US markets (S&P 500 Index -0.7%) extended losses on Friday, selling off for the third week in a row. Looking back over the last four weeks, the summer rally which peaked in mid-August, looks like a bear market bounce.
On Friday, shares of FedEx (-21.4%) recorded their worst trading day ever, after the company retracted its full-year guidance in the face of dwindling global shipment volumes, especially in its Asian division.
Markets are now on edge to see what other companies are in line to revise their earnings estimates over the coming weeks.
European markets (Stoxx 600 Index, -1.6%) slipped on Friday with all major sectors in the red as rate hikes, growth fears, and continuing volatility in energy prices weighed on stocks.
For the week ahead, markets will be watching the interest rate rates decisions by the US Federal Reserve, Bank of England, and Bank of Japan. Federal Reserve Chairman Jerome Powell will follow up the FOMC rate decision with a public address on Friday (US time) which may rile markets as much as the decision itself.
Lynas Rare Earths (LYC:ASX)
LYC shares have had a volatile in 2022 after an amazing run in 2021. The volatile year also allows us to identify a support level that can create an attractive entry point over the last 6 months – we see ‘support’ at $8.40, while the stock struggles to hold above $9.98 which we see as being overbought.
The Lynas full year result benefitted from a doubling in the price of rare earths it produces, delivering a record $540.8m net profit after tax. Lynas has strong cash reserves to expand, already the largest producer of rare earths outside of China means they gained US department of defence deal of $120m and favourable financing to work with JARE (Japan Australia Rare Earths).
In our view, Lynas still provides an attractive medium-term investment for those wanting to gain indirect exposure to electric vehicle theme. There is set to be a decade long run up in the demand for rare earths, not only from Electric Vehicles, but also Consumer electronics, wind turbines, and smart homes which all require some form of rare earth minerals. There are concerns around China potentially ramping up production to meet global demand, which is a risk for LYC and volatility in commodity price is unavoidable. However, with US officials wanting to be less reliant on China these risks are lower than in the past.
Australian & New Zealand Market Movers
The Australian market (ASX 200 Index, -1.5%) closed the week on a sour note. Despite the sell-off in every sector other than consumer Services (+0.2%), Star Entertainment (+5.1%), Computershare (+4.4%), and Tabcorp (+4.3%) managed to book some healthy gains on the day.
The New Zealand market (NZX 50 Index, -0.7%) slid on Friday on expectations the Reserve Bank might introduce more aggressive rate hikes after Thursday’s GDP growth figures beat market forecasts.
Market beaters for the day included Air New Zealand (+3.7%), which rose even after the airline dismissed rumors that it was in merger talks with Virgin Australia.
Air New Zealand holds its next Annual Shareholders’ Meeting on Thursday 22 September 2022, while earnings reports are due this week from KMD Brands and Fonterra.
What Markets will be Watching this Week (UTC –4)
Monday
Japan Inflation Rate YoY (AUG)
Australia RBA Meeting Minutes
Tuesday
Canada Inflation Rate YoY (AUG)
Wednesday
US Fed Interest Rate Decision
BoJ Interest Rate Decision
Thursday
BoE Interest Rate Decision
Friday
US Fed Chair Powell Speech