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The share market suffered its biggest setback since February as US futures wilted and mining stocks plumbed their lowest levels of the year.
After several sessions when the S&P/ASX 200 opened lower, then recovered, the index dropped through the lower tier of its recent trading band and kept falling.
The index finished 142.5 points or 1.9 per cent in the red, its biggest loss since a 160.7-point tumble on February 26.
Just six of the benchmark’s 200 companies advanced. Heavyweight mining trio BHP, Rio Tinto and Fortescue Metals closest at their weakest since December.
What moved the market
Concerns about the economic impact of the delta variant have been building for several weeks. A third straight fall on Wall Street overnight appeared to be the straw that broke the Australian market’s back.
The market had been showing signs of strain all week, testing lower levels then recovering. This time, dip-buyers were nowhere to be found as the index fell through 7400 for the first time since late July, closing at 7369.5.
Selling was indiscriminate. All 11 sectors declined. Falls ranged from 0.74 per cent for the defensive consumer staples sector up to 3.18 per cent for the high-growth I.T. sector.
Materials sagged 2.08 per cent to a five-month low following setbacks for iron ore and copper. Rio Tinto fell 2.47 per cent, BHP 1.66 per cent and Fortescue Metals 0.61 per cent.
Lithium miner Orocobre shed 6.32 per cent and Pilbara Minerals 5.53 per cent. South32 lost 3.87 per cent as it traded without its dividend.
Sinking US futures added to red flags after the Dow and S&P 500 fell for a third session overnight. S&P 500 futures were down 18 points or 0.41 per cent as the Australian session ended, hinting at further weakness tonight. European stocks were also set to open in the red ahead of a European Central Bank policy update.
The Federal Reserve contributed to the risk-averse mood by warning US economic growth had “downshifted slightly to a moderate pace”. The bank said the spread of the delta Covid variant had undermined demand for dining, travel and tourism.
NAB Head of FX Strategy Ray Attrill said investment banks had begun to downgrade their ratings on US equities in the wake of Friday’s jobs miss.
“A couple of global investment banks have been out with ‘underweight’ recommendations, while another is reportedly suggesting that any pull-back in US stocks could be amplified by the weight of long positioning,” he said. “This follows downgrades to 2021 US growth projections by another investment bank on Tuesday and which spawned plenty of media attention.”
Winners’ circle
You could just about count the index’s advancers on the fingers of one hand. US-facing businesses fared better than most, bolstered by overnight strength in the greenback. ResMed gained 1.84 per cent and Amcor 0.3 per cent. Aristocrat Leisure briefly had a ninth straight rise in its sights before fading to a loss of 0.99 per cent.
Overnight strength in coal lifted miner Whitehaven 1.38 per cent.
“Coking coal surged above USD300/t amid supply shortages,” Daniel Hynes, strategist at Hynes Commodities, said. “Restrictions on Australian coking coal have seen China scramble to find other sources. However, Mongolia, a key supplier to China, is struggling to boost output.”
The only other ASX 200 companies to record gains were Elders +0.42 per cent, Fisher & Paykel Healthcare +0.25 per cent and Dexus +0.19 per cent.
Gold Road Resources, Nickel Mines, Viva Energy and Medibank Private closed flat.
Doghouse
An eight-week high in bond yields gave the big four banks fleeting support yesterday, but falling yields weighed this session. CBA dropped 2.3 per cent, ANZ 1.82 per cent, NAB 1.56 per cent and Westpac 1.88 per cent.
Afterpay shed 3.14 per cent, Transurban 2.9 per cent, Wesfarmers 1.88 per cent and CSL 1.77 per cent.
Litigation funder Omni Bridgeway sank 5.69 per cent after the Supreme Court of NSW overturned a decision that dam manager Seqwater was partly responsible for a flood in Brisbane in 2011. Omni part-funded a class action against the dam manager. The company said it would assess whether to seek leave to appeal the decision to the High Court.
Oil Search eased 2.67 per cent despite securing a new line of credit. The PNG-focussed gas company has arranged a US$565 million revolving credit facility with a banking group including lenders from the US,PNG, Australia and Asia to replace a US$600 million facility due to expire next June.
Dividend payments added to the down-pressure. Among companies trading ex-dividend, Nine Entertainment fell 4.69 per cent, McMillan Shakespeare 5.04 per cent, Vita Group 4.37 per cent and Monadelphous 5.29 per cent.
Other markets
Declines on Asian markets accelerated as the session wore on. The Asia Dow gave up 1.2 per cent, Hong Kong’s Hang Seng 2.02 per cent, Japan’s Nikkei 0.73 per cent and China’s Shanghai Composite 0.12 per cent.
Oil recouped a fraction of last night’s 91-cent loss. Brent crude firmed 11 US cents or 0.15 per cent to US$72.71 a barrel.
Gold faded US$4.30 or 0.24 per cent to US$1,789.20 an ounce.
The dollar dipped 0.17 per cent to 73.49 US cents.
