Markets Overview

  • ASX SPI 200 futures down 0.3% to 7,167.00
  • Dow Average up 0.2% to 36,117.52
  • Aussie up 0.8% to 0.6603 per US$
  • U.S. 10-year yield rose 2.1bps to 4.1248%
  • Australia 3-year bond yield rose 4.1 bps to 3.92%
  • Australia 10-year bond yield rose 5.6 bps to 4.34%
  • Gold spot up 0.2% to $2,030.19
  • Brent futures little changed at $74.26/bbl

Economic Events

  • 13:20: (AU) RBA’s Brischetto-Speech

A rally in megacaps spurred a rebound in stocks on speculation the artificial-intelligence boom will keep fueling market gains.

Traders brushed off any jitters surrounding Friday’s US jobs report to reignite the trade that’s driven the Nasdaq 100 up over 45% this year. Optimism around AI resurfaced, with Alphabet Inc. up almost 5.5% a day after Google released Gemini, the “largest and most-capable AI model” it has ever built. Advanced Micro Devices Inc. also rallied after pledging its new accelerator chips will run AI software faster than rival products.

The Nasdaq 100 rose 1.5% and the S&P 500 halted a three-day drop. Treasuries saw small moves, with the 10-year yield edging higher to around 4.15%. Hawkish signals from the Bank of Japan drove the yen up about 2.5%. The dollar fell.

In a week jam-packed with labor-market readings, data showed continuing applications for US jobless benefits fell by the most since July. Despite the decline, continuing claims are still near a two-year high amid growing evidence of a cooling labor market.

The data precedes the government’s monthly jobs report, which is forecast to show a pickup in hiring in November and the unemployment rate holding at 3.9%. Those figures, along with next week’s inflation report, will probably do little to change expectations for the Fed to hold interest rates steady on Dec. 13.

Optimism about disinflation and potential rate cuts next year played a big part in the recent stock rally. Yet a reading of cross-asset volatility shows risks aren’t as muted as they may appear. The gap between the MOVE Index, which tracks interest-rate volatility, and the VIX gauge of stock price swings has once again widened — suggesting rate markets remain choppy and could spark stress for equities at any time.

Other News

Woodside Energy and Santos said they are discussing a merger that could result in a new global giant worth around $52 billion, illustrating how rising demand for natural gas in the wake of the Ukraine war is reshaping the energy sector.

Woodside and Santos said talks are at an early stage and there is no agreement over a deal that would rank as one of the largest in the energy sector this year. Santos, whose stock has declined about 5% over the past 12 months, said it was weighing the merger alongside other options to boost value for shareholders.

A combination of Woodside, which has a market value of $37.3 billion, and Santos, worth some $14.6 billion, would bring together Australia’s two largest energy companies as the country vies with Qatar to be the world’s top exporter of liquefied natural gas.

Joining with Santos would represent the second major transaction completed by Woodside in recent years after it acquired the petroleum business of BHP Group in 2022. Woodside operates LNG export terminals in Australia, and it acquired assets in the Gulf of Mexico and Caribbean through the BHP deal.

Energy companies are doubling down on fossil fuels even as many countries look to reduce greenhouse-gas emissions and chart a clean-energy future, such as by building out wind and solar farms. In October, Chevron said it would buy Hess for $53 billion and Exxon Mobil agreed to buy Pioneer Natural Resources for $60 billion, sending a signal that they expect fossil fuels to play a central role in the global economy for years to come.

Rapid gains by energy prices that followed Russia’s invasion of Ukraine has left the sector flush with cash to do deals. With many countries embarking on a multiyear effort to diversify their energy supply, LNG has become one of the industry’s most popular bets.

Berkshire Hathaway recently increased its stake in Maryland’s Cove Point LNG to 75%, while the chief executive of EIG Global Energy Partners last week said the U.S. investment firm is closing in on a multibillion-dollar deal for an LNG asset to add to four Australian integrated LNG projects acquired from Japan’s Tokyo Gas earlier this year. Earlier this month, EIG failed in an attempt to buy a large stake in the Australia Pacific LNG project as part of a consortium bidding to acquire Australia’s Origin Energy.

For many investors, natural gas holds appeal as a fuel that can help the power sector to bridge the time it will take from ending coal use to relying heavily on renewables.

In a report published in October, the International Energy Agency said the LNG market balance would likely remain precarious until new production becomes available from the middle of this decade, mainly from the U.S. and Qatar. New LNG projects could add 250 billion cubic meters a year of liquefaction capacity by 2030, equal to almost half of today’s global LNG supply, the IEA said.

Illustrating how the Ukraine war has redrawn the energy map, Woodside delivered its first LNG shipment to Europe in November last year, sending a cargo of 75,000 metric tons of the supercooled fuel from Australia to the Netherlands to bolster natural-gas supplies in northwest and central Europe. Woodside lifted annual LNG production by 20% to the equivalent of a company record 85.1 million barrels of oil in 2022.

Already Australia’s 10th largest company by market capitalization, Woodside operates assets around Australia as well as international projects including in the Caribbean and the majority owned Shenzi oil-and-gas field, about 120 miles off the coast of Louisiana. It also plans to invest $5 billion in new energy projects by 2030, including a proposed hydrogen project in Oklahoma.

For Santos, joining with Woodside would be its second merger in less than three years. In 2021, Santos combined with smaller rival Oil Search, which was Papua New Guinea’s largest oil producer and owned a minority stake in the Exxon Mobil-operated PNG LNG gas-export project. That deal came six years after Oil Search rejected a $5.50 billion (reported as 8.4 billion Australian dollars) all-stock offer from Woodside.

(Wall Street Journal)