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The share market suffered its biggest weekly loss in more than two years as inflation worries encouraged traders to reduce their exposure ahead of a long weekend.

The S&P/ASX 200 hit its lowest level since January with a drop of 87.7 points or 1.25 per cent.

The tumble extended the benchmark’s loss for the week to a hefty 307 points or 4.2 per cent. The weekly deficit is the heaviest measured in percentage terms since April 2020.

All 11 sectors declined. A brief rebound in the major banks faltered by the close. Mining stocks retreated after China reimposed Covid restrictions in parts of Shanghai.

What moved the market

A grim week ended near its lowest point as traders reduced their exposure ahead of the Queen’s birthday long weekend. A potentially explosive US inflation report tonight dampened interest in holding across Monday’s market holiday. Wall Street will trade twice before the ASX reopens on Tuesday.

Today’s loss was the ASX’s fourth in five sessions during a week when the Reserve Bank raised the cash rate target by the largest amount since 2000. The benchmark hit 6927 this afternoon, its lowest level since late January.   

The financial sector has been the biggest drag this week, closing this afternoon at its weakest since March 2021. The sector is seen as heavily exposed if higher rates trigger a wave of mortgage defaults.

“Given a higher level of household debt in Australia, the larger-than-expected spike in interest rates, which has already been passed on to borrowers, could make servicing debt difficult for borrowers and lead to higher delinquencies in the coming days,” Kunal Sawhney, chief executive of research group Kalkine, said.

The materials sector weathered the storm until reports filtered through that Chinese authorities were locking down parts of Shanghai to contain a Covid outbreak. Crude oil, iron ore and base metals turned lower yesterday, pressuring equity valuations.  

US stocks plunged overnight amid creeping pessimism about tonight’s May inflation data. The S&P 500 skidded 2.38 per cent. The Dow lost more than 600 points. The Nasdaq shed 2.75 per cent.

A White House official warned reporters the administration expected a strong inflation reading due to a rebound in energy prices. An uptick in consumer prices would overthrow the recent narrative that inflation peaked in March.

“If the inflation reading shows that the number has yet to reach its optimal level, a scenario which we believe is highly likely as oil prices are likely to soar further, then we could see more panic in the stock market,” Naeem Aslam, chief market analyst at AVATrade, said.

Winners’ circle

The winners’ circle contracted sharply by the close. Just five ASX 200 component companies advanced 1 per cent or more.

Accounting software firm Xero was the session’s best performer, gaining 4.03 per cent after announcing a subscription rate increase for customers. Healius bounced 2.13 per cent. Pinnacle Investment Management added 1.09 per cent.  

Breville edged up 1 per cent are reaffirming full-year guidance. The appliance maker also announced the acquisition of Italian coffee group LELIT will complete ahead of schedule on July 1.

Just three of the heavyweights of the ASX 20 booked gains. James Hardie firmed 1.66 per cent. Toll road operator Transurban added 0.42 per cent. Aristocrat Leisure firmed 0.4 per cent.

Atlas Arteria finished flat after rejecting a request from potential suitor IFM Global Infrastructure Fund for access to confidential information. The toll road operator’s board decided not to provide “non-public information at this time”, instead offering IFM a meeting with senior management.

Bubs climbed 9.24 per cent on news it expects to have infant formula on American shelves by June 20. The company said the first air cargo of its formula will be purchased by two major retailers in the US, expediting delivery.

Doghouse

Miners fell on news parts of Shanghai re-entered lockdown to contain a Covid outbreak, dampening the outlook for demand for raw materials. The development dragged on crude, iron ore and metals.

Lynas Rare Earths slumped 5.75 per cent. Chalice Mining shed 5.56 per cent, South32 4.19 per cent and Alumina 3.94 per cent.

At the heavyweight end, Fortescue Metals dropped 0.51 per cent, Woodside Energy 1.61 per cent, Rio Tinto 1.34 per cent and Santos 1.5 per cent.

A morning recovery in the banks faded by the close. CBA declined 1.23 per cent, NAB 0.67 per cent, ANZ 1.2 per cent and Westpac 1.51 per cent.

In the tech space, Afterpay parent Square shed 5.69 per cent, Novonix 3.42 per cent and WiseTech 1.54 per cent.

Sims slid 5.75 per cent after settling a shareholder class action. The action alleged the firm breached its obligations under the Corporations Act between July 2014 and February 2016. The scrap metal recycler will pay $29.5 million to settle the matter without admission of liability.

News of a delay in restoring the Loy Yang A Unit 2 power plant to service dragged AGL Energy down 0.23 per cent. The utility said it expected the outage to last until the second half of September, outside the initial estimate of August 1.

Air New Zealand fell 5.36 per cent to a 13-year low on news the airline expects to lose $750 million this financial year.

Other markets

A mixed session on Asian markets saw the Asia Dow down 1.01 per cent and Japan’s Nikkei down 1.38 per cent. Hong Kong’s Hang Seng reversed early losses, edging up 0.05 per cent. China’s Shanghai Composite swung to a gain of 0.97 per cent.

US futures edged higher. S&P 500 futures firmed five points or 0.12 per cent.

Oil continued to lose ground. Brent crude declined 54 US cents or 0.44 per cent to US$122.53 a barrel.

Gold retreated US$5.80 or 0.3 per cent to US$1,847 an ounce.

The dollar bounced 0.39 per cent to 71.25 US cents after falling 1.2 per cent overnight.

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