US inflation weighs on ASX

The Australian market continued to have a tough week as negative US inflationary sentiment placed downward pressure on many domestic stocks.

Australia’s labour markets continued tight, but unemployment numbers rose slightly as more people entered the market. 

The labour markets, in general, continue to be tight, with significant markets across the Asia-Pacific, such as South Korea, witnessing record low unemployment, which in turn is leading to increasing wage costs and putting pressure on prices.

Meanwhile, Australian business activity remained solid despite interest rates hitting 2.35 per cent. 

Interest rates will likely continue to move upwards, correcting assets such as housing, with many in the sector predicting a decline of around 20 per cent in the coming six months.

Labour markets continue to be tight, and job openings are currently around 480,000 to 500,000, with record low unemployment propelling the economy despite inflation.

In addition, the economy continued to remain strong for August, as the National Bank of Australia business activity survey showed activity and confidence picking up.

Small caps were also down by 2.67 per cent during the week, on the back of the broader market sell-off.

Code	Company Name	Traded	Volume	Market Cap	Price Change	Price	%
NAE	New Age Exploration	$1.24m	128.61m	$17.23m	1.2c	1.2c	100%
AQX	Alice Queen Limited	$17.98k	6.16m	$6.46m	0.3c	0.1c	50%
WBE	Whitebark Energy Limited	$20.22k	10.11m	$16.94m	0.3c	0.1c	50%
CGA	Contango Asset Management Limited	$59.33k	130.2k	$21.45m	14.5c	1.2c	48.3%
M24	Mamba Exploration Limited	$274.95k	1.63m	$6.96m	4.0c	1.2c	32%

The Australian dollar has been showing some weakness again for the previous month, as the DXY continued to rally on the back of aggressive fed action. 

The U.S. dollar has been in demand, mainly due to the broader global economic uncertainty. It will likely continue to strengthen as international currency reserves such as the Euro and Yen remain significantly behind in the fight against inflation.

Commodities

Australian commodity companies continued to show resilience, and news of record production continued to drive the sector. 

Kingston Resources (ASX: KSN) continued to ramp up production, and the company cited that production rose to 1203 ounces, with the CEO stating, “Solid production growth continues to be delivered at our gold tailings operation, with sequential monthly production records in July and August,”.

Kingston was not the only miner who had good news for the week, Navarre Minerals (ASX: NML) confirmed new deposits, with higher grade silver and gold deposits. 

The improvement in deposit grades should allow the company to reduce costs and increase its output.

Gold and Silver have been volatile, and gold has not been able to recover to above 2000 USD, despite demand and inflation continuing to run hot.

 This can be partially explained by the stronger dollar, which continues to see strength. Meanwhile, Silver saw a small rally during the week as record demand started causing shortages. 

Silver bullion has been in short supply, and demand from the green economy will likely keep things tight for a while.

Energy 

Meanwhile, in the energy sector, Provaris Energy (XASX: PV1)  announced collaboration across Europe and Asia-Pacific with French-based company Total Enren.

“Total Eren is an ambitious renewable energy company with a global portfolio of green hydrogen projects under development for import into markets that include Europe and Asia,”. 

Hydrogen, which had fallen behind, has started to witness record investment as more and more countries consider it an energy source. Issues remain due to the energy-intensive nature of producing hydrogen. 

Until more sustainable energy sources such as fusion become viable, hydrogen will continue to be an expensive commodity.

Other Sectors

Solid-state battery company Altech chemicals (XASX: ATC)  signed an agreement with German battery institute Fraunhofer IKTS to bring Cerenergy sodium alumina solid-state batteries to market. 

The plan is to produce batteries to target the grid market, which may triple over the next five years, hitting anywhere from $20 billion-$25 billion USD as more and more people require storage facilities for their energy needs. More and more homes are being powered by solar, and baseload issues continue to plague the industry. 

But with solid-state batteries, the issue could make the entire industry far more commercially viable and create a much more sustainable green infrastructure.

Finally, Clarity pharmaceuticals (ASX: CU6) started phase-2 trials of its diagnostic product, specifically Copper-64 SAR Bombesin, product imaging scans

Next Week

The Australian dollar and the commodity sector will continue to be at the centre of news as the U.S. Federal Reserve is likely to continue to increase rates at a record pace to tame inflation. 

Considering U.S. rates are at record levels and dollar shortages continue to be an issue, the commodity sector will be under pressure over the next quarter.

When the RBA governor speaks today, he is likely to reiterate more of the same, that until inflation is under control, the RBA will continue to raise interest rates. This will set the tone for next week as the PMI numbers come through.

There have been increasing levels of alarmism that the global economy is starting to turn over and that a recession is on the horizon.

While GDP numbers have been weak, traditional metrics such as unemployment continue to defy odds. 

The next few weeks may not be very volatile but will set the tone for the coming months, as inflation is the central theme.

Finally, investors will watch global economies as significant economies such as China continue to limp ahead.

The Eurozone struggles with record energy prices, leading to large parts of the European economy stagnating. 

All of this could eventually tail back to Australia, which has been increasingly intertwined with the global economic sentiment.

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