ASX market comeback comes up short: Aus shares flat at noon

The ASX’s positive run has been short lived and is fading in intraday trading following Wall Street snapping a big two-day winning streak.

At noon, the S&P/ASX 200 is 0.09 per cent or 6.10 points higher at 6821.80.

The SPI futures are pointing to a rise of 14 points.

Best and worst performers

The best-performing sector is Energy, up 2.24 per cent. The worst-performing sector is Consumer Staples, down 0.85 per cent.

The best-performing stock in the S&P/ASX 200 is Pilbara Minerals (ASX:PLS), trading 8.22 per cent higher at $5.53. It is followed by shares in Lake Resources (ASX:LKE) and Allkem (ASX:AKE).

The worst-performing stock in the S&P/ASX 200 is Magellan Financial Group (ASX:MFG), trading 9.11 per cent lower at $10.67. It is followed by shares in De Grey Mining (ASX:DEG) and ARB Corporation (ASX:ARB).

Asian markets

Shares in the Asia-Pacific were mixed on Thursday after Wall Street’s two-day rally fizzled.

Japan’s Nikkei 225 has gained 0.25 in early morning trading, while the Topix has added 0.32 per cent. The Kospi in South Korea has so far risen 0.55 per cent and the Kosdaq is 0.86 per cent higher.

MSCI’s broadest index of Asia-Pacific shares has ticked 0.15 per cent higher.

Mainland China markets are closed for a holiday this week.

Global foreign currency reserves shrinking at record pace

Bloomberg reported global foreign-currency reserves are falling at the fastest pace on record going back to 2003, having dropped circa $1 trillion or 7.8 per cent this year to $12 trillion. The reason is partly due to valuation changes amid dollar strength, though still indicative of stress in the FX market compelling central banks to intervene. India's stockpile has shrunk $96 billion this year to $538, with the Reserve Bank of India saying valuation effects account for 67 per cent, leaving a sizable portion for intervention. Japan's circa $20 billion operations would account for about 19 per cent of its depletion this year. Czech Republic saw a similar decline. The article discussed a combination of elevated reserve holdings capable of fuelling further action, though some countries are seeing rapid depletion. It is worthwhile recalling earlier attention on China's FX reserves falling to the lowest since October 2018, though SAFE only cited valuation effects.

China, EM portfolio outflows continue

Reuters reported IIF data showed portfolio outflows from emerging markets continued in September. Chinese debt markets lost $1.4 billion for a total $98.2 billion over the past eight months. Chinese stock portfolios shed $0.7 billion, taking YTD outflows to $2.2 billion. EM ex-China saw $8.2 billion outflow in equities contrasting with $7.5 billion in bond inflows. Total EM outflows were $2.9 billion and $12.7 billion YTD. IIF cited mounting global recession risk with anxiety over geopolitical events, inflation and uncertainty about the capacity of policymakers to weather the current context. Earlier, SCMP cited a Goldman Sachs note discussing broader exodus from Asia ex-China $111 billion YTD exceeding $93 billion during the 2008 financial crisis. Still, A-shares were relatively resilient with northbound Stock Connect activity showing foreigners net buyers of circa $800 million last week. Despite a $1.6 billion outflow in September, they remained net buyers of $8 billion in 2022. SCMP also reported a BCA Research survey showed the majority of global investors maintain a bearish view on China equities and real estate market over the next 12 to 18 months.

South Korea foreign reserves shrink at fastest pace in 14 years

South Korea FX reserves were $416.8 billion in September compared to $436.4 billion in the prior month. The $19.7 billion reduction marks the biggest drop since the record $27.4 billion in October 2008 in the midst of the financial crisis (Yonhap). The bulk of the contraction came in securities and a relatively moderate decline in deposits. Reuters said BOK cited measures to ease volatility in the foreign exchange market, an apparent reference to dollar-selling intervention, as a factor that contributed to the losses, along with valuation effects. Latest BOK data showed FX intervention totalled $15.4 billion in Q2 (Q3 figures due for release at year-end). Government rhetoric has been elevated lately in an attempt to calm fears of financial instability (Yonhap). After earlier expectations of a renewed US currency swap deal went unfulfilled, US and South Korea on Saturday announced a vague agreement to implement liquidity facilities to stabilise financial markets if needed, repeating a US statement made when Treasury Secretary Yellen visited Seoul in July (Reuters).

