ASX closes lower after bumper November rally, tech sinks

If there is one thing the Chinese Communist Party values above all else, it is control.

Leader Xi Jinping has a tight grip over most aspects of Chinese society, including the economy, but one thing he cannot control is iron ore prices.

Much to Beijing’s chagrin, the price of the steel-making commodity keeps going up. Iron ore prices hit their highest level since June 2022 last week after Beijing announced a series of measures to revive its ailing property market, a key source of steel demand.

Some analysts are now lifting their iron ore price forecasts to $US150 per tonne in the first half of 2024, up from previous estimates of $US130 per tonne. The commodity was trading at $US133.50 late Thursday.

China has been unable to wean itself of its reliance off Australian and Brazilian iron ore despite threatening for years to ramp up domestic production and find alternative sources. It imported about 70 per cent of its iron ore from Australia last year.

The latest rally in iron ore prices is one of many headaches for China’s steel industry which is battling soaring costs and weak demand because of the construction slump.

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Australian shares are holding lower in a weak start to December as trading enters its last hour of the week.

The S&P/ASX 200 is 24 points, or 0.3 per cent, lower at 7063. The All Ordinaries is also 0.3 per cent down. Shares are on track to end the week 0.4 per cent higher than a week ago.

All 11 sectors are tilting lower, with tech stocks the worst hit, down 1.5 per cent. Even with Friday’s losses, tech stocks remain the best performing of the week, up 2.3 per cent over the five days of trading.

Energy stocks are flat following a fall in the price of oil overnight. The fall came despite OPEC+ agreeing to cut output, but traders seem unmoved by the lack of detail provided by the producer group. A short time later, Angola rejected its new output quota, saying it planned to breach it, a rare challenge to the cartel that heralds more infighting ahead.

Materials stocks are 0.3 per cent lower as the latest China Caixin manufacturing PMI showed Asia’s factories failed to turn around the bearish sentiment in November.

Manufacturing PMIs from the UK and the US are also set to be released later on Friday.

‘Markets ahead of themselves’

It was a busy overnight session with softer-than-expected European and US inflation data and the OPEC+ producers’ meeting.

Shares in New York rallied strongly in the final half hour of the session, even as bond yields climbed. The Dow ended up 520 points, paced by Salesforce.com and Boeing, and the S&P 500 turned positive.

US bonds reversed direction on the day, with the yield on the US 10-year note climbing 7 basis points to 4.33 per cent at 4.59pm in New York.

“Despite the soft inflation data, markets may have got ahead of themselves, with bond yields rising and no sustained movement in equities,” ANZ wrote in a note to clients. “The latest guidance from NY Federal Reserve president John Williams is that rates need to remain restrictive for quite some time.”

The Fed has kept its policy rate in the 5.25 per cent to 5.50 per cent range since July, and markets imply scant chance of a move at the December 12-13 meeting.

Stocks on the move

Peter Alexander owner Premier Investments is 3.6 per cent higher at $25.31, after the retailer said it expected earnings before tax in its first half to come in around $200 million, higher than expected by most analysts.

SRR Mining is set to sell a Peru-based gold and silver project to Highlander Silver. Shares are 0.6 per cent higher at $17.17.

Coles is 1.2 per cent lower at $15.29 after Australia’s consumer watchdog waved through plans by the supermarket owner to purchase milk facilities from Saputo.

AusSuper has established a 5 per cent stake in Pilbara Minerals, lithium giant and currently most shorted stock on the ASX. Shares are 0.4 per cent lower at $3.62.

Core Lithium is 3.6 per cent lower to 27¢ after being downgraded to sell by analysts at Citi.

Premier Investments, the retailer behind Peter Alexander and Smiggle, had record Black Friday trading, its billionaire chairman Solomon Lew said.

Lew told shareholders at Premier’s annual meeting in Melbourne that a review into a possible demerger of some of its brands confirmed “significant” growth available to each of its businesses.

The first half of Premier’s new financial year started against the backdrop of a challenging discretionary retail environment, with consumers facing increased cost-of-living pressures from higher interest rates and inflation.

But the chairman said Premier Retail, which also owns Just Jeans, achieved a record sales result in last week’s Black Friday promotion.

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Biotech Mesoblast had its broker Bell Potter launch a $97.7 million equity raising on Friday morning to fund trials.

The offer was split into a $36.6 million placement and a $61.1 million rights issue. The latter was structured as a pro-rata accelerated non-renounceable entitlement offer on a one-for-four basis.

The 30¢-a-share offer price was pegged at a 25.9 per cent discount to Mesoblast’s 40.5¢ last close. It represented a 20 per cent discount to the TERP.

Mesoblast told potential investors proceeds would be used to fund adult phase 3 trials for treatments for steroid-refractory acute graft versus host disease (a complication of bone marrow transplants) and chronic lower back pain.

Key gauges of activity at Asia’s factories failed to turn around the bearish sentiment in November, as global demand for goods remained soft and China’s faltering economic recovery tempered any optimism.

While manufacturing purchasing managers’ indexes for South Korea and Taiwan showed signs of stabilisation in activity, the mood in Japan was downbeat, according to surveys published on Friday by S&P Global and au Jibun Bank. A private gauge of factory activity in China unexpectedly returned to expansion.

The reading for Vietnam deteriorated as factories were squeezed by higher input costs and consumers unwilling to pay higher prices. The score for Malaysia and Thailand improved, but it remained below 50, the dividing line between contraction and expansion.

