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The share market closed at its lowest in a week as falls on Asian markets and souring US futures underlined rising concerns about a resurgence in Covid-19 cases.  

The S&P/ASX 200 fell 62 points or 0.85 per cent. The index traded as low as 7249 before trimming its loss by a third to 7286.

Cyclical stocks sold off amid growing worries about a slowdown in global economic growth as health authorities battle the Delta variant. Declines in mining, industrial and bank stocks outweighed gains in tech and select defensive sectors.

What moved the market

Australia joined a regional sell-off in the wake of Friday’s losses in Europe and the US. The Asia Dow shed 1.61 per cent, China’s Shanghai Composite 0.43 per cent, Hong Kong’s Hang Seng 1.83 per cent and Japan’s Nikkei 1.16 per cent.

The declines came as a rise in Covid cases in Australia, Japan, Malaysia and Thailand threatens to undermine the region’s economic recovery.

“The more transmissible delta variant is delaying the recovery for the ASEAN economies and pushing them further into the doldrums,” Mizuho Bank economist Venkateswaran Lavanya told MarketWatch.

US futures wilted in a sign concerns about the impact of rising Covid-19 on consumer demand lingered over the weekend. S&P 500 futures fell 17 points or 0.4 per cent. On Friday, the S&P 500 dropped 0.75 per cent.

“The cautiousness in the air can [partly] be attributed to covid developments,” NAB currency strategist Rodrigo Catril said. “US cases of COVID-19 are up 70% over the previous week and deaths are up 26%, with outbreaks occurring in parts of the country with low vaccination rates,” he added.

Markets are looking at these dynamics wondering whether the consumer will remain (UK) or turn cautious (US), particularly in countries where reopening strategies look set to continue in spite of the increase in infection rates.

Domestic developments offered little support. Victoria‘s Premier Dan Andrews announced the state government will not lift the lockdown tomorrow night, as originally scheduled. Victoria reported 12 new local cases this morning. New South Wales recorded 98 new local cases in the 24 hours to 8pm last night.

David Bassanese, Chief Economist at BetaShares, said the lockdowns threatened to tip the economy into negative growth.

“My estimates suggest lockdowns of both cities [Sydney and Melbourne] cost around 0.25% off national GDP for every week they continue (0.125% in NSW and 0.1% for Victoria), so a four-week lockdown in NSW and two weeks in Victoria (a likely best case scenario) would cost 0.7% off quarterly GDP or $3.7 billion – which would virtually wipe out most growth in the quarter,” Mr Bassanese said.

“An eight-week NSW lockdown and four-week lockdown in Victoria (a worst case scenario?) would slice 1.4% off GDP, or $7.5 billion, which would imply negative growth in the quarter.”

Investors searching for causes for optimism will note the ASX 200 closed comfortably within a sideways trading band that has developed since the start of the Greater Sydney breakout. The 7250/7260 level has acted as support for the last four weeks. The index closed today at 7286 after trading as low as 7249.

Winners’ circle

Healthcare companies with significant US earnings provided a haven as strength in the US dollar pushed the local currency below 74 US cents. Sleep apnoea specialist ResMed climbed 2.43 per cent to a new record. CSL rallied 1.81 per cent, Sonic Healthcare 1.92 per cent, Ansell 1.16 per cent and Cochlear 0.85 per cent.

A sharp decline in long-term bond yields offered support to select tech stocks. The yield on ten-year government bonds dived more than four basis points this afternoon to 1.25 per cent. Afterpay put on 1.64 per cent. Xero added 1.05 per cent.

At the pointy end of the market, Brambles edged up 1.59 per cent, Wesfarmers 0.83 per cent, Coles 0.88 per cent and Woolworths 0.24 per cent.

Buy now pay later group humm rallied 8.16 per cent on news of a 57.3 per cent lift in transaction volumes last quarter to $774.9 million.

Doghouse

Cyclical stocks sold off overseas on Friday night as investors bet economic growth will cool in the face of rising Covid numbers. Here, the materials sector retreated more than 2.4 per cent from Friday’s all-time high.

BHP eased 2.64 per cent ahead of tomorrow’s quarterly production update. Rio Tinto shed 2.12 per cent, Newcrest 1.97 per cent and Fortescue Metals 1.4 per cent.

The banks’ prospects for increasing lending margins continued to fade with bond yields (see above). NAB slipped 1.19 per cent, Westpac 0.88 per cent, CBA 0.52 per cent and ANZ 1.02 per cent.

The energy sector tracked a decline in crude prices after the OPEC+ oil cartel reached a deal to lift production caps. Brent crude dropped 75 cents or 1.02 per cent to US$72.84 a barrel.

Woodside Petroleum gave up 1.89 per cent, Santos 2.71 per cent and Beach Energy 0.78 per cent. Oil Search declined 5.17 per cent on news Managing Director Keiran Wulff had resigned for health reasons following complaints about his management style.

Altium dived more than ten per cent before trimming its fall to 3.78 per cent. Today’s turmoil followed news US giant Autodesk had abandoned its attempt to buy the Australian software maker. Autodesk confirmed acquisition talks had ended after Altium rejected a $5 billion offer.

Telstra eased 0.27 per cent after confirming media reports the company is negotiating to buy South Pacific telco Digicel Pacific in partnership with the commonwealth government. Digicel provides communication services across PNG, Fiji, Nauru, Samoa, Tonga and Vanuatu. Telstra said there was no certainty a transaction would proceed.

Gold miner Evolution sank 8.74 per cent as several brokers downgraded ratings and price targets in the wake of Friday’s disappointing production update.

An offtake deal with the world’s largest lithium-ion car battery maker lifted Vulcan Energy before a late fade to a loss of 2.79 per cent. LG Energy Solution will purchase 5,000 metric tonnes of battery grade lithium hydroxide from Vulcan in the first year and double that quantity in successive years of a five-year deal.

Other markets

The dollar faded 0.11 per cent to 73.8 US cents as a classic “flight to safety” boosted the greenback.

Gold drifted $2.70 or 0.14 per cent to US$1,812.50 an ounce.

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