, a handful of winners could be found.

Biggest losers from the downbeat talk were the three major iron ore producers, BHP, Rio Tinto and Fortescue Metals, which were sold off as the iron ore price headed south. BHP dropped $2.19 (5.2%) to $40.36. Rio Tinto fell by $5.31 (5%) to $102.38, while FMG was hit hardest, losing $1.50 (8%) to $17.26. China’s slowing economy, caused in part by Covid lockdowns, was the primary reason for the steel-making material crashing back to US$112 a tonne, its lowest this year and half the price of 12-months ago.

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Bargain hunters rushed back into the stock market after this week’s well telegraphed rise of 0.75% in official U.S. interest rates, but whether they got a bargain is yet to be seen because the latest rate rise will not be the last in the cycle.

Better buying could lie ahead as the turmoil created by the co-called “bondcano” (a sharp jump in interest rates) is supercharged by the Ukraine war and the price of oil, which are the keys to a bruising outbreak of inflation.

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It’s not yet the hurricane forecast by Jamie Dimon but the first gusts of wind from a darkening global outlook started to buffet Australia this week, rattling investor confidence and waking interest in safe havens, including gold.

Dimon, chief executive of the big U.S. bank JP Morgan Chase, delivered his hurricane prediction earlier this month when warning that the combination of rising interest rates, war in Ukraine and oil, possibly heading up to a record US$175 a barrel, was an ominous combination. On cue, Australia’s central bank followed with a bigger-then-expected 0.5% interest rate increase with a similar move tipped for next month.

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The twin negative forces of “greenflation” and “slowbalisation” weighed heavily on investor sentiment and share prices this week, restricting most gains to stocks delivering positive discovery and development news, though even their gloss started to fade.

Lithium was the perfect example of “slowbalisation,” an economic force best described as the opposite of globalisation with the growth normally associated with an interconnected world replaced by contraction into competing fiefdoms.   Russia’s war in Ukraine is the most obvious cause of the slowdown in global growth courtesy of its impact on trade flows and a near-record oil price, which is crushing consumer demand and driving inflation closer to the double digits last seen in the 1980s.  

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Buy the dip theory took hold among Australian investors earlier week as they helped the all-ordinaries index claw back 200 of the 700 points lost since early April but by Thursday they discovered the meaning of “dead cat bounce”.

The net result was a week which ended not far from where it started, still down 600 points on a month ago. Adding to concern that the market is struggling to overcome multiple negative forces that include rising interest rates, higher inflation and shortages caused by the Ukraine war is Saturday’s Federal election and the prospect of a new, and less business-friendly Australian Government, on Monday.

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One decent discovery was not enough to totally wash away the negative sentiment that pervaded most sections of the Australian stock market this week, though Galileo Mining’s palladium strike near Norseman in WA went some way to improving the overall mood.

The highly encouraging 33 metre drill hit assaying 2 grams per tonne of three metals (palladium, platinum and gold), plus useful grades of copper and nickel from a depth of 144m triggered a spectacular surge in Galileo’s share price, which rose by 41c (192%) to 62c. News of the find reverberated around the world, fast becoming a talking point at the Mining Indaba conference in Cape Town and sparking interest among stockbrokers in London, from where this week’s edition of Prospector’s Diary is being filed.

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Interest rates rose in the U.S. and Australia this week as expected, but so did the stock market, gold, copper, and most other commodities, which was unexpected, and perhaps an interesting case of premature enthusiasm.

What could have started with a period of excess caution in the lead up to the rate rises was quickly replaced by a global exhalation of “phew, that wasn’t so bad,” without many people looking a little further down the track at a river of rate rises to Christmas and beyond.

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Australian investors crept out of their foxholes yesterday after a confidence-sapping week under a barrage of heavy fire that included news of soaring inflation, slowing growth, rising interest rates and higher taxes

Not to forget the potential for a change of government next month. Nuggets of good news from explorers could be found if you dug deeply. Coda Minerals added 3.5c rise to 65c after reporting more high-grade mineralisation at its Emmie project in South Australia and BMG added an impressive 2.4c (66%) to 6c thanks to a thick and rich gold intersection at its Abercromby project near Wiluna in WA.

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