Market Highlights: Oil, travel stocks in focus as crude tumbles to 5-month low; and 5 ASX small caps to watch

ASX to open lower on Thursday, tracking Wall Street
Travel, airlines and oil stocks in focus after oil drops to 5-month low
China rejects Moody’s downgrade of the country’s credit outlook

Aussie shares are poised to fall on Thursday, tracking movements on Wall Street. At 8am AEDT, the ASX 200 index futures was pointing down by -0.3%.

Overnight, the S&P 500 fell by -0.39%, the blue chips Dow Jones index was down by -0.19%, and the tech-heavy Nasdaq slipped by -0.58%.

Traders are nervous after crude prices fell by over -4% to a five-month low, with WTI trading below US$70 at US$69.24 a barrel.

Oil prices have been looking bearish since Moody’s  downgraded its outlook for China’s government credit rating to negative from stable earlier this week.

US crude inventories data released overnight also didn’t help sentiment, with gasoline inventories rising by 5.4 million barrels, according to the US Energy Information Agency.

To stocks, travel-related stocks mainly rose on the lower crude prices. Carnival rose 6%, and Norwegian Cruise Line gained 3%.

Airlines were also flying high, with Delta Air Lines up by nearly 5%. Oil stocks dropped as expected.

Advanced Micro Devices fell 1% despite unveiling new accelerator chips that it said will be able to run AI software faster.

Meanwhile, there are fresh signs of a softening in the US labour market, as the ADP gauge on private payrolls missed expectations. Private payrolls increased by just 103,000 last month, versus estimates of 130,000.

China rejects Moody’s downgrade

China has firmly pushed back against a decision by US ratings agency Moody’s to downgrade its credit outlook from stable to negative.

The second biggest economy in the world stressed that its economy remains resilient, and has the capabilities to deepen reforms to tackle risks and challenges.

China also said that concerns over its growth prospects were unnecessary.

Chinese economists said that China’s economy remains one of the healthiest and fast-growing among major economies, and the biggest contributor to global growth.

Earlier on Tuesday, Moody’s Investors Service said it reaffirms China’s A1 long-term local and foreign-currency issuer ratings, but it also cut the outlook for China’s government credit ratings to negative from stable.

“The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,” noted Moody’s.

Moody’s also said it expects China’s annual GDP growth to be 4% in 2024 and 2025. That’s higher than the global growth rate of 2.9% in 2024 forecast by the IMF.

In other markets …

Gold price rose by +0.3 % to US$2,025.60 an ounce.

Oil prices slumped by another -4%, with Brent now trading at US$74.20 a barrel.

US 10-year Treasury yield was down -6 basis points to 4.11%.

Iron ore futures rose +1.65% to US$132.92 a tonne.

The Aussie dollar was flattish at US65.50c.

Meanwhile, Bitcoin briefly touched US$44k before retreating -0.5% to US$43,643.

5 ASX small caps to watch today

Fonterra (ASX:FSF)
The milk company increased its forecast Farmgate Milk Price and earnings guidance for FY24 following a strong start to the year. The forecast Farmgate Milk Price midpoint for the 2023/24 season is up 25 cents to $7.50 per kgMS, with the forecast range moving from $6.50-$8.00 per kgMS to $7.00-$8.00 per kgMS. Fonterra’s profit after tax is up 85% on this time last year to $392 million, equivalent to 24 cents per share. EBIT is up 63% to $575 million.

Argonaut Resources (ASX:ARE)
Argonaut Resources, to be renamed Orpheus Uranium, announced the formal grant of two projects highly prospective for sedimentary-hosted, roll-front and tabular-style uranium mineralisation, located near the company’s Frome project in South Australia. Orpheus has commenced a Satellite Imagery Gas Study to determine whether spectral signatures can identify gasses emanating from the earth’s surface, to detect helium, hydrogen, methane and other gasses.

Southern Palladium (ASX:SPD)
Preliminary, un-optimised testing indicates that the Bengwenyama UG2 Reef can be treated using conventional methods. This initial test work has shown that metallurgical recoveries of between 80 and 85% with concentrate grades of 130 to 250g/t (4E) can be obtained. A scoping study for the Bengwenyama project is now underway, and is scheduled for release in January 2024.

Alchemy Resources (ASX:ALY)
Lithium focussed RC drill program has commenced at the Karonie Lithium-Gold Project 110km east of Kalgoorlie, testing multiple high priority targets. The drill campaign will evaluate multiple high tenor lithium targets at the Cherry, Hickory, Mesquite and Pecan prospects along the 7km long gravity anomaly corridor.

Legend Mining (ASX:LEG)
Preliminary modelling of the new High-Power Fixed Loop Electro-Magnetics (HPFLTEM) survey completed over the entire Octagonal Intrusive Complex (OIC) at the Octagonal prospect within the Rockford Project, WA, has identified three conductors interpreted to be related to nickel-copper mineralisation. The survey also identified a strong conductive zone east of the OIC, which remains open. The survey area will be extended in 2024.

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