Weekly Wrap

Market Update

Calendar Icon   Friday, 23rd July 2021

ASX 200 Index (XJO)

The XJO is at a record high, after breaking through the upper level of the channel that we have been trading in for the past month. If the market can manage to hold onto these gains, then the future direction for the XJO would appear to be up.

However, a telling sign that this current rally is running on fumes, is the lack of volume. We can see on the chart below that since the market made a low in March 2020, the volume has been declining. A bull market is one with healthy trading levels across the range of the participating stocks. What we currently have is a rally on falling volume, with a smaller number of stocks contributing to the rally.

On the economic front, Australia continues to post record trade surpluses on commodity exports. June saw a surplus of $13.3bn, which would reflect an 8% jump in exports. This was helped by significant increases in exports of iron ore, coal, gold and gas. Imports increased as well, led by a $1.1bn rise in petroleum, which indicates both a lack of refining capacity in Australia and the deep demand for our resources, with diesel making up 45% of the increase.

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US Reporting Season

Netflix was disappointed with user growth after missing its Q1 and Q2 targets. Although it faces hot competition from Disney+ and Amazon Prime, new draw card shows scheduled for release in the second half of the year will likely see it remain as the international market leader, with nearly 210m subscribers.

Tesla has seen its all-time share-price high of $895 in January plateau in recent months. With hot competition in electric cars, safety issues flagged at Tesla’s Chinese manufacturing plant and CEO Elon Musk talking more crypto than cars, the market may be less reactive than usual to Tesla’s earnings.

Microsoft reported earning $40bn in revenue for each of its last two quarters. Microsoft’s Q3 was up 38% year-on-year. With Windows 11 on the near horizon, Microsoft’s next earnings are well positioned for growth.

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Market Snapshot

Volatility Index (VIX)

ASX Sector Movements

ASX Index Movements

Battery BLi-Ss

There are many automakers on the market whose timeline to make the switch to be fully electric manufacturers is coming to an end. Some of these manufacturers include Volvo, Jaguar, Volkswagen, Bentley, and General Motors to name a few. Many small US-based start-ups like Rivian, Lucid and Bollinger are trying to fill the consumer demand for EV’s that the larger manufacturers have neglected. Consumers interested in purchasing EV’s are left to choose between Tesla and a few other smaller, lesser-known models like the Chevvy Bolt and Nissan Leaf, none of which compare to Tesla’s value for money, performance or range. To highlight this point, in the first half of 2020, 81.66% of electric car sales in the US were Tesla vehicles.

This begs the question; why haven’t the larger car manufacturers ramped up the production of their EV’s? The answer has less to do with the cars themselves and more with the batteries that will come to power these cars of the future.

Udo Paneka, President of the global industrial automation segments of Automation Tooling Systems in Germany, says “if they (car manufacturers) don’t look at potential future technology changes and design these lines for upgradeability, manufacturers with cell and pack designs that keep evolving may find themselves investing millions of dollars in battery assembly lines that will be obsolete before they’re ever used.”

However, Australia’s battery research and manufacturing company, Li-S Energy, may be the solution to some of the legacy car manufacturers lack of battery innovation. Li-S has been conducting research and development on new battery technology for the better half of a decade and is ready to hit the market. Li-S Energy specialises in the production of lithium-sulphur batteries which boast 5x greater energy densities, 4x faster charging times and cost half the price of traditional lithium-ion batteries.

The company is well on their way to complete its listing on the ASX at the end of next month and plans to use the proceeds from the float to increase the production capacity of their patent-pending battery technology. This technology could see consumer products like smartphones, EV’s and drones using these new Li-S batteries outperform their lithium-ion counterparts by a factor of 2-3x in every aspect in the near future.

For more details on Li-S Energy listing, visit their website lis.energy