All sectors lower: ASX down 0.74% at noon

The ASX is currently sitting at a 5-week low, amidst many large international central banks’ plans to remain firm on continuing their plans to slow down inflation.

The Federal Reserve, European Central Bank and the Bank of England each pushed interest rates higher by 50 basis points last week.

In addition, the Reserve Bank of Australia’s December monetary policy meeting is about to commence, with the considerations of a 50 basis point hike, 25 basis point rise or no change at all.

Importantly, the possibility of ending the rate hikes was dismissed due to the inflation outlook.

At noon, the S&P/ASX 200 is 0.74% or 52.7 points lower at 7,081.20.

The SPI futures are pointing to a fall of 57 points.

Best and worst performers

All sectors are in the red. The best-performing sector is S&P/ASX 200 Financials, down 0.12%. The worst-performing sector is S&P/ASX 200 Info Tech, down 2.06%.

The best-performing large cap is AGL Energy Limited (ASX:AGL), trading 0.57% higher at $7.935. It is followed by shares in Orica Limited (ASX:ORI) and OZ Minerals Limited (ASX:OZL).

The worst-performing large cap is REA Group Limited (ASX:REA), trading 5.30% lower at $111.76. It is followed by shares in Mercury NZ Limited (ASX:MCY) and WiseTech Global Limited (ASX:WTC).

Asian news

Markets in the Asia-Pacific were mixed ahead of the Bank of Japan’s interest rate decision.

The central bank is expected to maintain its ultra-dovish monetary policy stance, according to a Reuters poll. Investors will be watching closely for any changes in language to its commitment to a 2% inflation target.

The Nikkei 225 in Japan rose 0.2%, and the Topix gained 0.24%. The Japanese yen weakened 0.15% to stand at 137.10 against the U.S. dollar. In South Korea, the Kospi fell 0.45%.

Sector performance mixed with Big Tech, autos among the drags

Sectors mostly lower with discretionary and tech among worst performers. FANMAG complex broadly lower; META-US lower after EU raised antitrust concerns, AMZN-US notably weak as well. Autos lower; TSLA-US didn’t do much despite some early support from Musk poll suggesting he could step away from Twitter. Travel/leisure groups are also down, particularly cruise lines and casinos. Hardware and semi stocks weighed on tech. DIS-US a big drag on entertainment after disappointing weekend box-office data. Homebuilders underperformed as Treasury yields rose. Trucking, apparel, precious metals, fertilisers, asset managers, credit cards also lagged as well. Energy is the only sector higher with refiners and integrated energy relatively better alongside oil. HPCs, beverages, and food are all higher in consumer staples. Managed care, distributors among the bright spots in healthcare. Machinery, multis, A&D, P&C insurance, custody banks, off-price retail, telecom among the other outperformers.

Homebuilder confidence misses, down for 12th straight month

NAHB housing market index for December fell two points to 31,missing estimates for 32. It was also the twelfth-straight decline, and nearing the pandemic low from Apr-20 of 30. Excluding the pandemic, it was the lowest print since June-12 (29). The current sales conditions index was down three points to 36, the traffic index unchanged at 20, though the index for sales expectations in the next six months increased four points to 35. NAHB economists said that expectations optimism was driven by the decline in mortgage rates from 7% to 6.3% in recent weeks, though they expect weaker housing conditions to persist into 2023 before a recovery in 2024. From a macro perspective, housing has been a key driver of inflation upside in recent months, though high frequency data have shown significant softening in recent weeks. Fed Chair Powell also pointed to hot services ex-housing inflation at last week’s FOMC meeting, which suggests the Fed is accounting for the lagged impact of softer housing data in official inflation statistics.

Waiting for 2023

Nothing new from a thematic perspective as we approach the holidays and year-end. Recent weakness in risk assets chalked up to hawkish messaging from Fed and ECB and some shift in concerns from inflation to growth. Combination of a higher for longer Fed and softer growth also plays into worries about the downside risks to earnings. In addition, weaker earnings are expected to lead to lower buybacks after corporates acted as the biggest source of equity demand in 2022. Elsewhere, China zero Covid pivot narrative dented by surge in infections and related activity/growth headwinds. Bullish talking points continue to revolve around peak inflation traction, slowdown in pace of central bank tightening, structural underpinnings for labour market, consumer resilience and earlier China reopening. In addition, earnings are likely to find some cushion from macro uncertainty via cost cutting, supply chain normalisation and a weaker dollar. Also some thoughts that the strong consensus for 1H23 downside in equities could be a contrarian indicator.

