Evening Wrap: ASX 200 flatlines as investors enjoy the long weekend + The bull case for iron ore

The S&P/ASX 200 closed 15 points lower, down -0.22%. 

Stocks do very little when there's no one there to trade them, Chinese iron ore inventories hit near 7-year lows, a small cap biotech company scores an FDA approval and Morgan Staley's take on tomorrow's RBA interest rate decision.

Let's dive in.

ASX 200 Session Chart

ASX 200 chopped around to finish the session slightly lower (Source: Market Index)

Markets

Monday one liner: Most large cap stocks moved ~1% higher or lower as there was no one there to trade them.

It was a bit of a nothing-burger session, with the Index drifting lower after a relatively weak lead from Wall Street. There's honestly not much to look at. I hope you're all enjoying (or have enjoyed) the long weekend :)

Economy

No major economic announcements.

Latest news

An Interesting Small Cap

Back in May, I wrote a piece about Cyclopharm (ASX: CYC) – an Australian radiopharmaceutical company that develops and commercialises products for the diagnosis and treatment of cancer and other diseases.

The company was loss making (FY22: $6.6m net loss) but announced an on-market buy-back of approximately 23.5 million shares (or 25% of its outstanding shares).

The stock is extremely illiquid, which means that:

• There were large bid and offer spreads

• The bid and offers often only amounted to a few thousand dollars

• The stock would have an average daily turnover of around 22,000 shares back in May

So overall, a very interesting scenario to have a pre-profit company seeking to buy so many of its illiquid shares on-market.

Fundamentally speaking, it's top line was growing relatively fast, with revenues in FY22 up 31.1% to $23.2 million. It was also seeking to receive FDA approval to sell its flagship Technegas product in the US. So the on-market buyback might've been a vote of confidence from management for FDA approval.

And today was the day.

The FDA approved the use of Technegas in the US, which the company says opens an anticipated US$180 million addressable market for the diagnosis and management of Pulmonary Embolism (the blockage of arteries in lungs).

Cyclopharm 12-month price chart (Source: Market Index)

Monday was a rather sell the news session, where the stock finished just 1.4% higher from a session high of 11.3%.

Still, it's up around 20% in the past month and 145% year-to-date. Maybe price really does lead news.

The Bull Case for Iron Ore

Iron ore prices have held up relatively well, all things considered. But there could be a catalyst on the horizon that sends prices higher.

Singapore iron ore futures (Source: TradingView)

Chinese iron ore inventories at ports are close to 7 year lows. Could restocking activities send prices higher?

China iron ore inventories (Source: MacroMicro)

It's worth noting that the lows (and subsequent restocking) in November 2015 and June 2020 coincide with some neat runs for iron ore. (Notwithstanding other factors)

Singapore iron ore futures (Source: TradingView)

Interesting news and movers

Trading higher

• +39.0% Galileo Mining (GAL) – Maiden MRE for Callisto

• +16.8% Catalyst Metals (CYL) – Appoints Chairman

• +14.8% Symbio (SYM) – Takeover offer from ABB

• +7.8% Syrah Resources (SYR) – Opposes AFR article re graphite sales

• +1.4% Cyclopharm (CYC) – FDA approves Technegas 

Trading lower

• -12.0% Pacific Edge (PEB) – FDA signals intent to regulate LDTs

• -10.2% Nova Minerals (NVA) – Drill results (Fri)

• -4.6% Kingsgate Consolidated (KCN) – Cashflow management measures

• -4.4% Coronado Global (CRN) – FY23 guidance 

Broker notes

Morgan Stanley’s take on tomorrow’s RBA decision:

• “We expect the RBA will keep the cash rate on hold at 4.1% at its October meeting, its fourth consecutive on hold decision.”

• “We expect a rate hike will be debated, and tightening bias retained in the statement, but that like the past few meetings an on hold decision will be assessed to be "the stronger one".

• “We expect that the RBA will still keep its reference that "The recent data are consistent with inflation returning to the 2–3 per cent target range over the forecast horizon" however there is some risk this could be softened.”

• “While we think the RBA Board's preference is to keep rates on hold (given the uncertain outlook and stated preference to preserve labour market strength), we do think this will be challenging heading into the November forecast meeting.”

• “We see a final rate hike at the forecast update meeting in November.”

Scans