ASX News LIVE | ASX to Drop; Link Group, Adbri, and Santos Feature

The ASX 200 closed down -0.22% at 7,426.4 today, recovering from its sharp early losses to finish slightly down.

The interest rate-sensitive sector of Real Estate was the worst performer today, down -1.43%, while Utilities was the next worst, down -0.84%.

Discretionary (+0.22%) and Healthcare (+0.20%) were the only two sectors to finish up today, while Materials closed flat.

Neuren Pharmaceuticals was the best performer on the ASX 200 today, closing up 29.52% after its P2 trials showed ‘significant improvement in Phelan-McDermid‘ syndrome.

While the biggest losses on the benchmark were Pexa Group -4.19% as higher for longer concerns shook both the technology and real estate sectors that it inhabits.

Invictus Energy [ASX:IVZ] has seen its shares rise by 6.25% in trading today as the company released two announcements.

Invictus and Mbuyu Energy have signed an updated Gas Sales Memorandum of Understanding (MOU) for the supply of gas for a 500MW gas-to-power project.

The deal includes a plan for future expansion to up to 1000MW, which equates to approximately 1.4 trillion cubic feet of gas supply.

Both parties have agreed to fast-track an initial 50MW pilot project to provide early proof and monetisation from the Mukuyu gas field.

Evaluation of the Mukuyu gas field has been completed, with the next stage being a flow test from the Mukuyu-2 well.

Another MOU has been agreed in part for the Cabora Bassa project. The announcement said:

‘The development of the Gas to Power Project will be synchronized with the broader development of the Mukuyu field and the Cabora Bassa project as a whole, including gas production, transportation and the processing infrastructure required to provide natural gas feedstock to the power plant.’

Where the ASX 200 benchmark heads next year is certainly a harder call to make.

An engaging note from Marcel Thieliant at Capital Economics gave a more pessimistic view of Australia for next year.

Despite strong population growth, he expects household consumption growth in Australia to remain weak, growing at just 0.8%, inflation-adjusted.

This means consumption would continue to fall into next year and is only being held up by savings accrued during the pandemic.

‘Consumption growth has held up rather well in light of the recent sharp fall in real household disposable income,’ he wrote.

 

‘According to our calculations, the 4.3% annual plunge in real disposable income last quarter marked the sharpest fall in four decades.’

Thankfully, he thinks that pandemic-era savings will hold up through 2024, saying in his note that, ‘they will only be depleted by end-2025′.

But he doesn’t think that these savings will be used to fund further discretionary spending, even as real incomes rise again in the new year.

‘With housing affordability now the most stretched since the early-1990s, it seems unlikely that house prices will continue to outpace incomes,’ he said.

 

‘The upshot is that households can’t let their houses do the saving for them and will be less willing to tolerate very low savings rates than they did before the global financial crisis [when savings rates were briefly negative].’

 

‘Accordingly, we suspect that growth in spending will start to fall short of growth in incomes next year, which will result in a renewed rise in the household savings rate.’

An interesting point to this is that we’ve seen discretionary spending drop, and with it, goods inflation is falling.

But the far more non-discretionary services inflation has been far harder for central banks to tackle:

Source: IFM

The question for when the next rate cuts come (and the stock market could run up as a consequence) could be on the level of comfort central banks will have with this services inflation remaining higher.

If this proves to be the sticking point for when Central Banks cut next year, then things could sour in equities markets.

While we are talking about predictions, here is the latest from Goldman Sach’s analysts.

A Goldman Sachs note recently raised its end-of-year 2024 predictions for the S&P 500 index target from 4700 to 5100.

That’s around an 8% increase from current levels.

Goldman has raised year-end 2024 S&P 500 index target from 4700 to 5100, representing 8% upside from the current level. Decelerating inflation and Fed easing will keep real yields low and support a P/E multiple >19x. Since late October, real rates plummeted from 2.5% to 1.7%. Our… pic.twitter.com/xIHQgo7s8q

— Holger Zschaepitz (@Schuldensuehner) December 17, 2023

While everyone reads and writes their summaries of 2023 and predictions for the new year, here is an interesting prediction from science fiction writer Arthur C. Clarke.

He shared these on BBC’s Horizons in 1964, almost 60 years ago.

How close do you think he got?

Arthur C. Clarke on BBC's Horizon in 1964, when he gave some astonishing predictions about the future.pic.twitter.com/BP4kJzLy3Y

— Massimo (@Rainmaker1973) December 17, 2023

Lithium explorer Azure Minerals [ASX:AZS] is in a trading halt today. The company said an update will come soon that will ‘materially update’ the $1.6 billion takeover bid from Chilean lithium giant Sociedad Quimica Y Minera (SQM).

SQM already owns 19.9% of Azure shares but has seen its rush into WA lithium joined by Iron ore magnate Gina Rinehart’s Hancock Prospecting, which owns an 18.3% stake. Mineral Resources’s founder, Chris Ellison, also owns a 13.56% stake in the company so the deal is looking very crowded.

