Evening Wrap: ASX 200 higher, BHP hits eight month high, US futures flat

The S&P/ASX 200 closed 24 points higher, up 0.33%.

Gains from iron ore miners and energy stocks pushed the ASX 200 higher, Australian Q3 company profits fell an alarming -12.4% quarter-on-quarter, Chinese services activity deteriorated in November and a little capital raise case study.

Let's dive in.

Markets

The ASX 200 closed 0.33% higher, down from session highs of 0.68%. Resources and Real Estate headline gains while everyone else lagged. As we noted in the Morning Wrap, US markets experienced a massive reversal, with the S&P 500 closing -0.12% from session lows of -1.23%. The sheer momentum was enough to swing our markets in positive territory, but we did see some selling kick in towards close.

• Energy led to the upside after OPEC+ held its output targets steady and Russia rejected Europe's US$60 a barrel oil price cap

• Materials followed closely behind, with heavyweight iron ore miners rallying to seven month highs. BHP

• Real Estate was another notable outperformer thanks to a decline in bond yields

• Defensives underperformed, notably Health Care, Industrials and Utilities

• 101 of the top 200 declined (51%)

Economy

Australia’s services PMI was revised slightly higher to 47.6 in November from a preliminary 47.2.

• Still the biggest decline in the domestic services sector since January due to flooding on the east coast and rising interest rates

Australian company Q3 gross profits fell -12.4% quarter-on-quarter from 7.8% in Q2.

• Well below market expectations of 0.3% growth

• Quarterly changes in operating profits include: Mining (-19.1%), Manufacturing (-21.3%), Accommodation & Food Services (+64.4%) and Financial & Insurance Services (-43.3%) 

China’s Caixin services PMI declined to 46.7 in November from 48.4 in October. 

• “The ongoing implementation of COVID-19 containment measures continued to dampen the performance of China's service sector in November.” - S&P Global Platts

• “Companies registered the strongest falls in output and new work for six months, as efforts to contain the spread of the virus impacted operations and dampened customer demand.”

Commodities 

“Rising expectations of a shift in China’s zero-COVID strategy saw commodity markets rally across the board. The rally was aided by broader market sentiment reacting positively to signals the Federal Reserve may slow the pace of interest rate hikes,” said ANZ senior commodity analyst, Daniel Hynes. 

• Iron ore futures +2.3% to US$108.5/t

• Newcastle coal futures +1.6% to US$391/t

• Copper +0.66% to US$3.88/lb

Latest news

Post market brief

A little bit of selling kicked from 1:30 pm onwards. The ASX 200 has rallied with hardly any breathers since 1 November, so is this the level where we begin to see some sideways action?

XJO chart (Source: TradingView)

Resources continues to be the place to be, with large cap names like BHP, Rio Tinto, Fortescue and Woodside powering ahead as optimism for a Chinese reopening continues to grow as well as a weaker US dollar.

Still, we're seeing a big name like BHP surge almost 25% in the last six weeks. It's now 3.8% away from all-time highs. The all-time high of $48.57 was hit on 30 July 2021, and BHP share struggled to break through this April and June. Do we see another rejection of a breakout?

BHP weekly chart (Source: TradingView)

We're going to finish this section with a little case study.

Arafura Rare Earths raised $121m on Monday at 37 cents per share or a 15.9% discount to its last close. The stock closed -5.7% lower, well above session lows of -13.6%. Of note, 55.6m shares were traded compared to its 20-day average of 15.4m.

What's interesting is that just four months ago, the stock raised $41.5m at 26.5 cents or a 17.2% discount to its pre-raise price.

After the raise, the stock closed -14.1% lower on massive volumes. It spent exactly one month chopping around the high 20 cent level, before breaking out. Notwithstanding other factors that may have influenced the chop, it seems like the stock needed time to digest the new shares/discount/dilution.

Let's see what kind of price action pays out for Arafura with this raise.

Arafura chart (Source: TradingView)

Major announcements

Large caps (>$1bn)

• Nearmap (NEA) +0.5% received Federal Court approval for its takeover by Thoma Bravo BidCo

• Metcash (MTS) +0.2% posted 8.2% revenue growth to $7.7bn for 1H22. Underlying profits rose 9.1% to $159.9m. Management noted Group sales are up 6.2% for the first four weeks of 2H23

  • “Sales growth rates have moderated compared to the very high levels during COVID, but continue to be driven by robust underlying demand and inflation, with volume growth remaining broadly positive. Underlying demand in Hardware is expected to remain strong in 2H23, with an expected improvement in the adverse building conditions to support volumes,” the company said in a statement

• IGO (IGO) -3.4% reported a fire incident at its Nove Operation that damaged a 10MW power station. Operations are currently suspended. IGO will provide a production and cash cost guidance on 31 January 2023

Mid-to-small caps

• Warrego Energy (WGO) +11.5% is in the midst of a bidding war, with Gina Rinehart’s Hancock Energy beefing up its takeover offer from 23 cents to 28 cents per share 

• Latin Resources (LRS) 0% reported ‘very high recoveries and production’ of high grade lithium concentrate from a simple Heavy Liquid Separation process at the Salinas Project in Brazil  

• Cronos Australia (CAU) -2.2% sold its one millionth unit of medicinal cannabis via its CanView marketplace platform. The company reported $10.7m worth of sales in November 

• Mayne Pharma (MYX) -12.5% signed an exclusive license agreement for three novel women's health products and a range of prenatal vitamins in the US for US$140m cash 

Capital raisings

• Arafura (ARU) -5.7% successfully raised $121m at 37 cents per share (15.9% discount to last close). Gina Rinehart’s Hancock Prospecting acted as a cornerstone investor, committing $60m 

• Incannex Healthcare (IHL) -10.9% successfully raised $13m at 20.5 cents per share (10.9% discount to last close). Proceeds will be used to continue the research and development of Incannex drug candidates 

Trading halts

• Bannerman Energy (BMN) shares will be halted until Wednesday 7 December, pending the release of its Etang-8 Definitive Feasibility Study 

Broker updates 

Scans