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Markets Week Ahead: Tesla EV lithium refinery plans

Rene Anthony

Saturday, September 10, 2022

Saturday, September 10, 2022

Are there more gains in store for battery metals stocks as Tesla signals its own intentions to join the lithium frenzy?

Are there more gains in store for battery metals stocks as Tesla signals its own intentions to join the lithium frenzy?

The Australian share market is expected to open on a positive note this morning after a rebound in oil prices helped Wall Street post its first weekly increase in a month.

Economic Calendar and News

Investors will be closely scrutinising two fresh economic readings this week, both of which will have a major role in determining the path for future interest rate hikes. 

Arguably the most influential piece of data, the US Consumer Price Index, which defines inflation for August, is scheduled to be published on Tuesday, US-time. 

The last CPI result provided the market with some hope that inflation may have peaked when consumer price growth moderated somewhat to 8.5%, and this time around consensus figures suggest the year-over-year growth may have eased further to 8.1% in August.

Inflation is the central driver for what has been a series of aggressive rate hikes in the US, and signs of inflation peaking could provide traders with encouragement that the US Federal Reserve may not need to hike interest rates as high as expected to bring inflation down to its target range. 

In the meantime, however, Fed officials have indicated they are strongly committed to do whatever is necessary to drive down inflation, with the market overwhelmingly pricing in a 75 basis point hike for its upcoming Board meeting next week. That has resulted in US two-year Treasury yields hitting a 15-year high, eclipsing 3.5%.

On home soil, the other pivotal piece of data this week will be Australian jobs figures.

Based on median forecasts, economists believe up to 50,000 jobs may have been added to the economy last month, while a higher participation rate could lead to the unemployment rate remaining steady at 3.4%.

RBA Governor Philip Lowe has already cited the tight employment market as an important factor in determining interest rate policy, and a better-than-expected unemployment reading could give the central bank more capital to pursue another 50 basis point rate hike at its October meeting. 

If, on the other hand, the job market appears as though it is plateauing, it may support a more nuanced approach to increasing rates, and the RBA could lower its rate hikes to a more cautious increment of 25 basis points.

Elsewhere, the international economic calendar includes August retail sales, consumer sentiment, and the Producer Price Index from the US, while the UK will publish inflation and GDP data. With a cost of living crisis driven by soaring energy prices, UK inflation is tipped to increase from last month 10.1% reading.

Markets Week Ahead: Tesla plans EV lithium refinery

Stocks on watch

Tesla (NASDAQ: TSLA) is one of the biggest talking points entering the new trading week, with the electric vehicle manufacturer reportedly looking into the prospect of establishing a battery-grade lithium hydroxide refining facility in the US. Spruiking the idea as a first' in North America, the company intent would be to process raw ore material into a usable state for battery production. 

It has filed an application with Texas authorities for the facility, with the main benefit being an integrated supply chain that would allow the company to better support large-scale EV development. If the plan is given the green light, and the company opts to pursue the venture, construction would commence in the final quarter of this year, with commercial production starting in the final quarter of 2024.

News of the development may keep the spotlight on battery metals stocks after a solid showing last week, with names like Pilbara Minerals (ASX: PLS), Lake Resources (ASX: LKE), Novonix (ASX: NVX), and Albemarle (NYSE: ALB) all gaining traction as the EV revolution seemingly kicks into gear.

In other news, crude oil prices ended last week on firmer ground, with benchmark West Texas Intermediate futures closing above US$86 per barrel. Although well off the highs seen when the war in Ukraine first broke out earlier this year, crude oil prices touched a near eight-month low at the start of last week when trading around US$81 per barrel. 

Ongoing volatility in the energy market could see sharp price moves for stocks in this sector, so names like BP (NYSE: BP), Woodside Energy Group (ASX: WDS), Occidental Petroleum (NYSE: OXY), Devon Energy (NYSE: DVN), Beach Energy (ASX: BPT), and Exxon Mobil (NYSE: XOM) may be on watch.

The iron ore market also turned the corner late last week, with futures delivering their largest one-week gain in nearly two months. Iron ore prices have been crunched of late as angst builds about the economic repercussions tied to China covid-zero policy.

However, a lower-than-expected inflation result from the world second largest economy, and easier' lending initiatives have provided some much-needed optimism for the sector. It means BHP (ASX: BHP), Rio Tinto (ASX: RIO), Fortescue Metals Group (ASX: FMG), and Mineral Resources (ASX: MIN) could attract some momentum to start the week.Out of the US, two stocks that could draw interest this week include software titans Oracle (NYSE: ORCL) and Adobe (NASDAQ: ADBE). The duo are set to hand down earnings reports this week, and in recent years both businesses have sought to pivot towards cloud revenue models, particularly targeted towards business users. 

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