China's lockdown rampage causes lower start to ASX

Market Reports

by Peter Milios

China’s persistent lockdowns have caused commodity prices and futures to fall.

As a result, at noon, the S&P/ASX 200 is 0.34 per cent or 24.50 points lower at 7235.00.

Energy and Materials are the worst performers to start the day, down 1.27 per cent and 1.11 per cent respectively.

Interestingly, coal mining companies have lifted higher today.

Whitehaven Coal (ASX:WHC), Yancoal (ASX:YAL) and New Hope (ASX:NHC) have opened 5.68 per cent, 4.62 per cent and 4.44 per cent respectively.

These companies have made continual profits this year on the back of the surging coal prices.

The SPI futures are pointing to a fall of 23 points.

Best and worst performers

The best-performing sector is Industrials, up 0.48 per cent. The worst-performing sector is Energy, down 0.97 per cent.

The best-performing stock in the S&P/ASX 200 is New Hope Corporation (ASX:NHC), trading 5.19 per cent higher at $5.67. It is followed by shares in Whitehaven Coal (ASX:WHC) and Elders (ASX:ELD).

The worst-performing stock in the S&P/ASX 200 is Bank of Queensland (ASX:BOQ), trading 6.08 per cent lower at $7.10. It is followed by shares in Ramelius Resources (ASX:RMS) and Liontown Resources (ASX:LTR).

Asian news

Asia-Pacific shares are trading lower on Monday amid unrest in China over its continued zero-Covid policy and a growing number of cases reported in the nation. The offshore yuan weakened sharply against the dollar after ending last week around 7.20 per dollar.

Japan’s Nikkei 225 shed 0.49 per cent in early trade, and the Topix lost 0.34 per cent. The Kospi in South Korea has declined 1.07 per cent and the Kosdaq has slipped 1.02 per cent.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.55 per cent lower.

China Covid infections continue to log new highs, market attention turns to public backlash

Reuters reported China's Covid infections were 39,791 for Saturday, setting a fresh record for the fourth straight day. The vast majority were local transmissions. Sharp increases in major cities such as Beijing and Chongqing, while Guangzhou tally edged higher. Shenzhen reduced occupancy limits on restaurants and other indoor venues to 50 per cent while imposing work-from-home orders from Monday to Friday (Reuters). More reports of social frustrations culminating in public protests across the country on Sunday (Bloomberg). Bloomberg discussed uncertainties from social unrest and government response adding to market headwinds, pressuring yuan and commodity currencies. Suggested risk aversion to prompt rotation into haven assets in the meantime. Bloomberg also noted economic impact already emerging in early indicators.

Few changes to key themes out of Thanksgiving

The major US averages capped off a week of gains with a few key tailwinds in focus. Lower rate backdrop and weaker dollar continuing to help. Bond strength has been underpinned by peak inflation momentum with dampened price pressures in the flash PMIs, lower one-year inflation expectations in the University of Michigan survey and another down week for oil. In addition, some thoughts FOMC minutes leaned dovish though no real surprises given the constant barrage of Fedspeak. Also some talk about how CTA momentum has flipped positive again, while Deutsche Bank had bullish comments on positioning earlier in the week. Earnings a mixed (to worse) bag and nothing really new from a thematic perspective, including the latest cost-cutting/restructuring headlines. China Covid developments continued to play into global growth concerns with latest data showing record Covid case numbers, Beijing has introduced new liquidity and property support measures in an effort to support economic growth out of the latest State Council meeting.

EU discussions to finalise price level cap on Russian oil on hold

A WSJ reporter tweeted that there will be no meeting today or this weekend by EU officials on the Russian oil price caps. Update followed an earlier Bloomberg report that EU diplomats were set to meet tonight to try to finalise a deal on a price level to cap Russian oil exports. Comes after reports earlier this week suggested EU and G7 considering Russian crude at $65-70/barrel when restrictions begin on 5 December (Bloomberg, Reuters). However, some countries including Poland said that the $65 a barrel limit was too generous to Russia, though others including Greece said they don't want to go below that level. Level is above Russia's cost of production and higher than some members had advocated, though the US stressed yesterday it could be adjusted a few times a year (Reuters). The reports this week also said the EU is considering softening its 5 December ban on Russian oil by exempting cargoes unloaded by 19 January (harmonising with US and UK plans) as well as limiting penalties on violating ships. Crude has sold off on today's news, with a higher-than-expected cap likely seen as reducing the chance of disruption in the global oil market, with discounted Russian crude already trading near this range (Urals grade averaged ~$71/barrel in October).

