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Aussie shares reversed into Spring but finished off session lows as stronger-than-expected GDP data soothed fears of a second recession in two years.

The S&P/ASX 200 ended just eight points or 0.1 per cent in the red after earlier tumbling 73 points to an eight-session low. The index improved steadily following mid-morning news the economy expanded last quarter.

Gains in the banks, Telstra and Newcrest largely offset declines in mining stocks following more soft Chinese economic data. NAB was boosted by a broker upgrade. Qantas hit a four-month high on hopes international borders will reopen before year-end.

What moved the market

Recession fears receded after ABS data showed the economy expanded a seasonally-adjusted 0.7 per cent last quarter. The result was ahead of the 0.5 per cent growth consensus among economists and significantly stronger than bearish predictions of negative growth.

The report captured the early days of the Greater Sydney lockdown. With the economy certain to contract this quarter, a negative reading would have pointed to a technical recession.

“Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter,” Michael Smedes, Head of National Accounts at the ABS, said.

The market was deep in the red prior to the mid-morning release following declines on Wall Street, soft Chinese economic data and a spike in bond yields. The Dow and S&P 500 eased a little more than 0.1 per cent overnight from record levels.

The big three iron ore producers led the initial sell-off after a private measure of Chinese manufacturing strength contracted for the first time since April 2020. The Caixin manufacturing PMI fell to 49.2 last month from 50.3 in July. Readings below 50 indicate shrinking activity.

“The outbreak of the COVID-19 Delta variant has certainly opened a new can of worms for the Chinese economy,” Kalkine Group CEO Kunal Sawhney said. “The signs of economic slowdown are quite evident in the latest PMI data.

“Along with the virus outbreak and weak demand, recent regulatory crackdowns seem to have added further pressure on the Chinese economy. Meanwhile, the partial closure of the country’s second-largest container port in COVID shutdown appears to have caused disruptions in trade. While China has largely brought the Delta variant under control, speculations are rife that the central bank will unveil additional support to boost economic growth,”  he added.

The spot price for iron ore landed in China fell 3.3 per cent yesterday. Fortescue Metals shed 3.19 per cent today, Rio Tinto 2.38 per cent and BHP 1.27 per cent.

Winners’ circle

Gold’s traditional role as a hedge against inflation helped precious metal miners outperform as bond yields surged. Silver Lake Resources climbed 2.91 per cent, St Barbara 2.22 per cent, Evolution 2.3 per cent and Newcrest 1.54 per cent.

Energy stocks also resisted the trend as oil advanced ahead of tonight’s OPEC+ meeting. Woodside edged up 1.28 per cent from yesterday’s nine-month low. Beach Energy gained 2.86 per cent, Santos 1.49 per cent and Oil Search 0.53 per cent.

“All eyes are now glued to the OPEC+ alliance, scheduled for today,” Kalkine’s Mr Sawhney said. “OPEC is  facing increased pressure from the US to pump more oil to tackle gasoline price rises.

“It will be enticing to see if OPEC will press on with plans to raise crude production by 400K barrels per day every month or will adhere to the US President administration’s request to raise output. Any surge in oil output by OPEC may fuel a downtrend in oil prices over the short run.” 

NAB was the best of the big four banks, rising 2.2 per cent following a broker upgrade from JPMorgan. Westpac firmed 1.12 per cent, CBA 0.88 per cent and ANZ 0.47 per cent.

Travel and tourism stocks rallied amid speculation about borders reopening once vaccination rates hit critical milestones. NSW Premier Gladys Berejiklian said she was “committed to making sure NSW residents have access to international travel once we hit that 80 per cent double dose”.

Qantas rose 3.14 per cent to a level last seen in April. Flight Centre gained 2.99 per cent, SkyCity Entertainment 3.57 per cent and Webjet 0.88 per cent.

Doghouse

Bond proxies – safe, defensive stocks with similar characteristics to bonds – declined as yields surged. The yield on ten-year Australian government bonds jumped more than eight basis points today to the highest in six weeks. Rising lending costs are a positive for lenders, but a negative for high-growth sectors like technology and for defensive assets that attract fund flows when returns on bonds are weak.

Woolworths fell 1.56 per cent, CSL 0.92 per cent and Goodman 0.73 per cent. Afterpay sank 0.96 per cent.

IGA operator Metcash dipped 2.45 per cent after reporting supermarket sales over the 16 weeks to mid-August were 1.8 per cent lower than the same period last year. Food sales fell 7.4 per cent. Liquor sales increased by 9.5 per cent.

An 18.1 per cent slump in full-year sales helped push health and tech company Hills down 7.14 per cent. Business disruption caused by Covid contributed to a full-year net loss of $10.2 million, 56.9 per cent larger than the loss in FY20. The former manufacturer of the iconic Hills Hoist said its focus was on reinventing itself through its health business.

Among stocks going ex-dividend, Wesfarmers shed 3.3 per cent, Endeavour Group 3.56 per cent, Treasury Wine Estates 1.74 per cent, Iress 1.76 per cent and Bega Cheese 2.34 per cent.

Mosaic Brands, operator of the Rivers, Rockmans and Noni B brands, entered a trading halt to raise funds to bolster its balance sheet against the impact of lockdowns. The retailer said almost all of its stores had experienced restrictions or full lockdowns during the first two months of the new financial year. Chairman Richard Facioni said the country needed to re-open.

“For the entire retail sector, it’s critical that by late October, stores nationally are able to open and be trading again. From supply chain logistics to consumer and national sentiment, ongoing internal borders beyond this timeframe will leave lasting scars,” he said.

Other markets

US futures rose with Asian markets. The Asia Dow put on 0.42 per cent, Japan’s Nikkei 1.21 per cent, China’s Shanghai Composite 0.59 per cent and Hong Kong’s Hang Seng 0.65 per cent.

S&P 500 futures firmed 12 points or 0.26 per cent.

Oil turned higher ahead of tonight’s OPEC+ meeting. Brent crude rallied 55 US cents or 0.77 per cent to US$72.18 a barrel.

Gold retreated US$1.10 or 0.06 per cent to US$1,817 an ounce.

The dollar was broadly steady, up 0.02 per cent to 73.2 US cents.

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