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Australian shares logged their longest run of weekly losses since February as a Monday plunge and Friday fade outweighed a three-session rally across the middle of the week.

A decline of 28 points or 0.37 per cent today extended the S&P/ASX 200‘s deficit for the week to 61 points or 0.8 per cent.

Gains today in oil companies and banks were outweighed by declines in miners and defensive sectors.

What moved the market

Today’s fall sealed a third straight losing week since the start of the month. The outflow of dividend payments has compounded seasonal factors. September is historically the weakest month of the year in the US. Barring a dramatic rebound next week, the ASX 200 is on track to record its fourth losing September in five years.

The local market was placed on the back foot by its worst start to a week in 15 months. The index tumbled 2.1 per cent to a two-month low on Monday as a dive in iron ore pulled the major miners to 2021 lows.

Sentiment – and iron ore prices – improved as the week went on, but worries lingered over China’s slowing property sector. Ratings agency Fitch today said some of China’s mid-tier banks were exposed to the kind of credit stresses that pushed the nation’s second-largest developer to the brink of default this week.

“Many of these smaller mid-tier banks… have larger exposure to property development loans, which have been adversely affected following the introduction of property-lending caps in January 2021,” the agency said. “We expect them to face greater asset-quality headwinds as property sector credit stresses highlighted by Evergrande increase.”

Citigroup said Chinese real estate faced a bear market. Home sales declined 20 per cent last month as prices dropped.

“We fear that the China slowdown will eventually have an impact on commodities, which are a key economic driver for many EM [emerging market] economies,” Citigroup analysts wrote in a note titled ‘A Bear Market in Chinese Property’.

Australian miners dependent on Chinese demand for raw materials faded as the session wore on. BHP sagged 1.72 per cent, Fortescue Metals 1.22 per cent, Mount Gibson Iron 3.06 per cent and Chalice Mining 4.23 per cent. Rio Tinto resisted the trend with an up-tick of 0.48 per cent.

US stocks surged overnight amid growing confidence any default by Evergrande can be managed by the Chinese government. The S&P 500 rallied 1.21 per cent. The Dow jumped 1.48 per cent or more than 500 points.

“While the situation with Evergrande continues to remain worrisome, market experts are not anticipating the outcome to be some sort of contagion or as severe as initially feared,” Kalkine Group CEO Kunal Sawhney said. “More specifically, the markets are toning down the risk that a potential fallout of Evergrande will result in a systemic liquidity crunch or a ‘Lehman moment’.”  

Asian markets were mixed today as Evergrande resumed its downtrend. Shares in the company fell 9.7 per cent. Hong Kong’s Hang Seng, where the developer’s shares are listed, eased 0.02 per cent. China’s Shanghai Composite dipped 0.4 per cent.

Winners’ circle

Energy was the best of the sectors for a second day after the global oil benchmark hit a three-year high. Brent crude settled US$1.06 or 1.4 per cent ahead at US$77.25 a barrel overnight as US output remained constrained by damage caused by Hurricane Ida.

Woodside Petroleum rallied 1.74 per cent to a two-month high. Santos gained 1.85 per cent and Oil Search 1.26 per cent.

The session’s strongest performers were Computershare +5.73 per cent, Premier Investments +5.5 per cent and Washington H. Soul Pattinson +3.76 per cent.

Rate-sensitive lenders rose as Australian bond yields chased their US counterparts higher. The yield on ten-year Australian government bonds jumped 12 basis points to just below 1.4 per cent, their highest since mid-July. Yields move inversely to price, so rising yields indicate falling demand for bonds and improving interest in riskier assets.

Lenders tend to rally with bond yields because higher rates lead to better margins. CBA firmed 0.89 per cent, ANZ 0.11 per cent, NAB 1.03 per cent and Westpac 0.72 per cent. Macquarie Group added 0.86 per cent.

Doghouse

The flipside to rising yields is pressure on stocks that compete with bonds for investment funds when yields are low. These include real estate investment trusts and healthcare.

Growthpoint Property fell 3.66 per cent, ResMed 3.44 per cent, Charter Hall Group 3.11 per cent, Goodman 2.36 per cent, Wesfarmers 0.23 per cent and CSL 0.31 per cent.

News of a patent infringement complaint in the US pushed Cochlear down 4.77 per cent. The hearing implant specialist said the University of Pittsburgh filed a complaint in a Texas district court over a patent covering wireless energy transfer. Cochlear will defend the lawsuit.

Industrial property investment trust Centuria sank 5.99 per cent to $3.77 after raising $300 million from institutional investors at $3.80. Proceeds will be used to fund the acquisition of eight urban infill industrial assets.

Modular building and RV manufacturer Fleetwood skidded 5.02 per cent after warning Covid lockdowns and border closures will impact its first-half result. The company said clients were being slow and conservative due to the uncertainty. The exact impact on trade was not yet clear.

Gold stocks retreated after the yellow metal faded to a six-week low. Ramelius gave up 6.09 per cent, Perseus 5.7 per cent, Silver Lake Resources 5.11 per cent and Newcrest 2.49 per cent.

Toll road operator Atlas Arteria eased 3.63 per cent as it traded ex-dividend.

Other markets

The Asia Dow rose 0.9 per cent. Japan’s Nikkei put on 2.08 per cent. US futures were little changed. S&P 500 futures eased almost two points or 0.03 per cent.

Oil extended three-year highs. Brent crude firmed 28 US cents or 0.35 per cent to US$76.73 a barrel.

Gold bounced US$4.10 or 0.24 per cent to US$1,754 an ounce.

The dollar was steady at 72.96 US cents.

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