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The share market suffered back-to-back losses for the first time in four weeks amid mixed corporate earnings and questions about growth as the region battles the spread of the delta Covid variant.

The S&P/ASX 200 declined 71.5 points or 0.94 per cent to its weakest close in more than a week. The loss was the largest in two months.

Slender gains in defensive sectors were dwarfed by declines in banks and miners. BHP retreated ahead of this evening’s full-year earnings update. CBA fell more than 3 per cent as it traded without the right to a dividend.

What moved the market

Investors have been slow to respond to the profit threat from the delta variant but seem to have woken to the danger. Trading over the last two sessions has taken on a defensive bent. Investors have been selling stocks most closely tied to the economic cycle and buying havens whose earnings will best withstand a downturn.

The minutes from this month’s Reserve Bank policy meeting released this morning showed the bank expects an accelerating vaccine rollout to power the economy out of the lockdown deep freeze.

“The baseline scenario assumed that the domestic vaccine rollout would accelerate in the months ahead, reducing the frequency and severity of lockdowns and allowing the international border to be reopened gradually from mid 2022,” the minutes said.

“It also assumed that the Greater Sydney lockdown would extend through the September quarter, with some further brief and/or less severe restrictions assumed to occur in parts of Australia in the December quarter.”

Several economists have sounded the alarm following record Covid cases in NSW yesterday and extensions to lockdowns in Melbourne and the ACT. New South Wales reported 452 new cases today, Victoria 24 cases and the ACT 17.

“The Reserve Bank is putting its faith in vaccinations and efforts by health officials to suppress the Delta variant. If the Reserve Bank is correct in its assumption that the economy re-opens in the December quarter, activity is expected to rebound quite quickly. But from the vantage point of the NSW lockdown, economists like ourselves cannot help thinking that re-opening of the economy could take a little longer,” Commonwealth Bank Chief Economist Craig James said.  

“Lockdowns in Australia are likely to have a very acute impact on the economy, much more than what the RBA had pencilled in only a week ago,” NAB Director, Economics, Tapas Strickland, said. “While NAB still expects a sharp rebound in activity when restrictions ease, the near-term impact is likely to be larger with lockdowns extending beyond Sydney (e.g. NSW, Melbourne and ACT).

The nation’s most important trading partner is also showing signs of slowing. Growth in China‘s factory activity and retail sales faded dramatically last month. ING Chief Economist for Greater China, Iris Pang, warned further weakness lay ahead.

“We see few positive factors for the economy, instead, we see more risk factors,” she said. “There have been more floods in China. The Delta Covid-19 variant is spreading in the Mainland, although the number of cases remains fewer than 200 per day.

“Strict social distancing measures have affected the ports in Ningbo and Shanghai, which are close to each other. This will negatively affect import and export activity around the area of Shanghai. We expect terminal congestion might take several months to clear.”

US futures fell with Asian markets. S&P 500 futures eased 13 points or 0.28 per cent. The Asia Dow dropped 0.92 per cent, China’s Shanghai Composite 1.57 per cent, Hong Kong’s Hang Seng 1.5 per cent and Japan’s Nikkei 0.19 per cent.

Winners’ circle

Companies reporting this week have struggled to advance in a changing climate. Domain Holdings overcame early weakness to put on 4.71 per cent as investors weighed an increasing cost base against a reinstated dividend and a 66.4 per cent surge in full-year net profit.

Earnings improved 41.9 per cent. Expenses increased 5.6 per cent and were expected to rise again “in the high single digit to low double digit range” this year.¬†

On the wider market, traditional havens outperformed for a second session. Gold stocks and food and healthcare companies were among the best performers.

Fisher & Paykel put on 3.76 per cent, Treasury Wine Estate 2.44 per cent, ResMed 2.33 per cent, United Malt 1.54 per cent and Regis Resources 2.08 per cent. At the top end, Brambles climbed 0.93 per cent, Woolworths 0.41 per cent, Wesfarmers 0.23 per cent, CSL 0.15 per cent and Newcrest 0.08 per cent.

Doghouse

BHP declined 1.42 per cent ahead of this evening’s full-year earnings report. Woodside, which reports tomorrow, eased 2.12 per cent. Rio Tinto dipped 1.79 per cent. Fortescue lost 1.33 per cent.  

Commonwealth Bank dropped 3.45 per cent as it traded without the right to a dividend. Also going ex-dividend were IAG -2.03 per cent, Computershare -2.38 per cent and Mineral Resources -4.64 per cent.

Westpac indicated it will likely join rivals in returning excess capital through a share buyback. CBA, NAB and ANZ have all announced buybacks in recent weeks to pare back cash buffers constructed at the height of the pandemic against bad debts.

“Given excess capital and franking credits, the Board will consider a return of capital, with an update expected at our FY21 results,” the bank said in a quarterly update this morning.

The share price dropped 1.32 per cent as falling lending rates weighed on the banks. ANZ shed 1.08 per cent and NAB 0.97 per cent.

A dividend cut and a warning about supply-chain issues helped pull Breville down 8.97 per cent. The home appliance manufacturer will pay shareholders  a final dividend of 26.5 cents per share, down from 41 cents this time last year, despite record sales of $1.2 billion. The company said supply-chain disruptions “drove a restricted inventory position at the tail end of 2H21”.

Santos dipped 0.81 per cent to its lowest level of the year despite lifting full-year underlying profit 50 per cent to US$317 million and hoicking its dividend 162 per cent to 5.5 cents per share. The company maintained sales and production guidance for this year.

Acquisitive property manager Dexus lifted full-year net profit 17 per cent to $1.138 billion. The company expanded funds under management to $25 billion, partly through joint ventures and acquisitions. Investors will receive a distribution of 51.8 cents, 3 per cent more than last year. The share price dipped 1.59 per cent.

Shopping Centres Australasia receded 1.13 per cent from an eight-month high despite property revaluations helping lift full-year net profit 441.4 per cent to $462.9 million.

Among other companies reporting, Magellan dived 10.15 per cent, Sims 3 per cent and Sezzle 14.84 per cent. ARB Corp edged up 0.17 per cent.

The speculative end of the market has been hit even harder than the top end. The S&P/ASX Emerging Companies index skidded 2.15 per cent. The Small Ords dropped 1.1 per cent.

Other markets

Gold rose for a third session as investors sought havens from the decline in risk assets. Gold climbed US$4.10 or 0.23 per cent to US$1,793.90 an ounce.

Oil marked time. Brent crude was last off a cent or 0.01 per cent at US$69.50 a barrel.

The dollar extended its fall to 0.4 per cent at 73.10 US cents.

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