Azure directors have already supported the deal, but how that looks will be intriguing for investors as some form of partnership between these players is likely.

Azure shares last traded at $3.63 per share, with a market cap of $1.67 billion. The explorer’s shares have seen an incredible increase of +1,550% this year.

The ASX 200 has recovered some of its earlier losses to sit around midday at -0.15%, 7,431.5.

The Real Estate sector remains the biggest drag on the benchmark, down -0.89% as interest rate-sensitive sectors fall amidst pushback from central bank officials on when cuts are likely to come next year.

Charter Hall is down 1.55%, while other real estate giant Dexus also fell -1.75%.

While, Discretionary (+0.51%), and Health Care (+0.37%) are the only two sectors in the green.

The biggest two movers on the ASX 200 are the two takeover targets Adbri and Link, who have both jumped nearly 30% today.

Gambling operators Tabcorp [ASX:TAH] has seen its shares jump by nearly 20% in trading this morning as the company announced a new licence with the Victorian government.

The new wagering and betting licence premium will be an upfront cost of $600 million in June 2024 and an ongoing payment of $30 million per annum from August 205-2043.

Investors are obviously happy with the deal as it provides certainty to the Victorian gambling and racing industry, which has been under increasing pressure due to various investigations.

Under the previous 12-year licence, the company faced a much lower cost but far greater uncertainty.

The biggest moves this morning are from the two mergers and acquisition (M&A) targets Link Group [ASX:LNK] and Adbri [ASX:ABC].

Troubled superannuation and share registry administrator Link Group has seen its shares soar by +27.06% in this morning’s trading after a $1.2 billion buyout offer from Japanese financial services company Mitsubishi UFJ Financial Group. MUFG has offered $2.10 a share, plus a 16-cent dividend and has received support from Links board for the offer.

The deal was a 32.9% premium to links last close price. The current price has just hit $2.16 per share.

Link chief executive Vivek Bhatia said being part of a global group will be a strength for Link customers.

‘Joining forces with a global leader like MUFG and The Trust Bank will be significantly beneficial to our clients and employees,’ Mr Bhatia said.

Cement and masonry building supplies company Adbri has seen its shares jump by around 30% as it receives a non-binding offer from the UK-listed CRH in partnership with the Australian family Barro Group at a price of $3.20 cash per share. The deal values the company at $2.1 billion.

The deal will see CRH join with the Barro Group, which already owns a 43% stake in Adbri. The agreed 53% buyout will cost CRH around $1.1 billion, at a 41% premium to the last close price of $2.27 per share. Shares are now at $2.95 per share.

The intention will be to delist Adbri from the ASX and run the company in partnership.

Good morning all. Charlie here

The ASX 200 opened down -0.46% to 7,422.8 in a day that looks to drop nearly ~1% as the markets flurry of activity on the back of expected earlier rate cuts last week runs out of steam.

In US stocks, Wall Street showed signs of being overstretched. The S&P 500 is nearing half of its stocks with an RSI of over 70, putting it close to its most overbought level in more than a decade.

The S&P 500 finished flat, while the Russell 2000 small-cap index finished down 0.77% on Friday.

Some pushback from regional Fed heads in the US has come, with NY Fed President Williams pushing back against the recent policy pivot, saying the central bank isn’t ‘really talking about rate cuts right now’.

Meanwhile, the ECB remained steadfast about rate cuts coming later than the market expects.

Gold held onto its above US$2,000 position narrowly. Down -0.79% to US$2,021.60

On the ASX, three major stocks are in focus. Santos [ASX:STO] will be on the move today as its Barossa Gas Project received a sign-off from the NOPSEMA regulators, which oversee safety and environmental planning.

The Link Group [ASX:LNK] has announced its backing of a $1.2 billion buyout offer from Japanese financial services company Mitsubishi UFJ Financial Group, offering a 32.9% premium on Links last closing price.

Adbri [ASX:ABC] has also been offered a buyout for $2.1 billion from the UK-listed CRH and the Australian Barro Group.

Wall Street: Dow +0.15%, Nasdaq +0.35%, S&P 500 flat.

Overseas: FTSE -0.95%, STOXX +0.23%, Nikkei +0.87%, SSE -0.56%

The Aussie dollar is flat at US 66.98 cents.

US 10-year bond yield -1bps to 3.91%. Australian 10-year bond yields -4bps to 4.09%.

Gold is down -0.79% to US$2,021.60. Silver fell -1.09% to US$23.88.

Bitcoin fell -0.94% to US$41,834.02, and Ethereum rose +0.10% to US$2,232.47.

Oil Brent rose +0.44% to US$76.95, while WTI Crude rose +0.29% to US$71.79. Oversupply fears remain in the market as US frackers’ output jumps, raising concerns as the equivalent of Venezuela’s annual supply is added from these players.

Iron ore is down -0.10% to US$135.08 a tonne. Meanwhile, Singapore futures are up 0.07% to US$134.10 after an earlier drop.