OPEC+ decision stimulates discussion about target price

The OPEC+ agreement on output cuts stimulated some discussion about their target price range. Nigerian Minister of State for Petroleum Resources Timipre Sylva told Bloomberg that OPEC wants prices around $90 per barrel, warning a level below that would destabilise some economies. Nikkei said Saudi Energy Minister Prince Abdulaziz Bin Salman rationalised the decision by saying oil prices have returned to levels before Russia's invasion of Ukraine. The recent trough in WTI crude of $76.20 compares with IMF estimate of Saudi break-even price of $79.20 to balance the fiscal budget for 2022 (falling to $69 in 2023). With several other countries at or below that threshold, the article suggested that effectively makes $80 the line as the key defence level. S&P suggested in an earlier note that, while OPEC+ ministers are careful to insist their decisions do not target prices, a slide in crude futures to near nine-month lows and their first quarterly loss since 2020 may change their minds.

Company news

Riversgold (ASX:RGL) is pleased to announce it has reached an agreement to acquire a Prospecting Licence, consolidating its landholding at the Tambourah Lithium Project in Western Australia’s Pilbara region. The licence covers an area of prospective greenstones in the southern part of the main Tambourah tenement. Riversgold CEO Julian Ford said: “We are pleased to continue the consolidation in and around Tambourah where it makes economic sense and is value-adding for the Company. While the new prospecting licence was previously mined for gold, it sits within what is considered the ‘Goldilocks zone’ for large lithium-caesium-tantalum (LCT) systems." Shares are trading 14.3 per cent higher at 4 cents.

Mount Ridley Mines (ASX:MRD) provided a drilling update today following the receipt of further assay results from its 2022 drilling programme, which specifically targeted clay-hosted rare earth element (REE) mineralisation. The Mount Ridley Project is located near Esperance, Western Australia. Mount Ridley’s Chairman Mr Peter Christie commented “With over 90 per cent of assays now received, the regional drilling programme has been an outstanding success in demonstrating widespread clay hosted REE mineralisation throughout the entire Project area. We are very encouraged by these results with new targets discovered, higher grade and thicker intersections, and significant mineralisation occurring at shallower depths. These results have given the Company confidence to commit to a substantial drilling and metallurgical programme at the REE Project”. Shares are trading 30 per cent higher at 1 cent.

Clean lithium developer Lake Resources (ASX:LKE) announced today that it has entered into a Conditional Framework Agreement (CFA) with WMC ENERGY for the offtake of up to 25,000 metric tonnes per annum of battery grade lithium from the Kachi Project, and a 10 percent investment by WMC in Lake at $1.20 per share, which represents a 17 per cent premium to Lake's closing price yesterday. The initial offtake term is for ten years with an option to extend by an additional five years. The offtake will be priced on an agreed market price formula based upon the average quoted price in the quotational applying a discount. The CFA is subject to a standard set of conditions being achieved by Lake Resources that include the finalisation of the Definitive Feasibility Study, the performance of Lilac’s demonstration plant and further due diligence by WMC. The CFA becomes unconditional upon satisfaction of these conditions. Stu Crow, Lake’s Executive Chairman states “The CFA delivers a long-term strategic alignment with WMC and its supply chain into its European and North American customers”. Shares are trading almost 4.5 per cent higher at $1.05.

Commodities and the dollar

Gold is trading at US$1722.46 an ounce.
One Australian dollar is buying 65.16 US cents.