☕️ Find Out What Drove The Lithium Rebound

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Welcome to Equity Espresso’s Market Recap.

The Australian sharemarket closed lower on Wednesday, with the S&P/ASX 200 index dropping 0.3% to 7,982 points, primarily due to losses in Financials (-1.46%) and Energy (-1.41%) stocks. The "Big Four" banks experienced significant declines, with Commonwealth Bank (-1.89%) leading the fall. This downturn occurred before releasing the latest US consumer price index, which is expected to influence the Federal Reserve's upcoming interest rate decision.

Energy stocks also contributed to the market's decline, falling 1.4% following a substantial drop in Brent crude oil prices. The price fell below $US70 a barrel for the first time since November 2021, impacting major energy companies like Santos (-1.01%) and Woodside (-2.21%).

Despite the overall market downturn, the Mining (+1.67%) sector showed renewed strength. Iron ore producers, in particular, benefited from a 2.6% increase in iron ore prices to $US92.95.

Today's big movers were Lithium stocks, with some heavy-hitters seeing double-digit increases.

So why did Lithium companies rise so much?

CATL, a major Chinese electric vehicle battery maker, suspended production during a significant operation in China. This suspension, particularly of its lepidolite operation in Jiangxi, could reduce China's monthly carbonate production by approximately 8% or 5,000 to 6,000 metric tonnes. The news immediately impacted the market, with carbonate futures in China surging 5.6% to about 75,500 yuan per tonne on Wednesday.

The news affected Australian lithium stocks, with traders likely covering short positions, exacerbating share price movements. Notably, Pilbara Minerals (+13.14%), long the most shorted stock on the Australian share market, saw a sharp rise. Mineral Resources (+15.95%) and Liowntown Resources (+13.12%) were two others to surge, with both companies in the top 15 most shorted stocks on the ASX.

Company News

• Next DC (-5.55%) shares fell after the company completed a $550 million placement and issued 32.1 million new shares.

• REA Group’s (-2.22%) bid to acquire Rightmove has hit a roadblock, with the U.K. company rejecting its $11 billion cash and scrip offer.

Wall Street

Wall Street saw mixed performance on Tuesday, with the S&P 500 (+0.45%) and the Nasdaq (+0.84%) closing higher, while the Dow Jones dipped 0.23%. The gains were tempered by concerns about slowing economic growth, particularly affecting bank and energy stocks.

The Energy sector was the biggest decliner, dropping 1.9% due to OPEC+ cutting its 2024 and 2025 demand forecast. Bank stocks also fell after warnings of current-quarter weakness, with Goldman Sachs predicting a 10% drop in trading revenue and JPMorgan Chase tempering expectations about interest income.

Ally Financial's (-17.64%) shares plunged after CFO Russell Hutchinson reported increased credit challenges in Q3, particularly in retail auto loans. Due to high interest rates and economic uncertainty, the company faces rising loan defaults and reduced borrowing.

Oracle (+11.44%) shares surged over after exceeding fiscal first-quarter expectations, reporting adjusted earnings of $1.39 per share on $13.31 billion in revenue. The company announced a strategic partnership to bring its database services to Amazon Web Services. Oracle's cloud services and infrastructure segments showed strong growth, with cloud infrastructure revenue increasing 45%. The company projects 8-10% revenue growth for the current quarter.

S&P500 Sector Performance

Economic Data

• U.S Annual Inflation slowed to 2.6% in August - based on preliminary figures, which would make it the fifth consecutive month of slowing growth.

• U.K. monthly GDP stalled in July 2024, below forecasts of an expected 0.2% gain.

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🌎️ Around The Globe

• Google and the Department of Justice (DOJ) returned to court over an alleged ad tech monopoly. This second lawsuit focuses on Google's control of online advertising markets, potentially strengthening the government's stance against Big Tech monopolies.

• Inditex, Zara's parent company, reported an 11% increase in sales for its autumn-winter collections between August 1 and September 8. This strong performance contrasts with the company's first-half results, which showed a slowdown in sales growth to 7.2% from 13.5% the previous year, meeting analyst expectations.

• Lynk & Co, the Chinese-Swedish EV brand, plans to launch its first China-made battery-electric car in Europe without passing on potential tariff costs to consumers. CEO Nicolas Appelgren stated they need to price competitively against European-made rivals. The company's next EV model will be produced in Europe, with parent company Geely scouting locations.

• New Starbucks CEO Brian Niccol plans to improve the U.S. business by enhancing the barista experience, morning service, cafe environments, and branding. He acknowledges current service inconsistencies and aims to address these issues before tackling international challenges.

• UniCredit acquired a 9% stake in Commerzbank and plans to increase its holding. The Italian bank purchased nearly half the stake from the German government and the rest from the market. UniCredit outbid other offers, paying €13.20 per share, above the closing price of €12.60.

• The U.S. House passed legislation to blacklist Chinese biotech companies and their US subsidiaries, despite last-minute lobbying efforts. The bill, approved 306-81, targets five companies, including BGI Group and WuXi AppTec, aiming to prevent China from dominating the biotech field and potentially developing bioweapons.

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*1-year, 3-year and 5-year returns are calculated as of July 31 2024.

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