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FY24 has been a tough year for S&P/ASX 200 Index (ASX: XJO) lithium shares. While it’s good to be hopeful about the future when it comes to investing, some analysts are pessimistic about where the lithium price is headed next.

There are a few lithium stocks to monitor within the ASX 200, such as Pilbara Minerals Ltd (ASX: PLS), IGO Ltd (ASX: IGO), Arcadium Lithium CDI (ASX: LTM), Liontown Resources Ltd (ASX: LTR) and Mineral Resources Ltd (ASX: MIN).

Demand for lithium may increase over the longer term because of electric vehicles and other types of batteries, but rising supply is also having an effect.  

Let’s look at what one broker thinks is in store for the lithium price in FY25.

Rising inventory to hurt lithium prices?

According to reporting by the Australian Financial Review, the broker Citi thinks the lithium price could drop as much as 20% in the next few months because inventories are increasing at a “dramatic pace”. Indeed, the broker is so pessimistic that it suggests investors short the commodity, according to the AFR.

Citi estimates that there is an oversupply in the physical market, with inventory increasing by around 70,000 tonnes since the start of 2024.

At the current lithium price, Citi suggested some mines could be closed and there could be some “industry rationalisation” which could eventually help with the “extremely large surpluses”. The Citi global head of commodities of research, Max Layton, said:

This high and rising low-shelf-life chemical inventories should see lithium prices fall another 15 to 20 per cent to $US10,000 a tonne.

A low-price environment over the next three to six months would force supply curtailments, driving physical markets to rebalance.

Albemarle, the world’s biggest lithium miner, said it wouldn’t make new investments in lithium plants at the current lithium price. However, Albemarle is still optimistic about the long term because of the future demand, which is expected to come from electric vehicles.  

Citi is “very bearish” on lithium and said that demand growth for lithium has halved in 2024 compared to 2023, putting the market in surplus by around 7% of total consumption, which isn’t helpful for ASX 200 lithium shares.

The broker has decreased its expectations of shorter-term global electric vehicle sales due to higher interest rates, limited charging infrastructure, and limited product options.

Layton said:

Lithium consumption is expected to accelerate from 2025 onwards once the current negative EV sentiment fades.

Foolish takeaway

With that backdrop in mind, the outlook is clouded for ASX 200 lithium shares. FY25 could be tricky for the sector if the lithium price fell further. However, commodity prices are notoriously difficult to forecast, so it’s possible that things could turn out better than what Citi is predicting. Time will tell whether Citi is right to be pessimistic.

The post Should investors worry about the outlook for ASX 200 lithium shares in FY25? appeared first on The Motley Fool Australia.

More reading

• 4 ASX mining shares going gangbusters while the market dives
• Bell Potter names the best ASX tech stocks to buy in FY25
• Why are Guzman Y Gomez shares being shorted?
• Why did this ASX healthcare stock just crash 47%?
• Where will Nvidia stock be in 10 years?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The market may be in free fall today but that hasn’t stopped some ASX mining shares from racing higher.

Let’s take a look at four stocks that are avoiding the selloff and recording strong gains:

Arcadium Lithium (ASX: LTM)

The Arcadium Lithium share price is up 3.5% to $5.17. This follows a very strong gain for the lithium miner’s NYSE listed shares overnight. They rose 12% on Wall Street after investors piled back into lithium stocks. It remains unclear why lithium stocks are suddenly rebounding but it could potentially be due to short sellers believing that they have now bottomed and are buying back shares to close their positions.

Encounter Resources Ltd (ASX: ENR)

The Encounter Resources share price is up almost 12% to 62.5 cents. This means that the mineral exploration company’s shares are now up over 80% since this time last week. Investors have been buying its shares since announcing high-grade niobium intercepts at the Aileron project in West Arunta. The ASX mining share’s managing director, Will Robinson, commented: “Aircore drilling is opening up new fronts of shallow niobium-REE carbonatite hosted mineralisation at Aileron. The aircore rig completed over 10,000m of drilling in its first month on site. This drilling has expanded the near surface footprint of the Crean, Hurley and Emily carbonatites.”

