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A volatile session saw the ASX finish at a four-week low after growth worries triggered a global retreat from risk and South Australia joined Victoria and Greater Sydney in lockdown.

The S&P/ASX 200 took investors on a roller-coaster ride. The index fell as much as 81 points in the first hour, bounced back towards break-even by lunchtime, then faded once more to a final loss of 34 points or 0.46 per cent.

The wild ride included a six-week low in the wake of heavy losses in the US and Europe. Resource stocks applied most of the down-pressure. Afterpay, CSL, ANZ and the supermarkets offered havens from the selling.

What moved the market

Equity markets around the world belatedly caught on to what bond markets have been signalling for weeks, if not months: expectations for global economic growth look ambitious as the delta variant fuels a resurgence in Covid cases.

Bond yields here and in the US plumbed multi-month lows over the last 24 hours in a sign bond traders expect economic growth – and corporate earnings – to decelerate. The yield on ten-year Australian bonds fell six basis points this afternoon to a level last seen in February.

“A decline in bond yields can be a sign of anticipations for a weaker economy amid the spread of new COVID-19 variants and hot inflation readings,” Kalkine Group CEO Kunal Sawhney said. “All in all, the market appears to be re-evaluating the strength of the recovery and the central bank’s response to inflation,” he added

US and European stocks dived overnight. The Dow Jones Industrial Average slumped 2.09 per cent to its biggest percentage loss since October. The broader S&P 500 shed 1.59 per cent. The pan-European Stoxx 600 lost 2.3 per cent. Bitcoin fell below US$30,000.

The ASX came off session lows as a bounce in US futures stoked hopes of a recovery tonight. S&P 500 futures rallied 13 points or 0.31 per cent.

The market barely blinked at news South Australia will enter a one-week lockdown from tonight after a cluster in the state expanded to five cases. Victoria announced the state will remain in lockdown for another week after recording 13 new local cases, four of which were reported yesterday. New South Wales reported 78 new local cases.

Westpac announced it expected negative growth this quarter after revising upwards its expectations for the length of the Sydney and Victoria lockdowns. The bank now forecasts the economy will contract 0.7 per cent this quarter. The assessment was based on the Sydney lockdown lasting eight weeks (up from five) and the Victorian lockdown lasting three weeks.  

Household spending in NSW slumped to pre-pandemic levels last week as the lockdown curbed activity, according to Commonwealth Bank card transactions. Card spend slowed 0.6 per cent to levels last seen in 2019.

Consumer confidence also declined, but remained well above levels at the start of the pandemic. The ANZ-Roy Morgan weekly index fell 5.2 per cent to 104.3 points.

The Reserve Bank stuck to its conviction the conditions for raising the cash rate will not be met until at least 2024. The minutes from this month’s policy meeting showed the bank remained committed to maintaining highly supportive monetary conditions until employment and inflation met its targets.

Winners’ circle

Oil Search more than reversed yesterday’s tumble after announcing it rejected a merger offer from Santos that would have created one of the 20 largest oil and gas companies in the world. The non-binding, indicative all-scrip offer valued Oil Search shares at around $4.25. If approved, Oil Search shareholders would have owned around 37 per cent of the new entity and Santos shareholders 63 per cent.

The Oil Search board said the offer was not in the best interests of shareholders. Shares in the company bounced 6.27 per cent to $3.90. Santos dropped 4.98 per cent.

ANZ rallied on plans to buy back up to $1.5 billion shares on-market. CEO Shayne Elliott said the bank’s balance sheet was strong enough to “return a modest amount of surplus capital to shareholders through a buy-back”. The share price rose 0.63 per cent during a negative session for the wider sector.

A 67.4 per cent lift in full-year net profit boosted JB Hi-Fi 3.73 per cent. The retailer said earnings increased by 53.8 per cent during FY21, but warned lockdowns were impacting sales this month.

The healthcare sector climbed for a third session as investors favoured defensive sectors over cyclicals. Fisher & Paykel Healthcare climbed 1.88 per cent, Ansell 2.34 per cent and CSL 1.32 per cent.

Ramsay Healthcare edged up 0.68 per cent after shareholders of UK takeover target Spire Healthcare rejected Ramsay’s offer. At 69 per cent, votes in favour fell short of the 75 per cent needed for the acquisition to proceed.

Supermarkets Coles and Woolworths put on 0.93 and 0.44 per cent as the South Australia lockdown ensured more Australians eat at home this week. Domino’s Pizza climbed 0.83 per cent to a new record.

A drop in bond yields to their lowest since February reignited interest in growth stocks. Z1p Co put on 5.41 per cent, Afterpay 1.64 per cent and Xero 1.7 per cent.  

Doghouse

The cyclical mining and energy sectors took the biggest hits as raw materials responded to the threat of slower growth.

“A risk-off tone enveloped commodity markets as increased concerns rising variants of the coronavirus will hamper economic growth,” commodities strategist Daniel Hynes of Hynes Commodities said. “A stronger USD and rising geopolitical risks didn’t help risk appetite either.

“The ANZ China Commodity Index subsequently came under pressure, falling 1.5% for the session. The energy sector led the complex lower, with crude oil falling sharply following the OPEC deal. Industrial metals were also hit hard, with nickel and copper down sharply.”

Rio Tinto dropped 2.67 per cent, Fortescue Metals 0.98 per cent and Champion Iron 4.01 per cent. A record quarter for iron ore and metallurgical coal production failed to protect BHP from the down-pressure. The share price fell 2.54 per cent.

“We achieved production records at our Western Australia Iron Ore operations and the Goonyella Riverside metallurgical coal mine in Queensland. We maintained all-time high concentrator throughput at our Escondida copper mine in Chile. Olympic Dam in South Australia had its highest annual copper production since BHP acquired the asset in 2005, and its best-ever gold production,” CEO Mike Henry said.

Woodside Petroleum fell 1.93 per cent following a 6.8 per cent dive in Brent crude overnight. Beach Energy shed 2.34 per cent.

Most financials declined as falling bond yields threatened lending margins. NAB dropped 0.7 per cent to its weakest since March. Westpac sank 0.69 per cent. CBA touched a two-month low before paring its loss to 0.07 per cent.

Other markets

Asian markets extended falls as a rally in US futures faded. The Asia Dow was last down 1.1 per cent, China’s Shanghai Composite 0.58 per cent, Hong Kong’s Hang Seng 1.25 per cent and Japan’s Nikkei 0.74 per cent.

Gold climbed $7.10 or 0.4 per cent to US$1,816.30 an ounce. Brent crude bounced 25 three cents or 0.36 per cent to US$68.87 a barrel.

The dollar faded 0.17 per cent to 73.24 US cents after an overnight “flight to safety” boosted the greenback.

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