Small caps wrap

Australian small caps were up 0.67% for the week as the market witnessed a small rally. Meanwhile, the ASX 200 was up 0.71% for the week. The increase in small caps was on the back of news surrounding the commodities market. Australian stock indexes rising during the week was contrary to the other major stock markets, such as the S&P 500, which fell as news of central banks’ plan to continue their rate increases weighed on investor sentiment.

Australia, too, remains under pressure from inflation and rising rates, with CPI currently running around 6%. Several vital economic themes emerged during the week, such as people substituting their groceries, as the purchasing power of consumers was hit, for cheaper alternatives. According to economists, inflation is expected to peak at around 8% later this year, but forecasts have been off-track for now. Meanwhile, the Australian dollar strengthened slightly against the US dollar as news of commodities strengthening continued to drive the market upward.

During the week, miners continued their good run of form. Meanwhile, airlines continued to show weakness, and retailers slumped as consumers’ purchasing power started to show weakness.

Here are some of the key highlights for the week:

-Uranium stocks soared during Week one; the such stock was Elevate Uranium (ASX: EL8) which was up as multiple countries signalled a greater openness towards nuclear energy. Nuclear energy has remained a contentious issue ever since the Fukushima Plant disaster. But countries such as Japan once again indicated that they would be building nuclear plants again to meet energy needs. Japan is looking to increase its atomic share of energy production from 7% and will look to overextend nuclear energy’s share to higher levels. Elevate Uranium has strategic exploration sites across Australia and Namibia and is set to ramp up production. The combination of increased production and news of demand are both driving the stock higher

-Uranium prices spiked during the previous months as energy prices sky-rocketed. Since then, natural gas prices have continued to shoot up as the Ukraine conflict has not come to a resolution. Furthermore, demand for energy remains strong, and with winter approaching, natural gas prices are only likely to head up further. Uranium demand also remains strong, and prices are expected to continue to rise through 2023 as nuclear increasingly becomes a substitute for fossil fuels.

-Demand for Uranium remains in demand as multiple countries are forced to take a more moderate approach to green energy. And while solar and wind have become an essential and increasing part of the energy mix, issues of base load continue to plague many economies. As a result, Uranium stocks could see a multi-year run, as many countries are forced to rethink their green policies, especially during inflation.

Elevate wasn’t the only uranium stock that was up. Paladin Energy also jumped on the news of countries restarting their nuclear energy programs. Shares were up 13% for the week.

-Anson Resources (ASX: ASN) is another stock that was up significantly during the week was Anson resources. Anson resources recently announced a partnership with Sunresin at the Paradox Project. The company’s shares increased substantially by over 200% over 52 weeks during the week.

– Anson executive chair and CEO Bruce Richardson commented:

“We are delighted to announce the strategic partnership with Sunresin as our technology partner today. Sunresin’s DLE technology is the most attractive for the Paradox Lithium Project’s brine and meets our goal of producing the highest quality and cleanest lithium carbonate in the United States. We look forward to a long association with Sunresin.”

-In non-commodity news, the number of stocks also fell significantly; one of those stocks was City Chic Collective. City Chic (ASX: CCX) collective fell by 13% as news of poor earnings came through. City Chic is an Australian fashion retailer that primarily deals in clothing for women. The stock was down on the news that the cash flow fell significantly during the quarter. Cash flow in the same quarter last year came in at $15.2 million, versus $51.9 million in negative cash flow for the year. Cash flow during the quarter was primarily affected by high inventory levels, and management is now racing to get things back on track.

The CEO states the following:

“To support this growth and ensure sustained growth into the future, we established a
sophisticated global distribution network through our websites and a global partner
network. This included diversifying our global supply chain into new sourcing regions and
investing in inventory ahead of the curve. “

“This investment will unwind in FY23 as accelerated inbounding reduces and we leverage new supply chain relationships. This will deliver strong free cash flows into FY23 and our expanded debt facility, providing good funding flexibility to execute on our growth plans.”

A look at the coming week:

The coming week should also be enjoyable, as many critical economic reports start to come through next week, including China’s industrial numbers. Australian analysts will watch closely where critical global economic indicators end up over the next couple of weeks, which will help them determine the policy trajectory.

Meanwhile, the Reserve Bank of Australia will also continue to wait and watch to see where the trajectory of inflation heads in the coming months as it determines the course of monetary policy. Finally, some key companies, especially mining companies, will report next week, and their results could determine which way the market trends.

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