Magnetic Resources NL (ASX: MAU)

The Magnetic Resources share price is up 4% to $1.07. This morning, this gold explorer released drilling results from the Laverton Project. According to the release, its drilling shows that the 400m northern part of the 750m long LJN4 deposit plunges to the south east and is much larger than previously estimated. It is also bigger than the southern silica pyrite and breccia zone. In addition, the company revealed that outstanding intersections continue with strong grades. The company said: “Interestingly, similarly to other world class multi- million-ounce deposits in the Laverton region, we have already identified 8 stacked lodes in the central part of LJN4. We have now completed a 717m hole below these stacked lodes and results are pending.”

Sayona Mining Ltd (ASX: SYA)

The Sayona Mining share price is up 7% to 37.5 cents. Once again, this follows strong gains for lithium stocks on Wall Street overnight. It may be worth looking at short interest data in the coming days to see if short sellers have been closing out of their positions. As of Monday, this ASX mining share had short interest of 9.8%.

The post 4 ASX mining shares going gangbusters while the market dives appeared first on The Motley Fool Australia.

More reading

• Why is short interest in Sayona Mining shares growing?
• These are the 10 most shorted ASX shares
• Why are Sayona Mining shares outperforming other ASX lithium stocks today?
• These beaten down ASX lithium stocks could rise 35% to 85% in 12 months
• These are the 10 most shorted ASX shares

Motley Fool contributor James Mickleboro owns Arcadium Lithium shares. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The tech sector has been a great place to invest over the last 12 months.

For example, during this time, the S&P ASX All Technology index has delivered an impressive 32% return.

This is approximately four times greater than the return of the ASX 200 index over the same period.

The good news is that Bell Potter remains very positive on the outlook for this side of the market in FY 2025. It commented:

We have a positive or constructive view on the outlook for the tech sector given interest rates both domestically and internationally have stabilised and cuts look likely to start in the not-too-distant future if they have not already. A falling interest rate environment is positive for the tech sector which typically has high growth stocks with low or negative cash flows/earnings now and only reasonable or meaningful cash flows/earnings in several years’ time.

We note there has already been a strong rally in tech stocks offshore in anticipation of interest rate cuts – the NASDAQ is at an all-time high – but there has not been anywhere near as strong a rally in Australia. We therefore believe a rally in tech stocks domestically is overdue and is likely to be led by large caps with the mid and small caps to eventually follow.

Which ASX tech stocks should you buy?

Bell Potter has picked out three ASX tech stocks that it is bullish on for the year ahead.

They are Gentrack Group Ltd (ASX: GTK), REA Group Ltd (ASX: REA), and TechnologyOne Ltd (ASX: TNE).

In respect to billing technology company Gentrack, its analysts believe its recurring revenue and long-term growth opportunity make it a buy. The broker has a buy rating and $10.90 price target on its shares. It said:

GTK generates 85% of its revenue (majority recurring) from its specialised energy/ water utilities enterprise billing/CRM (customer relationship management) platforms and is leveraged to future-facing distributed energy and decentralised storage trends, which have coincided with significant tech debt within legacy solutions. Although it appears expensive at c.40x FY24 and c.30x FY25 EV/EBITDA multiples, we believe the valuation is justified with a long and visible opportunity for revenue growth, as well as margin expansion following investment in headcount to deliver on its pipeline of deployments and integrations in addition to geographic expansion into Asia and EMEA.

Bell Potter has a $203.00 price target on realestate.com.au owner REA Group. It likes the company due to its strong medium and long term growth prospects. It explains:

We remain positive on REA’s medium and long-term prospects through the cycle with a free cash flow profile able to sustain materially higher capex for platform development compared to its nearest competitor, as well as encouraging early signs for penetration in the fledgling-yet-substantial Indian residential property listings market.

Finally, enterprise software provider TechnologyOne could be another ASX tech stock to consider in FY 2025. The broker has a buy rating and $20.25 price target on its shares. It believes another re-rating to higher multiples is possible thanks to its strong growth outlook. Bell Potter commented:

A key strength of the company is the software is now almost purely delivered on a SaaS basis (i.e. software-as-a-service) which is the same as companies like WiseTech (WTC) and Xero (XRO). The advantage of this delivery model is it generates recurring revenue for the company and makes the earnings very predictable. The shift to SaaS and the visibility of earnings has driven a re-rating in the PE ratio of the stock from c.30x a few years ago to c.40x now. We believe this re-rating will continue and think a PE of c.50x is ultimately achievable.

The post Bell Potter names the best ASX tech stocks to buy in FY25 appeared first on The Motley Fool Australia.