Trade bellwether South Korea finally ended a 16-month stretch of manufacturing decline with a PMI of 50 – right on the waterline. Manufacturers increased staffing and buying on signs of improving demand. South Korea’s exports recovery likewise accelerated in November, rising 7.8 per cent from last year thanks to a turnaround in semiconductor shipments.

While electronics hub Taiwan had its PMI climb to 48.3, its best showing since March, Japan fared worse due to sharper drops in both output and new orders. “Panel members often commented on weak customer demand in both domestic and international markets,” Usamah Bhatti at S&P Global Market Intelligence said of Japan’s performance.

Oil steadied after tumbling on Thursday following an OPEC+ meeting that promised further output cuts but was hazy on the details.

Brent crude for February traded below $US81 a barrel, after sliding 2.4 per cent in the previous session, while West Texas Intermediate was near $US76. The alliance announced roughly 900,000 barrels a day of fresh output cuts from January, but the curbs are voluntary, with Angola already rejecting its quota. Saudi Arabia said it will prolong its separate 1 million barrel-a-day reduction through the first quarter.

Crude initially climbed on Thursday after OPEC+ reached a preliminary agreement on reductions, in the hopes that would help stem an anticipated surplus at the start of next year. That optimism quickly faded on the lack of details – including the absence of a concluding press conference and final communiques that provided a slightly confusing set of numbers that left traders puzzled.

“The absence of a comprehensive breakdown with only a select number of countries detailing their reduction failed to convince the market,” ANZ Group analysts Brian Martin and Daniel Hynes said in a note. “The lack of a published agreement also raises the prospect of some producers not adhering to their voluntary reductions.”

Shareholders in lithium producer Allkem have been urged to vote in favour of a $9 billion merger with US company Livent, with influential proxy adviser Glass Lewis saying a slump in valuations for the producers should not derail the deal.

The plan to create the world’s third-largest lithium producer by volume has been called into question in the past month by some fund managers who believe Allkem shareholders should emerge with more than the slated 56 per cent of the combined group.

The enlarged company would straddle the world’s major lithium producing jurisdictions and mining methods.

Glass Lewis told clients there was a “natural fit” between Allkem’s business – which is largely focused on extraction of lithium from Australian hard rock and Argentinian groundwater – with Livent’s large footprint in processing and refining.

Both New York-listed Livent and ASX-listed Allkem have lost close to 40 per cent of their value since the deal was announced on May 9. But the proxy adviser said those declines were consistent with the broader lithium market performance in a year when prices for the battery commodity have slumped.

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Australian shares are extending a weak start to December near midday, shrugging off a late rally on US indices overnight.

The S&P/ASX 200 is 41 points, or 0.6 per cent, lower at 7041.5. The All Ordinaries is 0.4 per cent down.

All 11 sectors are tilting lower, with tech stocks the worst hit, down 1.5 per cent. Energy stocks are flat following a fall in the price of oil overnight.

The fall came despite OPEC+ agreeing to cut output, but traders seem unmoved by the lack of detail provided by the producer group. A short time later, Angola rejected its new output quota, saying it planned to breach it, a rare challenge to the cartel that heralds more infighting ahead.

Materials stocks are 0.7 per cent lower ahead of the latest China Caixin manufacturing PMI expected at 12.45pm AEDT. The data should shed more light on the state to the nation’s protracted post-pandemic recovery.

Manufacturing PMIs from the UK and the US are also set to be released later on Friday.

‘Markets ahead of themselves’

It was a busy overnight session with softer-than-expected European and US inflation data and the OPEC+ producers’ meeting.

Shares in New York rallied strongly in the final half hour of the session, even as bond yields climbed. The Dow ended up 520 points, paced by Salesforce.com and Boeing, and the S&P 500 turned positive.

US bonds reversed direction on the day, with the yield on the US 10-year note climbing 7 basis points to 4.33 per cent at 4.59pm in New York.

“Despite the soft inflation data, markets may have got ahead of themselves, with bond yields rising and no sustained movement in equities,” ANZ wrote in a note to clients. “The latest guidance from NY Federal Reserve president John Williams is that rates need to remain restrictive for quite some time.”

The Fed has kept its policy rate in the 5.25 per cent to 5.50 per cent range since July, and markets imply scant chance of a move at the December 12-13 meeting.

Stocks on the move

Peter Alexander owner Premier Investments is 1.6 per cent higher at $25.31, after the retailer said it expected earnings before tax in its first half to come in around $200 million, higher than expected by most analysts.

SRR Mining is set to sell a Peru-based gold and silver project to Highlander Silver. Shares are 0.9 per cent higher at $17.83.

Coles is 1.4 per cent lower at $15.29 after Australia’s consumer watchdog waved through plans by the supermarket owner to purchase milk facilities from Saputo.

AusSuper has established a 5 per cent stake in Pilbara Minerals, lithium giant and currently most shorted stock on the ASX. Shares are 1.2 per cent lower at $3.60.

Core Lithium is 4.6 per cent lower to 26.7¢ after being downgraded to sell by analysts at Citi.

Overseas investors sold China equities for a fourth month in November, the longest selling streak, as concerns over its economic recovery linger.

Foreigners shed 1.8 billion yuan ($384.1 million) worth of shares on a net basis as the benchmark gauge capped a fourth straight month of losses. Still, this compares to an average outflow of nearly 60 billion yuan a month from August through October.

The smaller outflow in November was helped by purchases made on Thursday – the highest since July – ahead of a re-balancing in the MSCI indices, which takes effect as of the close of November 30.