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Australian shares closed at record levels as gains in growth stocks outweighed declines in cyclicals after business data confirmed a slowing economy.

The S&P/ASX 200 overcame early weakness to finish eight points or 0.11 per cent ahead.

Today’s rise, the index’s third in a row, sealed a weekly advance of 46 points or 0.6 per cent. A volatile V-shaped week saw the market swing from a six-week low on Tuesday to a record close just two sessions later.

The index fell narrowly short of cracking 7400 for the first time since mid-June, topping out at 7398.7. Tech stocks and bond proxies kept the market on the upswing in the face of declines in bank and resource stocks.

What moved the market

Investors are once again wondering where earnings will hold up best under creeping lockdowns and a slowing economy. Tech stocks outperformed as a resurgence of Covid-19 via the delta variant sent traders back to last year’s playbook. The Nasdaq Composite outpaced other US benchmarks overnight as the tech sector climbed 0.71 per cent.

“Growth stocks that outperformed throughout the virus crisis were seen to be back in favour, with overnight gains in mega-cap tech and tech-adjacent stocks,” Kalkine Group CEO Kunal Sawhney said. 

Here, Nuix climbed 6.04 per cent, Megaport 2.66 per cent and Xero 2.41 per cent. Buy now pay later leaders Afterpay and Z1P Co gained 0.81 and 1.43 per cent, respectively.

“We saw during the depths of the pandemic that tech stocks and their earnings held up the best, so I think a lot of investors are going back to the well, given we have a Covid resurgence,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, told CNBC. “Long term interest rates coming down as much as they have also makes those stocks more attractive.”

Cyclical sectors came under pressure as a survey confirmed the economy is faltering under the impact of lockdowns in many of the nation’s major cities. Business activity in the private sector contracted sharply, according to preliminary figures from IHS Markit. The company’s Flash Composite Output Index dived to a 14-month low of 45.2 from a June figure of 56.7. Readings below 50 indicate shrinking activity.

“Latest indications from the IHS Markit Flash Australia Composite PMI suggested that Australia’s growth streak had been brought to a halt in July, and perhaps no surprise given the renewed lockdowns aimed to bring the COVID-19 situation under control,” Jingyi Pan, Economics Associate Director at IHS Markit, said.

“On the outlook, private sector firms were less optimistic given uncertainties surrounding the more infectious Delta variant and the supply situation,” he added.

New South Wales further tightened restrictions in parts of Sydney after reporting 136 new local Covid-19 cases in the 24 hours to 8pm last night, the highest tally of the current outbreak.

Victoria recorded 14 new local cases. Queensland reported three cases. South Australia remained on track to exit lockdown after reporting one new case.

Winners’ circle

Traditional alternatives to bonds advanced as a fall in US yields encouraged investors to look beyond treasuries for steady income. CSL gained 1.47 per cent, Brambles 1.04 per cent, Wesfarmers 0.83 per cent and Goodman 1.53 per cent. Supermarkets Coles and Woolworths put on 1.27 and 0.89 per cent, respectively.

IAG lifted 1.03 per cent as a positive outlook for this financial year helped offset a reported net loss of $427 million in FY2021, according to preliminary results. CEO Mike Hawkins said the underlying result was sound, within expectations and he expected further improvement this year.

Small caps and speculative stocks played catch-up with the heavyweights. The Small Ords gained 0.43 per cent. The S&P/ASX Emerging Companies Index rallied 0.74 per cent.

Doghouse

Crown Resorts fell 2.24 per cent after Star Entertainment withdrew a merger offer for the beleaguered casino group. Star said its offer delivered significant cost synergies, but Crown had provided only “limited engagement”. Star also noted uncertainty over the potential loss of Crown’s licence to operate its Melbourne casino.

Crown said it remained willing to engage with its rival. Shares in Star eased 0.56 per cent.

The big four banks spearheaded losses at the sharp end of the market despite a muted response on Australian bond markets to overnight declines in bond yields. ANZ fell 1.11 per cent, Westpac 0.88 per cent and CBA 0.76 per cent. NAB closed flat. The yield on ten-year Australian government bonds was last down around one basis point at 1.2 per cent.

Bulk metals producers suffered minor damage from a sharp fall in iron ore to three-week lows. Rio Tinto eased 0.24 per cent. BHP lost 0.35 per cent. Fortescue Metals reversed to a gain of 0.24 per cent. Overnight, iron ore sagged 5.7 per cent after Chinese authorities clamped down on steel production.

“Iron ore prices fell as steel output controls dampened demand for the steelmaking ingredient,” Kalkine’s Mr Sawhney said. “The recent plunge in iron ore prices does not seem to be a welcome news for Australia, which ships over half of the world’s iron ore.

“Australia raked in a whooping $310 billion from resources exports in FY 2020-2021, with iron ore playing an instrumental role in this bumper year story. At a time when China has also set its plans in motion for more independence with respect to iron ore, it will be worth watching how Australia retains its spot as a top iron ore exporter.”

Gold miner Silver Lake Resources tumbled 8.5 per cent after reporting production costs will increase next year.

Other markets

US futures hinted at a fourth night of gains. S&P 500 futures rose 11 points or 0.25 per cent.

A negative session on Asian markets saw the Asia Dow drop 0.42 per cent, China’s Shanghai Composite 0.64 per cent and Hong Kong’s Hang Seng 1.21 per cent.

Oil trimmed overnight gains. Brent crude retreated 34 US cents or 0.46 per cent to US$73.45 a barrel. Gold dipped $1.80 or 0.1 per cent to US$1,803.60 an ounce.

The dollar faded 0.27 per cent to 73.6 US cents.

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