More reading

• Are ASX real estate shares building towards a better FY25?
• Brokers name 3 ASX shares to buy now
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• Here are the top 10 ASX 200 shares today
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Motley Fool contributor James Mickleboro has positions in Technology One and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Gentrack Group, REA Group, Technology One, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Gentrack Group, WiseTech Global, and Xero. The Motley Fool Australia has recommended REA Group and Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Guzman Y Gomez Ltd (ASX: GYG) shares have been targeted by shorters after its entry onto the ASX boards. The Mexican food operator’s share price opened at $30 on the first day of trading, jumping more than 30% higher than its initial public offering (IPO) price of $22.

While the GYG share price did drop to $28.80 at the start of this week, it has since climbed to around $29.40.

However, some investors think this valuation is too high. When an investor shorts a stock, it means they’re betting that the stock will go down.

GYG may have large growth ambitions, with an ultra-long-term target of 1,000 restaurants in Australia and international growth intentions, but some investors have questioned whether the business should be valued as highly as it is today.

Shorters attack GYG

According to reporting by the Australian Financial Review, data from the ASX showed that approximately 1.1 million Guzman Y Gomez shares were loaned to shorters on Tuesday.

It was reportedly the largest amount of shares of any stock shorted on that day, totalling around $32.7 million.

These early figures have come ahead of official data, which will be made available by the Australian Securities and Investments Commission (ASIC) in the next few days.

The AFR reported that Bloomberg data showed at least one sizeable shareholder had been selling shares, with around $59 million of GYG shares sold in three big block trades this week.

The newspaper also reported that three fund managers were offered shares to short at a borrowing cost of between 7% and 7.5%.

Brokers then told hedge fund clients that around $50 million was expected to be made available to borrow, with strong levels of interest. The borrowing cost fees were over 10%, but those brokers expected this to reduce, according to the AFR.

One negative view of the Guzman Y Gomez share price valuation

The investment team at Forager Funds Management likes to focus on undervalued shares and avoid overhyped stocks.

On the most recent Forager podcast episode, chief investment officer Steven Johnson said:

…It’s not easy to list companies at the moment, we’ve seen Virgin put off its float here in Australia a number of times and then this Guzman IPO comes along.

It seems like a massive, massive price for a business at the stage that it’s at and not only have they got the IPO away but it popped 30% on the day of the IPO and now trades with a $3 billion market capitalisation.

So, I mean it’s far too expensive for me. There’s far too many things that have to go right. You cannot make the valuation stack up on Australia alone, it needs to work overseas and we know that’s very difficult.

But, I’ve just been fascinated by the amount of, I guess, animosity towards it or jealousy towards it…it’s just a stock and it’s an Aussie-founded business that’s got some plans to go global. I don’t own it and we’re not going to own it but I don’t wish ill upon it and I’d be quite happy to see that business go on and be very, very successful.

GYG share price snapshot

The GYG share price is currently down by 0.3% in today’s morning trade, though it’s up 33% since the IPO price of $22.

The post Why are Guzman Y Gomez shares being shorted? appeared first on The Motley Fool Australia.

More reading

• Should I buy Guzman Y Gomez shares on the ASX?
• Over $100 million of GYG shares sold by insiders on day one. Should investors be worried?
• How rich are the Guzman Y Gomez founders following the company’s IPO?
• How does the Guzman Y Gomez ASX valuation compare to Domino’s?
• Why Guzman y Gomez, KMD, Mineral Resources, and Pilbara Minerals shares are sinking

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Immutep Ltd (ASX: IMM) shares are having a day to forget on Thursday.

In morning trade, the ASX healthcare stock is down a whopping 47% to a 52-week low of 23 cents.

Why is this ASX healthcare stock crashing?

Investors have been racing to the exits today in response to the release of topline results from the TACTI-003 Phase IIb Trial.

That trial is evaluating eftilagimod alfa (efti) in combination with anti-PD-1 therapy Keytruda (pembrolizumab) as first-line treatment of recurrent/metastatic head and neck squamous cell carcinoma patients (1L HNSCC).

According to the release, the trial enrolled 171 patients with any PD-L1 expression at over 30 centres across the United States, Europe, and Australia.

The ASX healthcare stock advised that its MHC Class II agonist in combination with Keytruda led to higher overall response rates in evaluable patients according to RECIST 1.1.

Cohort A achieved a 31% overall response rate (ORR) and 75.9% disease control rate (DCR) in 29 evaluable patients. As a comparison, a Keytruda monotherapy achieved an 18.5% ORR and 59.3% DCR in evaluable 27 patients.

