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Australian shares retreated ahead of a likely rate rise tomorrow as investors weighed takeover action and weak US equity futures as diplomatic tensions increased between the US and China.
The S&P/ASX 200 retreated 22 points or 0.3 per cent from Friday’s nine-month closing high.
Gains in resource stocks and utilities were outweighed by declines across the wider market. Property stocks and small caps underperformed. The nation’s largest gold miner, Newcrest, jumped almost 12 per cent on takeover interest from the US.
What’s driving the market
Stocks backed off their highest level since April following a soft end to a positive week on Wall Street and an upsurge in Sino-US tensions across the weekend. The S&P 500 dropped 1.04 per cent on Friday after blowout reports on jobs and services-sector activity doused hopes of a pause in interest rate hikes.
“The worry of course is that the much better than expected data is bad news if the Fed sees this as bolstering its case of two more hikes and keeping rates elevated for longer,” NAB’s head of market economics, Tapas Strickland, said.
“Fed pricing has shot back up following Payrolls and the ISM [services sector measure] to almost fully pricing a 25bps March hike and then a follow up May hike,” he added.
US equity futures this morning added to Friday’s falls after the US military shot down a Chinese spy balloon. China expressed “strong dissatisfaction” and accused the US of violating international practice. S&P 500 futures declined eight points or 0.2 per cent.
Back home, the Reserve Bank meets tomorrow for the first policy meeting of 2023. The central bank is widely expected to increase the cash rate target by at least 25 basis points. The ASX’s RBA Rate Indicator sets the odds on a 25 bps increase at 75 per cent.
In company news, Newcrest soared 11.8 per cent to $25.10, its highest since May after US giant Newmont pitched a $24.45 billion conditional, non-binding indicative offer to acquire the company. The world’s largest gold mining corporation offered 0.38 Newmont shares for each Newcrest share.
The revised offer came after the Newcrest board knocked back an initial offer of 0.363 Newmont shares. The indicative proposal implies an offer price of around $27.16 per Newcrest share, a 21 per cent premium to Newcrest’s closing price on Friday. The board said it would consider the latest offer.
Going up
Beach Energy gained 2.69 per cent after striking a deal to get its Waitsia gas project back on track. Webuild will complete the Stage 2 project following the collapse of Clough into administration.
A slim recovery in Brent crude helped Woodside add 0.79 per cent and Santos tack on 0.21 per cent.
BHP gained 0.88 per cent after Brazil’s competition regulator cleared its acquisition of OZ Minerals. The deal still has to be approved by OZ shareholders.
Defensive food companies drew a bid. Collins Foods gained 2.82 per cent. Bega Cheese bounced 1.79 per cent following the departure of CEO Paul van Heerwaarden. Drinks group Endeavour firmed 0.66 per cent.
Motoring accessories retailer ARB Corporation rallied 1.2 per cent despite weaker sales and rising inflation knocking first-half profit after tax down 29.7 per cent. Sales revenue fell 5.1 per cent compared with the prior corresponding period. The company noted inflationary pressures moderated in the second quarter.
Fund manager Magellan was unchanged after reporting net outflows of $0.5 billion last month. A rebound in asset prices helped lift total funds under management from $45.3 billion to $46.2 billion.
Going down
Furniture retailer Nick Scali plunged 13.12 per cent after declining to provide second-half trading guidance despite a “strong” January. The group said January had exceeded expectations but It was “difficult to provide further guidance”. First-half revenues jumped 57.4 per cent. Net profit surged 70.2 per cent.
A 92.2 per cent slump in statutory net profit dragged Dexus Convenience Retail REIT down 1.51 per cent. A $14.9 million decline in property valuations knocked first-half profit down to $3.1 million from $36.9 million in 1H22.
Aurizon eased 0.27 per cent after the competition regulator cleared the sale of the rail freight operator’s East Coast Rail business to Magnetic Rail Group.
Argo Investments slid 2.8 per cent after reporting an interim profit of $137 million, up 6.2 per cent on the prior corresponding period. Shareholders will receive an improved interim dividend of 16.5 cents, up from 16 cents in 1H22.
Battery metal miners followed global peers lower after the Global X Lithium ETF fell 2.48 per cent in the US. Sayona Mining shed 4.81 per cent, Core Lithium 4.42 per cent and Lake Resources 4.35 per cent.
Other markets
Japan’s export-driven Nikkei index was an outlier in Asia, rising 0.8 per cent after the US dollar strengthened. The Asia Dow shed 0.94 per cent, China’s Shanghai Composite 0.92 per cent and Hong Kong’s Hang Seng 2.15 per cent.
Brent crude bounced 19 US cents or 0.24 per cent to US$80.13 a barrel after falling 7.5 per cent last week.
Gold reclaimed US$7.40 or 0.4 per cent of Friday’s US$54.20 plunge, rising to US$1,884 an ounce.
The dollar dipped below 69 US cents before paring its fall to 0.04 per cent at 69.15 US cents.
