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The share market suffered its first setback in a week, retreating from record levels as a grim jobs warning, an extension to the NSW lockdown and stronger-than-expected inflation compounded soft overseas leads.

The S&P/ASX 200 faded steadily to a loss of 52 points or 0.7 per cent. The decline unwound part of the market’s 180-point advance over the last five sessions.

Afterpay, BHP and Woodside led the retreat. Newcrest, Brambles, Goodman Group and Aristocrat Leisure were the only heavyweights of the ASX 20 index to avoid the selling.

What moved the market

Negative developments mounted as the morning wore on. Declines on Wall Street were followed by a bleak jobs/GDP outlook from Commonwealth Bank, record NSW Covid-19 figures, confirmation Greater Sydney will stay in lockdown for another four weeks and a hot inflation report. US futures retreated in the face of underwhelming after-market earnings and a third day of declines on Chinese markets.

Market sentiment was shaky from the get-go following a tech-led sell-off in the US. The Nasdaq Composite slid 1.21 per cent ahead of after-market reports from Apple, Microsoft and Alphabet. The S&P 500 shed 0.47 per cent.

Earnings updates failed to lift the market mood. S&P 500 futures were marginally negative, down three points or almost 0.1 per cent as the Australian session ended. The Reserve Bank began a two-day meeting overnight and was due to deliver a policy update tonight.

“Investors turned cautious ahead of the Federal Reserve’s policy meeting outcome due today,” Kalkine Group CEO Kunal Sawhney said. “Investors are eagerly awaiting the central bank’s stance on interest rates and bond purchases amid rising inflation and economic recovery scenario.

“Speculations are rife that the Federal Reserve’s policy meeting could show first signs of easing up on huge bond purchases that have been guarding the US economic recovery. While no rate hike is anticipated anytime soon, the market is expecting a preliminary signal on pulling back of measures which injected liquidity into the financial markets during the pandemic… It will be interesting to see how the Federal Reserve will balance its objectives of tempering price surges and supporting economic growth in the policy meeting.”

Commonwealth Bank said it expected the Australian economy to contract 2.7 per cent this quarter after the NSW government extended the Greater Sydney lockdown for four weeks. Up to 300,000 people in NSW might lose their jobs.

“Our expectation is that in the absence of another JobKeeper style program the contraction in employment will be larger this time in Greater Sydney,” CBA head of economics Gareth Aird said

“A meaningful rebound in production is not expected until November. We forecast a lift in GDP of 1.9% in Q4 21,” Mr Aird added.

ANZ was more circumspect, predicting a 1.3 per cent contraction this quarter and a rebound in Q4. AMP economist Shane Oliver said the extension would increase the cost of the lockdown to more than $9 billion.

The backward-looking Consumer Price Index showed headline inflation ran stronger than expected last quarter, while the RBA’s favoured measure came in on target. Consumer prices increased by 0.8 per cent from the previous quarter, ahead of a predicted 0.7 per cent.

Annual inflation hit 3.8 per cent, the highest rate since 2008. The trimmed mean used by the central bank rose 0.5 per cent, as expected.

Winners’ circle

A retreat in bond yields attracted fund flows to equities that offer similar safe, steady returns. The yield on ten-year Australian government bonds sagged more than five basis points to 1.167 per cent, close to a five-month low.  

ResMed climbed 2.18 per cent to a new record. Vicinity Centres gained 2.36 per cent, Cromwell Property 2.33 per cent, Scentre Group 2 per cent and Healius 1.4 per cent.

Among the heavyweights, Aristocrat Leisure added 1.41 per cent, Goodman 0.35 per cent and Brambles 0.09 per cent. Goldminer Newcrest gained 1.16 per cent.

An improved takeover offer lifted utility investment manager Spark Infrastructure 5.38 per cent. A consortium comprising private equity firm KKR and the Ontario Teachers’ Pension Plan Board raised their conditional, non-binding offer a third time to $2.95 per stapled security from an initial offer of $2.6375 and a revised offer of $2.7375. The Spark board said it would allow the consortium to carry out due diligence on a non-exclusive basis.

News of a bumper crop and improved prices helped lift almond grower Select Harvests 1.73 per cent. The agribusiness expects this year’s crop to be around 28,250 metric tonnes, up from 23,250 MT last year. A forecast decline in US crops helped lift prices by 50 cents per kilogram to $6.75 – $7.25kg.

Eagers Automotive rallied 1.85 per cent after reporting an estimated underlying half-year operating profit of $218.6 million, more than five times last year’s Covid-affected profit. The car dealership said new car sales increased 28.3 per cent from the same period last year.

Doghouse

The mining stocks that have provided much of the ASX’s momentum over the last week retreated from record levels.

“The bull run in mining stocks appears to have taken some breather after a week-long rally,” Kalkine’s Mr Sawhney said. “[A] rebounding US dollar snapped copper prices’ five-day winning streak on Tuesday, outweighing supply concerns from floods in central China. Meanwhile, the ongoing curbs on Chinese steel production kept investors’ sentiment in the iron ore market weak, weighing on miners to some extent.”

BHP will extend its north American footprint by buying Canadian miner Noront Resources. The Noront board voted unanimously to accept a BHP subsidiary’s offer of 55 Canadian cents per share, a 69 per cent premium to the last traded price. Noront has a high-grade nickel, copper, platinum and palladium deposit in Ontario. BHP shares eased 1.67 per cent from record levels.

Rio Tinto will proceed with a lithium mine in Serbia after committing $2.4 billion to the greenfields project. The Jadar project will produce battery-grade lithium carbonate. Shares in the miner retreated 0.19 per cent.  

Miner IGO eased 1.76 per cent from near record levels after forecasting an increase in costs and softening production next year.

The major banks were dragged lower by declining yields and the threat of a surge in bad debts as the NSW lockdown drags on. CBA fell 1.4 per cent, ANZ 0.61 per cent, NAB 0.27 per cent and Westpac 0.93 per cent.

Tech was among the biggest drags after the Nasdaq led the US sell-off overnight. Appen dropped 3.16 per cent, Afterpay 2.65 per cent and Nanosonics 2.67 per cent.

Other markets

Stocks in mainland China fell for a third day in the wake of government intervention in the tech, education and property sectors. The Shanghai Composite sagged 1.01 per cent.

Hong Kong’s Hang Seng rebounded to a gain of 0.29 per cent. Japan’s Nikkei dropped 1.55 per cent. The Asia Dow gave up 0.92 per cent.

Oil reversed overnight falls. Brent crude climbed 38 US cents or 0.52 per cent to US$73.90 a barrel.

Gold edged up US$5.80 or 0.32 per cent to US$1,805.60 an ounce.

The dollar slipped 0.14 per cent to 73.56 US cents.

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