Management advised that response rates improved for Cohort B patients. However, the data for these patients will be delivered next month.

‘Encouraging’

Dr. Martin Forster, from the UCL Cancer Institute and University College London Hospital NHS Foundation and TACTI-003 Investigator, said:

It is encouraging to see efti safely drive higher response rates in combination with KEYTRUDA in the first line setting for head and neck squamous cell carcinoma patients, regardless of HPV status and levels of PD-L1. The strong, consistent response rates, irrespective of whether patients have high, low, or negative PD-L1 expression, is intriguing and offers a glimpse into this novel combination’s ability to improve patients’ clinical responses and expand patient populations that benefit from anti-PD-1 therapy.

The ASX healthcare stock’s CSO, Dr. Frederic Triebel, adds:

We are pleased with the quality of responses. Once again, durability is tracking well driven by the complementary nature of these two unique immunotherapies in fighting cancer. Efti’s distinct activation of dendritic cells as an MHC Class II agonist and the resulting engagement of multiple facets of the adaptive & innate immune system has consistently translated into promising duration of responses in combination with immune checkpoint inhibitors across multiple oncology indications.

So why the selling?

The selling may have been driven by the absence of a p-value in the announcement.

The p-value is defined as the probability that the observed effect within the trial or study would have occurred by chance if there was no true effect.

Immutep has included p-values in the past. So, investors may be concerned that it was omitted because the trial didn’t achieve statistical significance. This essentially would make the trial a dud.

Investors will no doubt be eagerly awaiting next month’s update on cohort B.

The post Why did this ASX healthcare stock just crash 47%? appeared first on The Motley Fool Australia.

More reading

• This speculative ASX stock could almost double in value
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If you put $10,000 in Nvidia (NASDAQ: NVDA) stock 10 years ago, you would have $2.74 million today — a life-changing return of over 27,400%. Over that time frame, the company has experienced several boom-and-bust cycles based on demand for its graphics processing units (GPUs). Let’s dig deeper into what the next decade could have in store.

A history of boom and bust cycles

Historically, Nvidia has experienced several boom-and-bust cycles based on macroeconomic factors and industry dynamics outside its control. Soon after its initial public offering (IPO) in 1999, the company enjoyed explosive growth based on demand for its GPUs for personal computers and video game consoles like Microsoft‘s Xbox.

These are now somewhat mature and highly cyclical markets because they rely on nonessential discretionary spending that can be cut in challenging economic conditions. But by 2010, Nvidia was rescued by a brand-new industry: cryptocurrency mining.

Blockchain platforms like Bitcoin (and previously Ethereum) run on a system called proof-of-work, where transactions are validated, and new blocks created by solving complex computational puzzles (mining). Nvidia’s consumer GPUs were ideal for these tasks, leading to booming sales for much of the 2010s and some of the 2020s.

But now, Nvidia has finally gotten its big break with generative artificial intelligence (AI), an opportunity so massive, it has made the company’s other business verticals practically irrelevant.

Nvidia over the next 10 years

For better or worse, Nvidia has become almost a pure play on data center AI hardware, with its other segments fading into irrelevance. In the first quarter, data center sales represented 87% of the company’s $26 billion in revenue, while the once-core gaming and PC segment (which includes cryptocurrency mining rigs) has fallen to just 10%.

Nvidia’s poor diversification will likely worsen because the data center segment is growing significantly faster than its other businesses. This dynamic makes the company vulnerable to a potential slowdown in demand for AI chips, which is a significant risk over the coming decade.

Even if the overall industry meets analysts’ lofty expectations (Bloomberg expects generative AI to be worth $1.3 trillion by 2032), there may eventually be chip overcapacity as data centers accumulate massive stockpiles of GPUs and feel less need to update to the latest versions. And like in Nvidia’s previous boom-and-bust cycles, used chips could erode the market for its new products, leading to lower pricing power and margins.

That said, Nvidia is a company that constantly reinvents itself. Few would have expected the video game chipmaker to dominate cryptocurrency mining and eventually generative AI. In the future, new markets such as self-driving car technology, robotics, or warehouse automation could reignite demand for Nvidia’s products and rediversify its customer base.

Is Nvidia still a buy?

Nvidia stock still looks capable of outperforming the S&P 500 over the next 10 years — especially as the AI industry expands out of simple chatbots into more advanced-use cases. That said, the stock has become incredibly risky in the near term because of its overreliance on data center GPUs and the threat of overcapacity in its market.

