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A relief rally slashed the share market’s loss for the week as debate raged over whether this week’s volatility is merely another blip in the pandemic-era bull market or early signs of a looming correction.

The S&P/ASX 200 bounced 56.5 points or 0.78 per cent in the wake of a strong rebound on Wall Street. The rally cut the index’s weekly loss to 39 points or around 0.5 per cent.

Gains in Wesfarmers, BHP, CSL and banks easily outweighed declines in industrials and gold miners.

What moved the market

Investors around the world “bought the dip” following heavy losses on most of the major global indices at the start of the week. A day after suffering its worst fall since October, the Dow bounced 550 points or 1.62 per cent overnight. The pan-European Stoxx 600 edged up a tepid 0.52 per cent, closing while the US rally was still building.

Australian investors duly piled in, snapping up stocks that finished yesterday at four-week lows after testing their weakest level since early June. The ASX 200 briefly put on as much as 103 points this morning before paring its advance as US futures traded negative and Asian markets logged lukewarm gains.

At the Australian close, S&P 500 futures were off two points or 0.04 per cent. The Asia Dow was ahead 0.22 per cent, China’s Shanghai Composite 0.74 per cent and Japan’s Nikkei 0.53 per cent. Hong Kong’s Hang Seng declined 0.56 per cent.

Stocks around the world buckled on Monday as falling bond yields indicated doubts about the strength of the global economy as the delta Covid-19 variant spreads. Volatility measures in the US and Australia spiked.

“The equity market seems to be heading into a volatile period,” Kalkine Group CEO Kunal Sawhney said. “The market may remain sensitive to news regarding progress in vaccination drives, the number of COVID-19 infections, and resultant lockdowns. 

“Inflationary concerns that are expected to remain for some time may drive investors’ sentiment in the days ahead. With that said, it will be interesting to see how long revived optimism concerning economic growth and upbeat earnings reports will retain investors’ appetite for riskier assets.” 

The ASX has held its ground during the Greater Sydney lockdown, trading in a broad sideways range for the past month. However, some commentators think global equities are on the verge of a correction as lockdowns increase and growth slows.

“I think what we’ve seen here are the early warning shots of a correction that we’ll see probably… in late August, September, October,” Matt Maley, equity strategist at Miller Tabak, told CNBC.  

High hopes for the latest quarterly reporting season in the US have yet to be met. Strong earnings over the first week of the season largely met with selling, sharpening concerns the results were already baked into prices.

“This market is vulnerable to a bigger pullback or correction if there’s a new negative introduced, and that negative could be disappointing earnings,” Tom Essaye, founder of Sevens Report Research, told clients. “This market is vulnerable to news that could turn [Monday’s] decline into something more material,” he added.

The June Australian retail sales report showed the early economic impact of lockdowns. Spending declined 1.8 per cent last month, according to seasonally-adjusted figures from the Australian Bureau of Statistics.

The dollar dipped below 73 US cents following the retail sales miss. The Aussie was last down 0.53 per cent at 72.99 US cents.

Winners’ circle

The falling tide that lowered nearly all boats yesterday came rushing back in this session. The banks rallied even as a tentative recovery in bond yields faltered. Macquarie Group put on 1.28 per cent, CBA 0.83 per cent, ANZ 1.21 per cent, NAB 1.06 per cent and Westpac 0.98 per cent.

Mining giants BHP and Rio Tinto gained 1.32 and 1.17 per cent, respectively. Fortescue Metals added 0.48 per cent.

Wesfarmers continued to break fresh ground, lifting 2.34 per cent to a fourth straight gain and a new record. Woolworths also hit an all-time high, adding 1.12 per cent.

South32 edged up 1.07 per cent as record quarterly production of alumina and manganese helped offset news of a US$728 million charge against its Illawarra coal assets. The pre-tax impairment reflects a reduction in the carrying value of the assets after NSW government rejected an application to extend the life of the Dendrobium Next Domain coal mine.

Lendlease advanced 2.1 per cent on news Service Stream will buy its Services business for $310 million. Global CEO Tony Lombardo said the divestment aligned with the group’s focus on “areas where our competitive edge is the strongest”. Service Stream shares entered a trading halt while the company taps investors for $185 million to help fund the acquisition.

An upsurge in new work and the restoration of an interim dividend helped construction group Cimic climb 4.47 per cent. The company announced an interim dividend of 42 cents per share following a half-year net profit of $208 million. The company said it had won $10.4 billion in new work already this year, eclipsing last year’s full-year total of $6.8 billion.

Doghouse

Software maker Altium declined for a fourth session after would-be suitor Autodesk confirmed it had abandoned its takeover attempt. Autodesk CEO Andrew Anagnost said the companies were “unable to agree on the basis to advance discussions”. Altium shares that traded above $38 when the bid was launched fell 5.04 per cent this session to $32.81.

Gold mining was one of the few pockets of the market to miss the uplift. Westgold shed 1.9 per cent, Evolution 2.86 per cent and Newcrest 0.15 per cent.

Toll road operator Atlas Arteria eased 1.27 per cent on news traffic volumes remained well below pre-pandemic levels despite an improvement last quarter. Second-quarter volumes were 68.5 per cent higher than the same period last year, but 18.9 per cent weaker than the corresponding period in 2019.

Beach Energy shed 3.2 per cent after reporting a dip in production last quarter. A 10 per cent increase in pricing helped lift revenues 7 per cent to $421 million.

Kogan faded 1.45 per cent after hitting a three-week high on news of a pick-up in sales, earnings and profits last month. The online retailer said it had largely cleared a build-up in inventory, reducing warehousing costs and more accurately reflecting demand.

Other markets

Oil resumed its downtrend after a brief uplift overnight. Brent crude dropped 30 cents or 0.43 per cent to US$69.06 a barrel.

Gold declined $1.80 or 0.1 per cent to US$1,809.60 an ounce.

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