Slow start to week continues as RBA hints further hikes: ASX down 0.35% at noon

Market Reports

by Lauren Hayes

Following a choppy US session overnight, the Australian market is marginally lower this morning. Materials have erased some of yesterday’s gains and are weighing down the index. Health Care is steady off the back of pharma stocks outperforming in the US on Monday. At noon, the S&P/ASX 200 is 0.35 per cent or 25.00 points lower at 7,121.30.

The SPI futures are pointing to a fall of 4 points.

The Reserve Bank of Australia (RBA) has hinted at further and possibly larger interest hikes ahead in its efforts to tame inflationary pressures, according to the minutes released from its latest meeting.

“The Board agreed on the importance of returning inflation to target and expects to increase interest rates further over the period ahead. The central bank had considered raising its cash rates by 50 basis points, but saw a stronger case to increase the rate by 25 basis points” it said in the release.

Higher interest rates would be part of wider efforts to “establish a more sustainable balance of demand and supply in the Australian economy,” the RBA said, adding that members had not ruled out the possibility of returning to larger hikes if needed.

Best and worst performers

The best-performing sector is Health Care, up 0.99 per cent. The worst-performing sector is Materials, down 1.82 per cent.

The best-performing stock in the S&P/ASX 200 is Incitec Pivot (ASX:IPL), trading 8.56 per cent higher at $4.06. It is followed by shares in Elders (ASX:ELD) and James Hardie Industries (ASX:JHX).

The worst-performing stock in the S&P/ASX 200 is Core Lithium (ASX:CXO), trading 13.67 per cent lower at $1.61. It is followed by shares in Allkem (ASX:AKE) and Pilbara Minerals (ASX:PLS).

Asian news

Shares in the Asia-Pacific were little changed this morning ahead of a slew of economic data from China, and following the meeting between US President Joe Biden and Chinese President Xi Jinping.

South Korea’s Kospi has inched higher by 0.15 per cent.

The Nikkei 225 in Japan is slightly lower. Japan’s economy unexpectedly contracted in the third quarter from a year ago, official preliminary estimates showed.

Gross domestic product shrank 1.2 per cent in the July-to-September quarter compared with the same period last year, missing estimates for growth of 1.1 per cent in a Reuters poll.

China is set to report industrial production and retail sales data. And BMW is expanding its EV battery production in China. The German carmaker will invest $1.4 billion as it seeks to compete with Tesla and other brands in the world’s largest EV market.

Fed Governor Waller the latest to stress there is still a ways to go on rate hikes

The softer-than-expected US CPI report sparked a flurry of dovish-leaning Fedspeak and a fall in terminal rate projections. However, there were also concerns that markets may have run too far in conflating October's inflation drop, with the possibility of the Federal Reserve easing the policy next year. Speaking in Australia, Fed Governor Waller echoed the other policymakers in stressing there is still a long way to go before Fed concludes its tightening cycle (Bloomberg). Mr Waller stated that while the Fed may slow the pace of rate hikes to 50 basis points in December, this does not amount to a softening of its commitment on bringing down inflation. He noted that rates will keep going higher and stay high until inflation is closer to the Fed's 2 per cent target. Speaking on Bloomberg News, Vice Chair Brainard was a bit more dovish. Ms Brainard argued there is additional work to do, but also observed policy impacts becoming visible in financial conditions and inflation expectations. She advocated for more of a deliberate approach to help the Fed better adjust the path of rates.

Company news

Warrego Resources (ASX:WGO) have released a Perth Basin Strategy & Proposed Merger Update. Strike Energy (ASX:STX) recognises there is a competing proposal for Warrego Energy and that Warrego has entered into a Scheme Implementation Deed with Beach Energy, however Strike believes that its proposal represents a superior result for Warrego shareholders. Some reasons why include: a higher value per share for Warrego shareholders as at the close of trading after Beach’s initial offer (14 November 2022) and a retained ownership in a uniquely positioned energy business with a dominant portfolio of assets in the exciting and emerging Perth Basin. Shares are trading 2.4 per cent to 22 cents.

MSL Solutions (ASX:MSL) has announced that it has entered into a scheme Implementation Agreement with Plutus Bidco, an entity controlled by Pemba Capital Partners, which has agreed to acquire 100 per cent of the issued share capital of MSL at $0.295 per share by way of a scheme of arrangement. The total cash consideration of $0.295 per share payable by Plutus Bidco implies an equity value of $119 million. The deal was at a 85 per cent premium to MSL Solutions’ last close and about 80 per cent to the one-month VWAP. MSL Solutions’ board is backing the deal, subject to it not receiving a higher offer. Shares are trading 57 per cent higher at 28 cents.

Lycaon Resources (ASX:LYN) announced that it has entered into a conditional binding Heads of Agreement to acquire the Stansmore REE carbonatite project, in the West Arunta region of Western Australia. Recent discoveries by WA1 Resources and Encounter Resources have demonstrated the potential for the West Arunta region to host significant rare earth elements type mineralisation systems. In response, Lycaon’s Technical Director, Thomas Langley, stated: “the historical drilling by BHP in 1982 intersected intrusives and strong carbonate alteration that may be related to REE-carbonatite mineralisation.” Shares are trading 19 per cent higher at 37 cents.

Encounter Resources’ Managing Director Will Robinson will be presenting on this Friday’s Sharecafe Hidden Gems webinar, register here to attend.

Victory Goldfields (ASX:1VG) reported their initial results from the recently completed 118 holes AC drill program at the company’s North Stanmore REE project. The results confirm high grade ionic clay REE extension. In response, Victory’s Executive Director Brendan Clark commented: “Victory’s board has great confidence in these results and has fast tracked a further 10,000m of drilling across the project in search of further REE mineralisation and to infill the previous drilling program.” Shares are trading 50 per cent higher at 27 cents.

Antisense Therapeutics (ASX:ANP; FSE:AWY) advised that following his significant tenure as the Company's Chief Executive Officer and Managing Director, Mark Diamond has advised that he is retiring as CEO. Mark will continue his responsibilities as CEO until a successor is appointed. ANP Chair, Dr Charmaine Gittleson, commented: “On behalf of the ANP Board, I regretfully acknowledge Mark’s resignation and understand his desire to pursue other opportunities after more than twenty years in the role. Mark has demonstrated an unwavering commitment to the Company for the benefit of shareholders, patients and his team. He became CEO at a challenging time for the Australian biotech industry when few successful biotechnology companies existed. Under his dedication and guidance, the Company successfully transformed from a small start-up, with a licence to a second generation antisense molecule, to an ASX listed biotech with a promising lead product.” Shares are trading unchanged at 11 cents.

Melbana Energy (ASX:MAY) reported that an initial two well appraisal program in Block 9 PSC is to be drilled starting in Q1 2023. The purpose is to assess oil qualities and reservoir characteristics of the three independent formations containing moveable hydrocarbons encountered drilling Alameda-1. In response to the news, Melbana Energy’s Executive Chairman, Andrew Purcell, commented, “We’ll be testing all three of the reservoirs where we previously encountered strong oil shows whilst drilling Alameda-1 and we’re preparing for production tests to be run for extended periods, should they be warranted. We’re looking forward to commencing this exciting work in the new year and to hopefully beginning the next chapter of our journey in Cuba as an oil producer. Shares are trading 5.36 per cent lower at 5 cents.

Commodities and the dollar

Gold is trading at US$1768.48 an ounce.
Iron ore is 3.3 per cent higher at US$95.30 a tonne.
Iron ore futures are pointing to a rise of 0.41 per cent.
One Australian dollar is buying 66.92 US cents.

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