Investors who buy now should be ready to ride through a potential correction. But the better idea might be to hold and wait for more information.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 10 years? appeared first on The Motley Fool Australia.

More reading

• How do you spot an innovation stock?
• Nvidia is no longer the most valuable company in the world. Here’s what investors need to know
• Where are we in the share market cycle?
• After Nvidia’s 10-for-1 stock split, is it still a buy?
• The AI money flow: Why you can’t afford to miss stocks like Nvidia and this rising ASX 200 tech stock

The market may be sinking today, but the same cannot be said for one ASX retail stock.

That stock is Baby Bunting Group Ltd (ASX: BBN).

In morning trade, the baby products retailer’s shares are up 17% to $1.45.

This compares very favourably to a 1.5% decline by the All Ordinaries index.

Why is this ASX retail stock rocketing?

Investors have been fighting to get hold of the company’s shares today following the release of a trading update ahead of its investor day event.

According to the release, Baby Bunting’s performance has improved markedly since its last update.

Total sales from 1 May 2024 to 24 June 2024 were up 1% compared to the prior corresponding period.

And while comparable store sales for the period were still down 0.7% versus the same period last year, this is a significant improvement on what was recorded during January to April. During that period, sales were down 7.7% year on year.

Management notes this improvement reflects the benefits of recently introduced new product assortments, a renewed focus on new customer acquisition, the introduction of a refreshed promotional engagement, and a proactive branding and go-to-market campaign.

In light of this, the ASX retail stock has reaffirmed its FY 2024 pro forma net profit after tax guidance range of $2 million and $4 million.

Management hopes to build on this in FY 2025 and beyond. Its investor day presentation details a five-year strategy that is designed to stabilise and optimise its existing business and provide the blueprint for delivering future growth and over 10% EBITDA margin.

It aims to achieve this by lowering variable costs, leveraging its systems investment, and simplifying its operating structure.

Debt facilities update

Baby Bunting also revealed that its existing National Australia Bank (ASX: NAB) debt facility of $70 million has been rolled over on the same pricing terms.

It was due to expire in March 2025 but has now been extended for a further three years and will mature in September 2027 instead. Management believes this renewed three-year deal provides Baby Bunting with the headroom to support its growth strategy and demonstrates NAB’s continued support of the business.

The ASX retail stock’s CEO, Mark Teperson, was pleased with the company’s performance. He said:

While it is still early days it is pleasing to see the impact of some of our strategic initiatives on our comparable sales performance over the past eight weeks.

We have today in a separate announcement to the ASX released details of our five-year strategy which is designed to stabilise and optimise our existing business and provide the blueprint for delivering future growth and over 10% EBITDA margin.

We are making good progress in implementing the first phase of our strategic initiatives including the introduction of a program of work to simplify our pricing strategy, renegotiating supplier trading terms, and enabling online fulfilment through all stores which is strengthening our operating leverage and inventory utilisation. We’ve also been focused on expanding our newly established New Zealand team to drive growth in that market.

The post Why is this ASX retail stock rocketing 17% during today’s market selloff? appeared first on The Motley Fool Australia.

More reading

• Where will Nvidia stock be in 10 years?
• Should ASX 200 investors brace for another RBA interest rate hike?
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• Is the FY25 outlook compelling for the Vanguard Australian Shares Index ETF (VAS)?
• Here’s why brokers say these ASX growth shares are top buys

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

With inflation in Australia picking up rather than slowing down, should S&P/ASX 200 Index (ASX: XJO) investors expect the Reserve Bank of Australia to raise interest rates?

ASX 200 investors were broadly caught off guard yesterday when the ABS released May’s inflation print.

Economist consensus expectations were for May’s figures to bring Australia’s annualised inflation rate to 3.8%, up from April’s 3.6%.

As you’re likely aware, those forecasts proved to be rather optimistic.

Fuelled by ongoing outsized price increases in housing, transport and wages, May’s inflation figures saw the monthly consumer price index (CPI) indicator leap to 4.0% in the 12 months to May on an annualised basis.

That saw a big uptick in the number of investors and analysts betting that the RBA will now be forced to raise interest rates at its next meeting in August. And it saw the ASX 200 close down 0.7%.

Indeed, the ASX 200 tumbled 0.6% immediately following the news to be down 1.1% before recovering some of those losses.