Company news

Odyssey Gold (ASX:ODY) has today announced high grade gold results intersected at the company’s Tuckanarra Project. The results confirm wide intervals of gold mineralisation above the high-grade shoot, providing a major boost to the project’s open pit mining potential. Commenting on the Highway Zone, Managing Director, Matt Briggs said: “The first phase of the planned program has been drilled, with 21 holes now completed. Results are now highly anticipated for the remaining 15 holes, which includes four drill holes in the high-grade part of the shoot.” Shares are trading 12.82 per cent higher at $0.044 at noon.

DXN (ASX:DXN) has today announced that it has entered into an Exclusive Global Distribution Licence Agreement with Flow2Edge for the marketing and export of DXN’s modular data centre products globally. The agreement will help the firm push their edge data centre operations across Asia Pacific. In response, DXN’s Chief Executive Officer, Shalini Lagrutta said “The DXN team are immensely proud to partner with FLOW, a high growth and innovative digital infrastructure platform, to assist in its ambitions to grow its presence in the Edge data centre market.” Shares are trading 50 per cent higher at $0.006 at noon.

Metal Bank (ASX:MBKDA) has today announced that their exploration drilling has striked gold at their Stanley Prospect. The new drilling results show a coherent zone of gold mineralisation over 150m in strike exists and remains open to the east and west. Commenting on the Stanley results, Metal Bank’s Chair, Inés Scotland said, “Concurrently, we are working to increase the confidence and upgrade reported gold resources from Inferred into Indicated in some of the deposits.” Shares are trading 15.63 per cent higher at $0.037 at noon.

Warrego Energy (ASX:WGO) refers to its announcement dated 14 November 2022 advising that it had entered into a Scheme Implementation Deed (SID) with Beach Energy (ASX:BPT) under which Beach has agreed to acquire all the issued shares in Warrego by way of scheme of arrangement. Under the scheme, Warrego shareholders would receive: a cash consideration of $0.20 per share (the Base Scheme Consideration); and if Warrego's Spanish assets are sold, and such sale completes, within 12 months of implementation of the Scheme, their pro-rata share of the proceeds of such sale net of costs and taxes. Shares are trading 2.22 per cent lower at $0.22 at noon.

INOVIQ (ASX:IIQ) advises that a settlement has been reached between INOVIQ and the Plaintiffs (together Tony Walker and former Executive Director and Chief Scientific Officer Dr Irmgard Irminger-Finger) related to its claim against INOVIQ announced to ASX on 24 February 2021. The Statement of Claim alleged, among other things, that the company was subject to obligations to do all things as were reasonably necessary to seek to have the test satisfy the milestones by the expiry date and not to deprive the plaintiffs of the opportunity to have each of their performance shares convert into one ordinary share in the company. Some details include: INOVIQ will pay the plaintiffs a lump-sum payment of A$1 million (inclusive of GST) and the plaintiffs have an obligation to commit $300,000 to the development of the LCT over the next 2 years; and the proceeding will be dismissed and no order as to costs will be made. Shares are trading flat at $0.575 at noon.

Australian medical technology company LBT Innovations (ASX:LBT), a leader in medical technology automation using artificial intelligence, advises that the Company’s NonRenounceable Pro-Rata Entitlement Offer has closed for eligible shareholder participation, raising $502,202. Key points include: LBT shareholder participation in the entitlement offer has closed, raising $502,202 and a 30 September 2022 cash balance of $2.8 million plus $1.9 million in near term receivables. Shares are trading 8.33 per cent higher at $0.055 at noon.

Commodities and the dollar

Gold is trading at US$1753.43 an ounce.
Iron ore futures are pointing to a rise of 3.38 per cent.
One Australian dollar is buying 67.21 US cents.

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