Markets Bounce Back … But For How Long?; Vanadium IPO On The Cards; Is Australia Ready To Adopt EVs?

Morgan Stanley predicts a revival if… “rates fall ahead of a decline in inflation (which we expect), it will give legs to the rally that began last Thursday.”

Markets bounce back… but for how long? The vanadium IPO on the cards. And is Australia ready to adopt EVs?

The ASX is set to climb today, buoyed by overnight movement on Wall St.

ASX Futures point to the ASX 200 opening 61 points higher, up 0.9% after all major US indices rose sharply on better-than-expected earnings from Bank of America (6.1% higher) and a tech stock rebound.

“First, consumers continue to spend at strong levels. Second, customer average deposit levels for September 2022 remain at multiples of the pre-pandemic levels. You can see that in the lower right. Third, there’s plenty of capacity for borrowing,” BoA CEO Brian Moynihan said.

Oversold tech companies including Block Inc (NYSE:SQ), Tesla Inc (NASDAQ:TSLA) and Zoom Video Communications Inc (NASDAQ:ZM) also bounced strongly.

The market remains volatile, so investors should expect that similar patterns to the losses on Friday, followed by gains on Monday will continue, especially as inflation clouds still hang overhead.

In one bright spot, Morgan Stanley (NYSE:MS) predicts a revival if… “rates fall ahead of a decline in inflation (which we expect), it will give legs to the rally that began last Thursday … We think 4,000 is as good a guess as any and would not rule out another attempt to re-take the 200-day moving average (~4,150).

“We’re starting to get to the point where our medium-term view is more constructive … We don’t think this is the 1970s … Yes, the earnings recession … and probably economic recession will play through, … but the room is getting crowded.”

Winners included Netflix Inc (NASDAQ:NFLX) up 6.6%, with Wells Fargo reiterating an equal-weight rating ahead of the company’s earnings. Apple was 2.9% higher and Roblox gained 19.8% after posting that its daily average users are up 23% year-on-year to 57.8 million. Estimated revenue was between US$171-180 million, which represents a change of -2% to +3%.

Here’s what we saw (source Commsec):

  • The Euro rose from lows near US$0.9720 to highs near US$0.9850 and was near US$0.9835 at the US close.
  • The Aussie dollar rose from lows near US62.30 cents to lows near US63.10 cents and was near US62.85 cents at the US close.
  • The Japanese yen eased from 148.57 yen per US dollar to JPY149.07 and was near the weakest levels at the US close.
  • Global oil prices fell modestly on Monday. Fears of a global economic slowdown were balanced by expectations of increased energy supply. Reuters reported “a senior Chinese National Energy Administration official said on Monday that the country will greatly increase domestic energy supply capacity and step up risk controls in key commodities including coal, oil, gas and electricity.” China will further increase reserve capacities for key commodities, another state official told a news conference in Beijing.
  • The Brent crude oil price fell by US1 cent or less than 0.1% to US$91.62 a barrel.
  • The US Nymex crude oil price lost US15 cents or 0.2% to US$85.46 a barrel.
  • Base metal prices fell by as much as 3.4% on the London Metal Exchange (LME) on Monday with aluminium down the most while copper only fell by 0.1%.
  • Aluminium fell by 3.4% in response to data showing large deliveries to warehouses approved by the LME.
  • The gold futures price rose by US$15.10 an ounce or 0.9% to US$1,664 an ounce.
  • Spot gold was trading near US$1,651 an ounce at the US close.
  • Iron ore futures fell by US$1.00 or 1.0% to US$94.93 a tonne.

Upcoming IPO

Australian minerals exploration company Richmond Vanadium Technology (proposed ASX code: RVT) has lodged a prospectus for its Initial Public Offering (IPO) with the Australian Securities and Investment Commission (ASIC).

The company intends to raise up to $35 million with the funds to primarily be used to deliver a bankable feasibility study for the Richmond Vanadium Project in North Queensland.

RVT owns 100% of the Richmond Vanadium Project after Horizon Minerals Ltd (ASX:HRZ) completed a restructure and demerger of its 25% interest in the project.

The Richmond Vanadium Project is one of the largest undeveloped oxide vanadium resources in the world with a mineral resource (JORC 2012) of 1.8 billion tonnes at 0.36% for 6.7 million tonnes V₂O₅. The Queensland Government declared the Richmond Vanadium Project to be a Coordinated Project in May 2022.

Vanadium is rapidly emerging as a ‘critical mineral’ and is poised to play a pivotal role in the commercialisation of renewable energy with the Vanadium Redox Flow Battery regarded as a leading energy storage system of the future.

Electric car discount bill

In July the Albanese Government introduced the ‘Electric Car Discount Bill’ to parliament, intending to remove fringe benefits tax (FBT) from electric vehicles to give more Australians access to battery-operated, hydrogen-fuelled and plug-in hybrid cars.

The Bill was popular among businesses – mostly SMEs – with 40% of respondents from new research commissioned by Small Business Loans Australia indicating they would purchase an electric vehicle by the end of 2023 if the Bill passes.

An independent panel of 210 Australian SME owners and decision-makers was surveyed and respondents comprised 44% of micro-businesses (1-10 employees), 27% of small businesses (11-50 employees) and 18% of medium-sized businesses (51-200 employees) and 11% of businesses with over 200 employees.

The survey highlights the dramatic shift towards electric vehicle ownership needed to meet Australia’s 2050 net-zero target. Ingrid Burfurd from the Grattan Institute specified that, as cars are on the road for an average of 15 years, Australians must purchase almost entirely electric vehicles by 2035.

The survey shows that most business owners and senior decision-makers are happy to make the shift sooner.

If the Electric Car Discount Bill passes, 66% of businesses would be incentivised to purchase an electric vehicle. While just 9% would be ready to purchase this year, the bulk of purchases – 31%– would be in 2023. 11% would acquire an electric vehicle in 2024, and 15% from 2025 onwards. Only 34% of business owners would not invest in electric vehicles, regardless of the Bill’s introduction.

Small Business Loans Australia sought to find out whether businesses would seek financing for these purchases in a climate of rising interest rates.

The Electric Car Discount Bill offers significant price cuts; however, it is applicable only to vehicles with an original sale price below the luxury car tax threshold ($84,916 for 2022-23). A model provided by an employer valued at about $50,000, would save the employer up to $9,000 a year through the fringe benefits tax exemption.

The survey found that despite the savings introduced by the bill, 63% of business owners would seeking financing. The larger the business, the more likely they are to finance an electric vehicle, with 69% of medium-sized SMEs believing that is the best option in an environment of rising interest rates. This was closely followed by 65% of small businesses and 54% of micro-businesses.

Small Business Loans Australia founder and managing director Alon Rajic said: “The Federal Government understands that the price of electric vehicles has been a major barrier to their adoption in Australia.

“Our research suggests that the removal of this barrier will have an enormous positive influence on business purchase decisions.

“It also indicates that Australian business owners support realistic Government efforts to achieving net-zero emissions – so much so, that they would get financing on their vehicles in a climate of fast-rising interest rates.”