What the RBA flagged on interest rates last week

At its last meeting on 18 June, the RBA opted to hold interest rates steady at 4.35%.

That’s the highest cash rate we’ve had in Australia since late 2011. And it comes after the central bank has hiked rates 13 times since it began tightening in May 2022, when the official rate stood at 0.10%, to combat fast-rising inflation.

As for what ASX 200 investors can expect from the central bank next, here are some revealing takeaways from the RBA’s last meeting.

According to the RBA board:

Returning inflation to target within a reasonable timeframe remains the Board’s highest priority… The board needs to be confident that inflation is moving sustainably towards the target range…

The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out. The Board will rely upon the data and the evolving assessment of risks…

The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Clearly, then, the RBA is leaving the door wide open to either keep interest rates on hold or raise them if needed. The only option looking ever less likely in 2024, is a rate cut.

What are the experts saying?

Citi senior economist Faraz Syed pointed to a big uptick in investor expectations for another interest rate hike following the hotter-than-expected inflation print.

According to Syed (quoted by The Australian):

The market is currently pricing in over 50% chance of a hike in the next two meetings. We see this as fair and will re-assess our June quarter inflation forecast and our RBA view of no changes to the cash rate this year.

Russel Chesler, VanEck’s head of investments and capital markets, also indicated that the RBA may now be forced to tighten to keep a lid on inflation.

Chesler said:

We weren’t expecting the RBA to cut rates until the second half of 2025, but the hotter-than-expected CPI print … indicates this could be even further away. Worse, with inflation proving to be stubbornly resistant, the probability of the next rate move being up has increased.

Indeed, according to Deutsche Bank, ASX 200 investors should expect the RBA to boost interest rates by 0.25% in August, bringing the official cash rate to 4.60%.

According to Deutsche Bank’s Australian chief economist, Phil Odonaghoe:

Underlying inflation is intolerably high in Australia. In fact, Australia is the only G10 country where underlying inflation has increased since December…

Unless there is a stunning reversal in underlying inflation pressures in the month of June, we think that another material beat on the RBA’s near-term forecasts for trimmed mean inflation is looking very likely. That should prompt a rate hike.

National Australia Bank Ltd (ASX: NAB) chief economist Alan Oster was also surprised by the hot-running inflation. NAB thinks this will lead to the RBA keeping rates on hold for longer, though the bank doesn’t expect the RBA to hike.

NAB said:

We now expect the RBA to remain on hold for longer, with a first rate cut now unlikely until May 2025, previously November 2024. From there we see a steady profile of one cut per quarter back to 3.10%, now reaching that point in mid-2026.

The post Should ASX 200 investors brace for another RBA interest rate hike? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today
• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX 200 shares today
• 5 things to watch on the ASX 200 on Tuesday

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Lynas Rare Earths Ltd (ASX: LYC) shares are outperforming the market on Thursday morning.

At the time of writing, the rare earths stock is up a fraction to $6.00.

However, this compares very favourably to a 1.5% decline by the ASX 200 index.

Why are Lynas shares outperforming?

Investors have been buying the company’s shares today following the release of an announcement.

According to the release, the Lynas Malaysia business is targeting the first production of two separated heavy rare earths (HRE) products in 2025.

It notes that a new process will produce separated dysprosium (Dy) and terbium (Tb) at Lynas Malaysia for the first time and will complement Lynas’ existing light rare earths product range.

This could be a big deal for the company. Management points out that Dy and Tb are both essential to the high-performance rare earth permanent magnets used in electric vehicles and high-tech applications such as micro-capacitors which are essential to all electronic devices.

Currently, Dy, Tb and other HRE oxides from the Mt Weld ore body are sold as a mixed HRE compound known as SEGH.

How is this possible?

Lynas revealed that the reconfiguration of one of Lynas Malaysia’s solvent extraction circuits will facilitate the production of Dy and Tb.

The new circuit is designed with capacity to separate up to 1,500 tonnes of SEGH per year.

It notes that front end engineering design (FEED) has been completed and the detailed engineering design is underway. Its commissioning and ramp up is expected in mid-2025.

It will come at a cost of $25 million. However, the capital expenditure for this project will be accommodated within the previously disclosed Lynas Malaysia Industrial Plan.

Lynas also confirmed that it continues to progress pre-construction activities for its planned U.S. Rare Earths Processing Facility. Both Lynas Malaysia and the planned U.S. Rare Earths Processing Facility have been designed to accept third party feedstocks as they come online.

