Potential US rate pause buoys market ahead of pivotal Jackson Hole gathering

Hints of a pause in the U.S. interest rate rising cycle buoyed investment markets towards the end of the week as bankers gathered in the Wyoming ski resort of Jackson Hole to hear the latest plans of Federal Reserve chairman, Jay Powell.

By Tim Treadgold.


Whether the good mood can last the weekend is the next test of the promised recovery from two years of rate hikes and high levels of inflation, with the set piece of the U.S. conference, Powell’s address, coming late on Friday, after Australian markets have closed.

Gold, the ultimate interest rate canary, started singing late on Wednesday with a US$20 an ounce rise to US$1921/oz as optimism grew about a sea-change in market fundamentals which will follow peak rates and the eventual slide back to more normal settings.

Copper followed with a US10-cent-a-pound rise to US$3.78/lb, with the Australian stock market chiming in with a 0.6% rise over the week to Thursday as speculation grew that Powell would hit the pause button and perhaps unveil a wind-back timetable.

Options for the Fed chairman are said to be one (or two) final rate increases before Christmas to ensure that inflation is dead and buried, or an immediate pause followed by a long hold at current, elevated, levels to achieve the same inflation-crushing result.

The challenge for investors is that while an end to rising rates is welcome they have a choice of “cures”, a final sharp shock followed by a downturn sometime early next year, or months of high rates.

Given the start of the U.S. Presidential election process there is more chance of Powell acting to quickly getting rising rates off the front page to be replaced by falling rates as next year’s vote nears.

Mohamed El-Erian, a high-profile London-based economist and corporate adviser, wrote during the week that he was not expecting a major policy announcement at the Jackson Hole symposium, a view which could see high rates locked in for much of the next 12-months.

China, the other major unknown factor in markets today, showed no sign of shaking off its recent weakness which seasoned Sydney stockbroker Warwick Grigor warned could be signalling “the end of China’s economic miracle”.

“Our resources sector was a massive beneficiary of the very high growth rates experienced by China up to Covid,” Grigor wrote in a weekly note to his clients.

“It seemed like the Chinese economy was on a path to becoming the biggest in the world, but something happened. China went into a deep lockdown from which it has never fully recovered.”

BHP, which reported a widely expected 58% profit decline to US$12.9 billion for the year to June 30, said it was concerned about the outlook for commodity demand from China, especially as the property sector turned down.

Investment banks took the profit fall in their stride, maintaining buy tips on the big miner and welcoming its increased pivot towards copper as a replacement driver as iron ore peaks and rolls over.

Citi lowered its BHP price forecast from $45 to $44 as the stock slipped to $43.86. Barrenjoey stuck with $45 while Morgans topped the forecasts with $51 as the target price, describing BHP as “a miner for all seasons”.

Lithium producers performed strongly during the week, explorers and project developers less so.

Allkem, up 76c to $14.08, was the pick of the producers, but it could go a lot higher if Bell Potter is right, with its latest buy tip and price target of $19, well ahead of most other brokers such as Morgans, which sees $14.20 as the peak as lithium prices weigh on the stock.

Pilbara and Liontown rounded out the strong performance of lithium producers this week, up 40c and 21c respectively to $5.15 and $2.78.

Explorer/developer downward moves included Patriot, down 7c to $1.32. Green Technology, down 3c to 53c. Global Lithium, down 9c to $1.53, and Azure, down 4c to $2.59 after announcing a successful $120 million capital raising.

Raiden Resources was an exception to the producer v explorer situation with a 100% share price rise from 1.3c to 2.6c after reporting the discovery of a 30 metre-wide outcropping pegmatite at its Andover South project in WA.

Rare earth stocks had a solid week with two little-known explorers leading the way up, along with a strong performance by sector leader Lynas, which rose by 31c to $7.03, and Red Metals, which added 5.8c (75%) to 14c after reporting what is closed to be a new form of rare earth mineralisation but it remains a true micro-cap with a market value of $33 million.

Gold stocks started the week poorly but finished with a flourish as speculation grew about a pause in interest rate rises and the possibility of a timetable for reversal at this weekend’s Jackson Hole conference.

The big producers, Northern Star and Evolution, led the way up with rises of 75c and 17c respectively to $11.09 and $3.55.

Other gold news and price moves included:

  • West African, up 6c to 86c after encouraging exploration news from its Sanbrado mine in Burkina Faso with best hit of 20.5 metres at 4.1 grams a tonne.
  • Black Cat also reported strong gold intersections of up to 234.5g/t but over just 1.02m at its Paulsens project in WA, with the company’s shares slipping 3.5c lower to 28c, and
  • Regis Resources suffered a modest 1.8c sell-off to $1.50 after cutting its gold reserves, a move which saw Bell Potter slash its price target from $2.77 to $2.26.

Chalice Mining led stocks exposed to nickel higher over the week but wasn’t the best performer. That title went to a small stock, Western Yilgarn, which is exploring close to the Gonneville polymetallic discovery made by Chalice near Perth.

On the market, Chalice added 11c to $5.07 while Western Yilgarn popped 14c (108%) higher to 26c after reporting that the latest drill results reported by Chalice were less than 2.5km from the border between the two companies – nearology at its best.

Other news and market moves of interest this week included:

  • WA Resources resumed its strong performance with a rise this week of 31c to $5.41 after reporting the discovery of a high-grade enriched niobium horizon at its Luni discovery in central Australia.
  • Pantera Minerals added 1.5c to 9.9c after announcing a deal which gives it exposure to the Smackover lithium brine formation in the southern U.S. State of Arkansas which has already attracted major players such as Exxon Mobil and Albemarle.
  • Alumina lost 18c to $1.15 as doubts grow about its continued investment in the WA bauxite mining and alumina industry.
  • Boss Energy led the uranium sector higher with a rise of 27c to $3.48 after the price of the nuclear fuel reached a high for the year of US$58.25 a pound. Paladin Energy joined in the U-revival with a 10c increase to 84c.
  • Strandline outperformed its mineral sands rivals with a rise of 1.2c to 18c after reporting the first shipment of ilmenite from its Coburn project in WA. Shaw and Partners continued to cheer from the sidelines with a buy tip and price target of 65c, and
  • Renascor Resources reported what it claimed to be the biggest graphite reserves outside Africa at its Siviour project in South Australia. The stock added 1c to 16c.

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