Company news

Avecho (ASX:AVE) signs an agreement with NYSE-listed consumer products leader Perrigo to develop TPM-enhanced ibuprofen gel for the US market. Avecho CEO, Dr Paul Gavin, said: “ We have previous experience developing topical diclofenac for clinical trials and commercialization, and look forward to including these learnings in the new ibuprofen product.” Shares are trading 10 per cent higher at $0.011.

LBT Innovations Limited (ASX:LBT) a leader in medical technology automation using artificial intelligence, has received an initial Purchase Order from Thermo Fisher Scientific, to support development of an APAS Pharma analysis module. The module is an artificial intelligence software intended to automate microbial quality control applications. LBT CEO and Managing Director, Mr Brent Barnes said: “This agreement demonstrates the potential opportunity we both see in the pharmaceutical quality control market.” Shares are trading 10 per cent higher at $0.055.

Meteoric Resources (ASX:MEI) has announced that metallurgical tests have confirmed Caldeira as an ionic adsorption clay REE deposit. In response, Director, Andrew Tunks said, “The excellent recoveries in this simple process is a crucial observation and shows that for the Capo do Mel Prospect, a considerable portion of the target REE are adsorbed onto the clays. In layman’s terms, this means the REEs are bonded onto the outside of the clay minerals (adsorbed) and can be recovered by washing the clay in a weak ammonium sulphate solution at room temperature and pressure.” Shares are trading 4.44 per cent higher at $0.047.

Emerging lithium producer Sayona Mining Limited (ASX:SYA; OTCQB:SYAXF) is on target for the recommencement of production at its flagship North American Lithium (NAL) operation in Q1 2023, with procurement, permitting and construction activities continuing to advance. Procurement was 99% completed as at the end of November, with nearly all major procurement items received at site. Contracts have been awarded for all critical installation items, including the Belt Filter, while the installation of key items such as the Apron Feeder and Derrick screens has been completed. Sayona’s Managing Director, Brett Lynch commented: “Time is of the essence to get into production at NAL and I’m pleased with the progress made to date, with the operation on track for production of the first saleable spodumene (lithium) concentrate in Q1 2023.” Shares are trading 1.43 per cent lower at $0.207.

Galan Lithium Limited (ASX:GLN) is pleased to announce a maiden drilling program at the newly defined Fry’s Block located within its 100% owned Greenbushes South Lithium Project. Diamond drilling is scheduled to commence in late January 2023, pending receipt of program of works (POW) approvals. The Greenbushes South Lithium Project (the Project) (refer Figure 1) is located 250 km south of Perth, in Western Australia and covers an area of approximately 315 km2. Galan’s Managing Director, JP Vargas de la Vega, commented, “We now have three highly prospective targets, land access, a drilling contractor and ideal weather conditions ready for our maiden drilling campaign at our fully owned Greenbushes South Lithium Project.” Shares are trading 0.94 per cent lower at $1.055.

Strike Energy Limited (ASX:STX) provides an update on the forward drilling activities at the broader West Erregulla gas field on behalf of the EP469 JV. Strike Energy Limited is operator and the holder of a 50% joint venture interest in EP469, and Warrego Energy (ASX: WGO) a holder of the other 50% joint venture interest. Chief Executive Officer & Managing Director, Stuart Nicholls said: “Strike and its joint venture partner, Warrego Energy share the view of the material prospectivity in the broader West Erregulla area and have committed to drilling this identified upside in late 2023 and early 2024.” Shares are trading 1.56 per cent lower at $0.315.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 3.1 per cent lower at US$109.20 a tonne.
Iron ore futures are pointing to a 0.8 per cent fall.
One Australian dollar is buying 0.6706 US dollars.