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A tough week for Australian investors ended with an up-tick as banking and mining stocks rebounded and Chinese shares tested a six-year high.

The S&P/ASX 200 saved its best for last, rising 37 points or 0.5 per cent to its strongest gain of a wobbly week.

The index sold off and recovered several times through the first half of the week before diving 142.5 points or 1.9 per cent yesterday to its heaviest loss since February. That collapse sealed the index’s first weekly loss in three weeks. Today’s revival trimmed the five-day deficit to 116 points or 1.5 per cent.

Santos and Oil Search rallied after agreeing on a $21 billion merger to form an ASX top 20 energy company and global giant. The big three bulk metal producers climbed off nine-month lows.

What moved the market

Investors took advantage of the lowest share prices in six weeks after US equities declined for a fourth night, but not by nearly as much as the ASX lost yesterday. The Dow and S&P 500 fell by less than 0.5 per cent overnight.   

“A spurt of bargain hunting by some investors appears to be delivering a tentative rebound to the Australian share market despite overnight losses in Wall Street,” Kalkine Group CEO Kunal Sawhney said.

Buying interest was fuelled by a rally in US equity futures ahead of tonight’s August inflation figures. S&P 500 futures firmed 13 points or 0.3 per cent. Tonight’s consumer and producer prices will influence the start of the Federal Reserve’s tapering of its quantitative easing program.

“All eyes are now glued to August producer prices data due tonight, which is expected to provide clues on inflationary pressures ruling the US economy,” Mr Sawhney said. “A greater than expected surge in producer prices may further fuel investors’ tapering concerns.”

Chinese shares had their strongest close since 2015 within reach after phone contact between US President Joe Biden and Chinese President Xi Jinping sharpened hopes of a thaw in relations. The Shanghai Composite rallied 0.59 per cent.  

Back home, investors will hope for an easier ride next week as attention swings to a speech by Philip Lowe and the August employment report.

“In the week ahead, a series of crucial events like the RBA Governor’s speech at the ANIKA Foundation, Westpac consumer sentiment, and August’s jobless rate data are expected to drive the market sentiment,” Mr Sawhney said.  

Winners’ circle

The materials sector bounced 1.65 per cent off a five-month low despite another down-leg in iron ore prices. Fortescue Metals firmed 2.58 per cent, Rio Tinto 0.68 per cent and BHP 0.81 per cent. Spot ore prices in China eased 1.9 per cent yesterday to their weakest since last October.  

A 13-year high in aluminium prices lifted Alumina 6.34 per cent to a pandemic-era peak. Aluminium markets shot higher this week after a military coup in Guinea threatened supplies of bauxite, the ore from which the metal is extracted.  

“Political unrest in Guinea has significantly raised the risk of disruption,” Daniel Hynes, strategist at Hynes Commodities, said. “At the same time, power shortages and environmental measures are restricting output in China.

“We estimate over 1m tonnes have been disrupted in China this year. So we see the global aluminium market recording a deficit of around 750k tonnes in 2021. This is likely to spill over into 2020 if China’s production is further restricted, leading to a deeper deficit.”

Nickel Mines climbed 8.54 per cent, South32 5.88 per cent, Lynas Rare Earths 4.41 per cent and Mineral Resources 5.58 per cent.

Santos and Oil Search rallied after agreeing terms for a $21 billion merger. Oil Search shareholders will receive 0.6275 new Santos shares for each of their OSH shares. The merger will create a top-20 ASX company and one of the 20 largest global oil and gas companies.

Santos shareholders will hold roughly 61.5 per cent of the merged entity and Oil Search shareholders 38.5 per cent. Santos shares rallied 0.5 per cent. Oil Search gained 2.19 per cent.

The banks shrugged off a decline in lending rates. CBA put on 0.54 per cent, ANZ 0.29 per cent, Westpac 0.2 per cent and NAB 0.18 per cent. The yield on ten-year Australian government bonds dropped almost four basis points.

Investment group Washington H. Soul Pattinson rose 2.42 per cent to a third straight record.

Zoom2u Technologies made a spectacular start to listed life, more than doubling in value to 43 cents, a gain of 115 per cent.

Doghouse

Traditional defensive stocks declined in the wake of a US rotation back into cyclicals. CSL dipped 0.95 per cent, Transurban 0.71 per cent, Woolworths 0.35 per cent and Coles 0.17 per cent.

Takeover target Iress fell 1.93 per cent on news suitor EQT Fund Management had asked for ten more days to complete due diligence. Iress granted the Swedish private-equity firm an initial 30 days after EQT made an unsolicited, non-binding offer in late July that was later revised to $15.91 cash per share.

Medical device developer PolyNovo sank 5.67 per cent on news Chief Operating Officer Dr Anthony Kaye had resigned to rejoin CSL.

Other markets

The Asia Dow climbed 0.96 per cent, Hong Kong’s Hang Seng 1.56 per cent and Japan’s Nikkei 1.01 per cent.

Oil mounted a tentative recovery from news China intends to sell some of its strategic reserve. Brent crude rose 62 US cents or 0.87 per cent to US$72.07 a barrel.

Gold improved US$4.10 or 0.23 per cent to US$1,804.10 an ounce.

The dollar rose 0.19 per cent to 73.82 US cents.

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