‘An exciting development’

Lynas’ CEO and managing director, Amanda Lacaze, was pleased with the development. She said:

 Lynas’ Mt Weld deposit is remarkable for its endowment of Heavy Rare Earth minerals as well as Light Rare Earth Minerals. This circuit reconfiguration at Lynas Malaysia provides a pathway to accelerate our commitment to processing all of the elements in the Mt Weld ore body.

Dy and Tb are important inputs to high performance magnets and electronic devices and we are pleased to enhance our product range to meet current and prospective customers’ needs. The initial separation of Heavy Rare Earths at our Malaysian Facility is an exciting development for our Company and the first step towards offering an expanded suite of Heavy Rare Earth products.

Should you invest?

Goldman Sachs thinks Lynas shares are undervalued at current levels.

The broker currently has a conviction buy rating and $7.40 price target on the rare earths share.

The post Lynas shares outperform on ‘exciting development’ appeared first on The Motley Fool Australia.

More reading

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• Buy Rio Tinto and these 4 ASX mining stocks in June

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Vanguard Australian Shares Index ETF (ASX: VAS) has seen a strong performance over the past year, with a rise of close to 10% for the VAS ETF unit price, as shown on the chart below, plus distributions. The outlook is uncertain for the Australian economy, which could affect the ASX share market.

The returns of an exchange-traded fund (ETF) are heavily dictated by the performance of the underlying holdings. This ETF tracks the S&P/ASX 300 Index (ASX: XKO), being 300 of the biggest businesses in the ASX.

ASX bank shares and ASX mining shares make up around half of the portfolio’s overall weighting, so their performance could significantly impact the VAS ETF.

Difficult environment for iron ore miners

Iron ore is by far the most important commodity for the ASX mining sector with BHP Group Ltd (ASX: BHP) and Fortescue Ltd (ASX: FMG).

The iron ore price has fallen to US$106 per tonne – it has been higher than this for most of the last 12 months.  

According to Trading Economics, there is currently seasonally weak steel demand in China, as well as growing iron ore production in the country.

Iron ore production by Chinese mining companies rose 13.4% year over year in the January to May period, while iron ore imports rose 7%. That was despite steel production falling 1.4% year over year. There has been ongoing weakness in the Chinese property sector, with weak sentiment in China’s housing market, according to Trading Economics.

Trading Economics’ global macro models and analysts suggest the iron ore price could trade at US$126 per tonne in 12 months. If that rise happened, it could be a boost for the VAS ETF’s iron ore miners.

Challenged economy

The inflation of costs for businesses and households, as well as the high interest rates, seem to be having an effect on the economy.

When Commonwealth Bank of Australia (ASX: CBA) announced its quarterly update for the three months to 31 March 2024, CEO Matt Comyn said:

The fundamentals of the Australian economy remain sound. Unemployment remains low, supported by business and government investment and elevated terms of trade. We recognise that all households are feeling the impact of higher inflation and higher rates, however immigration is providing a structural tailwind for the economy.

Arrears at CBA, the biggest bank in Australia, are noticeably rising. At March 2023, the percentage of loans that were overdue by at least 90 days were 0.44% and this had increased to 0.61% at March 2024.

Australian inflation increased, and was stronger than expected, in May. This is likely to mean interest rates remain higher for longer and could even result in another rate hike this year.

Banking competition remains strong, which could put a lid on the net interest margin (NIM) for CBA, National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).

The high interest rate is likely also limiting household spending for the VAS ETF’s retail shares compared to COVID-19 boom times.

Foolish takeaway

The ASX share market has rallied materially in the past year. Hence, it may require exceptionally positive news for the market to have a strong rise in FY25, in my opinion.

There are headwinds for each of the main sectors. However, the share market has repeatedly demonstrated its ability to rise above a wall of worry. If businesses can keep growing profit over the longer term, then share prices can rise too. We can’t know for sure what’s going to happen though.

I’m still positive about the VAS ETF’s long-term performance, though I’d be surprised if FY25 is as positive as FY24.

The post Is the FY25 outlook compelling for the Vanguard Australian Shares Index ETF (VAS)? appeared first on The Motley Fool Australia.

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• What kind of return could I expect by investing $200 monthly into ASX shares?
• What is the average return of the Vanguard Australian Shares Index ETF (VAS)?
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Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.