Investors began the week cautiously, ignoring climbing metals prices and instead selling out of energy stocks after a sharp drop in the oil price.
A small resurgence in bond proxies and mid-tier stocks wasn't enough to offset the nervousness ahead of Wednesday's meeting by OPEC, as worries grow oil producing countries won't be able to strike an agreement limiting production.
The benchmark S&P;/ASX200 Index fell 0.8 per cent to 5464.4 points and the broader All Ordinaries fell 0.7 per cent to 5532.6 points."At the moment, the impending OPEC meeting is on top of the mind of investors," said Gary Huxtable, client advisor at Atlantic Pacific Securities."With Saudi Arabia communicating to the market that they were somewhat bullish about a pickup in demand throughout 2017, they have essentially prepared a market non-agreement decision," he said.
Woodside, Santos and Oil Search all closed lower, with the materials index not far behind.
Neither a neat 3.5 per cent bump in the iron ore spot price nor the next surge in futures managed to materially lift resources giants BHP Billiton or Rio Tinto. They closed the day down 2.6 per cent and 1.2 per cent respectively, while pure iron ore play Fortescue enjoyed a 1 per cent lift.
Falls in the big banks also weighed on the market, with Commonwealth Bank of Australia, ANZ, Westpac and National Australia Bank all closing down more than 1 per cent.
The banks were trading at the top of their 12-month ranges, Mr Huxtable said, adding he expects the index to struggle to cement higher gains as traders scoop profits off the top of the bank's as long-term yields ease.
In other equities news, Metcash shares bolted 4.3 per cent higher on Monday, after the distribution company released its earnings results for the first half of financial year 2016.
Investors were pleased with the 0.3 per cent lift in the group sales to $6.63 billion, supported by the inclusion of three-weeks worth of sales from the hardware business it acquired from rival Woolworths.
Shares in telecommunications retailer Vita Group plunged 17 per cent on Monday to $2.99, erasing the gains it made on Friday, when the company agreed to new commercial terms with Telstra. Vita Group currently manages 103 of Telstra's retail stores, as well as some of its business centres.
Stock Watch: Amcor
Amcor was one of the biggest losers of the day, after Credit Suisse downgraded the stock to 'neutral' from 'outperform', predicting the shares would struggle in a rotation to growth stocks. "Amcor's defensive revenue streams will unlikely outperform as investors seek growth, analyst Larry Gandler said.
Food, tobacco, packaging, beverage and healthcare revenue streams were unlikely to benefit enough from an acceleration in economic growth to offset rising bond yields, impact on capital cost, he said. Gandler added that the greenback's rise against the euro had led to an about 5 per cent cut in Credit Suisse's earnings per share target for the stock. Amcor shares closed down 3.9 per cent to $14.39.
Market movers
Oil
Doubts of a successful OPEC deal plagued the oil price throughout Monday, sending futures falling as much as 2 per cent to below $US47 a barrel, following a 4 per cent tumble on Friday. Saudi Arabia for the first time on Sunday suggested OPEC didn't necessarily need to curb output and pulled out of a scheduled meeting with non-member producers, including Russia. Morgan Stanley said that "cancelling a meeting with non-OPEC producers highlights the disagreements that remain within OPEC, but we still see at least a paper deal headline agreement" as the most likely outcome.
Metals
The red-hot metals rally continues to sizzle: Chinese steel futures jumped over 6 per cent to the highest in 31 months, as investors raised bets that strong property and infrastructure investment will sustain demand in the world's top consumer, spurring a similar rally in iron ore and zinc. The rally in steel is bound to push the iron ore spot price above $US80 a tonne for the first time since October 2014, having lifted zinc to a nine-year high.The rapid rise in ferrous metals as well as zinc and lead also reflect a rotation of funds away from fixed-income and into risky assets backed by optimism over global growth, analysts say.
US dollar
The greenback is set to track higher this week, as investors strongly entertain the prospect of a higher interest rate environment in the United States. The greenback climbed to its strongest level since March versus the yen on Monday, as the Turkish lira extended losses at a record low. Experts expect the November US jobs report, due for release at the end of this week, to reveal another increase in payrolls, a pickup in wages and lower unemployment. The Australian dollar was caught between a strengthening US dollar and higher commodity prices and was fetching US74.75ยข on Monday afternoon.
Perpetual and IOOF
Speculation of a possible merger between stock and fund managers IOOF and Perpetual saw IOOF's share price boost over 4.5 per cent on Monday, as discussion focused on Perpetual doing the taking over. The two businesses have similar size market values, around $2.3 billion for Perpetual and $2.5 billion for IOOF. Perpetual traded 0.3 per cent lower on the news. Perpetual is an equities trading house with a client and trustee business, whereas IOOF manages a platform business and trustee branch.