Oil was the centre of attention on Monday, following another surprise oil production cap which boosted energy and mining stocks, but concerns over the impending rate hike in the US is starting to weigh on investors minds.
The early rally ran out of steam around lunchtime, as Wall Street futures took a dive ahead of the FOMC meeting on Thursday.
Despite the oil price rocketing up 4.2 per cent, energy and mining stocks struggled to keep the ASX in the black, with financials giving up their early gains.
The benchmark S&P;/ASX 200 Index inched 2 points higher to 5562.8 after adding as many as 20 points in early trade. The broader All Ordinaries Index climbed 3 points to 5619.1.
Resource giants BHP Billiton and Rio Tinto enjoyed some support, with BHP closing up 1.3 per cent, while Rio Tinto bumped up 0.2 per cent. However healthcare stocks were the biggest drag on the ASX, with the entire sector finishing 1.7 per cent lower.
"We have seen some pre-FOMC jitters emerging in US equity futures, the US dollar and bond yields," said Gary Huxtable, client advisor at Atlantic Pacific Securities.
"This has impacted equity markets across the region, with financials giving up the bulk of their early gains, and bond proxies being well supported."
In company news, shares in infant formula manufacturer Bellamy's were placed in a trading halt on Monday, pending an update on the company's finances. Investors have punished the company in recent weeks, following weaker-than-expected sales in China and the potential for more bad news looms large.
Main rival a2 Milk also experienced some selling with investors wary of the sector; the stock closed down 6.5 per cent to $2.16.
Sirtex Medical managed to claw back 3.6 per cent throughout Monday's session, after a sharp 37 per cent sell-off last Friday. The biotechnology business released a statement saying growth expectations were between four and six per cent, compared with growth last year of 15 per cent. Investors seemed to think the shares oversold.
Investors poured into travel insurance group Cover-More, after the board backed a $741 million takeover bid from Swiss insurance giant Zurich. The Zurich offer has been pitched to Cover-More shareholders at $1.95 a share. The stock closed 42 per cent higher to $1.87.
And lastly, Domino's Pizza shares rocketed up 1.9 per cent after UBS upgraded the company from neutral to buy. Investors have been wary of Domino's in recent months, speculating the stock might be overvalued. However the bank sees much higher growth potential and has increased its 12-month price target by 42 per cent from $56 to $79.70.
Stock Watch: Flight Centre
Shares in travel agent Flight Centre slumped 7.7 per cent to $30.46 after Morgan Stanley downgraded the stock to underweight, citing an acceleration in international flight deflation, which is likely to continue through to the second half of next year. The analysts have decided that Flight Centre's own guidance is "too bullish" and any slight improvements in the number of people travelling internationally is unlikely to offset this relentless pricing weakness. The broker's team, lead by Thomas Kierath, also said Flight Centre has a history of overly optimistic guidance and that the first half-year guidance for next year is no exception. The company has said it will generate between $105 million and $120 million profit-before tax in the first half of the year, and between $320 million and $355 million over the whole year. "We find this unlikely," reads the Morgan Stanley note to clients. "Our $22.50 bear case reflects Flight Centre achieving the midpoint of first half profit-before-tax guidance but also historical seasonality, such that it generates profit of $271m, around 20 per cent below current consensus."
OPEC deal (again)
Oil leapt higher on Monday after Russia and several other non-OPEC nations at a meeting in Vienna pledged to curb oil production next year, joining forces with the Organisation of Petroleum Exporting Countries to end a global glut that's crashed oil prices and shaken energy-rich economies. The pact - the first between the two sides in 15 years - involves a reduction of 558,000 barrels a day from non-OPEC countries starting in January, Iraqi oil minister Jabbar Al-Luaibi said on Saturday after the meeting ended. Energy stocks rose across the ASX on Monday and brent crude was fetching $US56.61 a barrel late in the session.
Gold
Gold sank to a new 10-month low as the US dollar strengthened on expectations of a US rate hike this week. The precious metal was fetching $US1157.3 an ounce on Monday afternoon. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion. Investors have sold gold shares in recent months, following Donald Trump's election win which prompted a strong risk-on rally. Australia's largest gold producer, Newcrest Mining, fell 2.6 per cent on Monday, with Northern Star off 1.7 per cent and St Barbara down 3.2 per cent.
Asian stocks
Shares around the region faltered after an initial energy-fuelled rally. The MSCI Asia Pacific Index fell 0.13 per cent. Chinese stocks slumped the most in six months as investors fretted over the outlook for th property market and curbs on insurers' equity investments. The Shanghai Composite Index fell 1.9 per cent to 3,170.49 as of at market close on Monday and was headed for its biggest loss since June 13. Japan's Topix traded fairly sideways and was 0.44 per cent higher.
Bond yields
Investors continued to sell bonds on Monday as higher oil prices upped expectations for rising inflation in 2017, and ahead of an expected rate rise in the US this week. The yield on Australian 10-year bonds, which moves in the opposite direction to prices, climbed to 2.858 per cent on Monday after ending last week at 2.815 per cent. US 10-year Treasury yields are at their highest since June 2015, and lifted to 2.489 per cent on Monday from Friday night's close of 2.468 per cent. The rates on both bonds have jumped around 0.7 percentage points since US elections on November 8.