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The share market’s three-session win run faces early pressure after Wall Street declined for the sixth time in seven nights and iron ore fell to a fresh 2021 low.

US stocks gave up early gains as seasonal weakness and fears of a corporate tax hike outweighed better-than-expected inflation data. Spot ore prices in China fell 1.8 per cent.

ASX futures declined 42 points or 0.57 per cent. The S&P/ASX 200 edged up 12 points or 0.16 per cent yesterday to a third straight win.

Wall Street

US stocks gave up early gains as bond yields sagged, Apple shares fell again and investors baulked at Democrat plans to fund climate and social policies with corporate tax increases.

The S&P 500 dropped 26 points or 0.57 per cent, resuming the downtrend that has developed since weak August jobs data raised questions about the impact of the delta variant on the economy. The index fell for five straight sessions before a brief rally on Monday night.  

“The next couple of weeks, economic data points become even more important to see whether it confirms the weakness that we saw on the August jobs report or starts to suggest that maybe we’re seeing an improvement,” Liz Ann Sonders, chief investment strategist at Charles Schwab, told CNBC.

The Dow Jones Industrial Average shed 292 points or 0.84 per cent. The Nasdaq Composite lost 67 points or 0.45 per cent.

Stocks briefly moved higher at the open on signs inflation cooled last month from red-hot levels. The US consumer price index rose 0.3 per cent, less than the 0.4 per cent median estimate by economists polled by Dow Jones. Core prices increased 0.1 per cent, the smallest rise since February.

The 12-month rate of inflation declined to 5.3 per cent, from 5.4 per cent in July, the first retreat in nine months. The 12-month change in core inflation fell to 4 per cent from 4.3 per cent.

The declines appeared to support the Federal Reserve‘s argument that this year’s spike in consumer prices will be transitory. The central bank’s central thesis is that it can afford to keep pumping money into the economy and hold official rates at record lows because inflation will weaken once pent-up lags are satisfied.

Investors favoured growth stocks over cyclical value stocks as US treasury yields declined. The Russell 1000 Growth Index fell 0.23 per cent, versus a 0.98 per cent decline in the Value Index. The yield on ten-year US treasuries sank more than three basis points, pressuring the financial sector and boosting Big Tech.

General Electric, Caterpillar, Boeing and other stocks tied to the economic cycle retreated. Microsoft and Alphabet advanced. Apple fell almost 1 per cent after unveiling a new iPhone.

The prospect of a corporate tax hike came into clearer focus after House Democrats proposed increases to fund a US$3.5 trillion investment in social programs and climate policy. The plan would raise the corporate tax rate to 26.5 per cent from 21 per cent, partly reversing tax cuts under the Trump administration.  

Australian outlook

The local market looks set to unwind much of a three-session rally since last Thursday’s heavy sell-off. The S&P/ASX 200 has put on 68 points since then, which may prove a deep enough cushion to avoid a retest of last week’s low, for today at least.  

Wall Street is deep in the September doldrums (historically, the weakest month of the year). Overnight weakness was largely focussed on sectors with a heavy weighting here: financials -1.41 per cent and materials -1.17 per cent. BHP and Rio Tinto sank in US trade as ore prices fell closer to US$120 a tonne (more below).

Yesterday’s best ASX performer – the energy sector – slumped 1.55 per cent in the US. Cyclical industrials lost 1.23 per cent.

Havens were absent. Health was the best of the bunch with a loss of 0.12 per cent. Tech dropped 0.14 per cent.

Westpac’s monthly consumer inflation survey is due at 10.30 am AEST. China releases factory output, retail sales, employment and asset investment figures at noon.

IPOs: Copper Search lists at 1 pm. This copper-gold explorer has more than 6,000 square kilometres of acreage in the Gawler Craton of South Australia. Dalaroo Metals, also originally scheduled for today, has been delayed (new date to be announced).

Dividend payments: companies going ex-dividend today include Cimic, Regis Healthcare, Pro-Pac, Costa Group and Lovisa.

The dollar skidded 0.59 per cent overnight to 73.22 US cents.

Commodities

Iron ore prices continued to wilt under steel production caps in China. The spot price for ore landed at Tianjin retreated US$2.25 or 1.8 per cent to US$120.35 a tonne, its weakest since early November.

Yunnan province instructed steelmakers to postpone production as part of an environmental push ahead of the Winter Olympics. The clampdown mirrors efforts ahead of the Beijing games in 2008.

“We’ve been here before with China trying to ensure blue skies leading into the 2008 Beijing Summer Olympics where we saw iron ore prices pull back quite a lot,” Westpac senior economist Justin Smirk told the Australian Financial Review. “Markets remain highly sensitive to news of new curbs because iron ore prices are still well above the cost of production.”

BHP’s US-listed stock sagged 2.08 per cent and its UK-listed stock 2.62 per cent. Rio Tinto shed 1.46 per cent in the US and 2.04 per cent in the UK.

Gold was one of the night’s winners, regaining US$1,800 an ounce as US treasury yields faded. Gold for December delivery settled US$12.70 or 0.7 per cent ahead at US$1,807.10 an ounce. The NYSE Arca Gold Bugs Index firmed 0.54 per cent.

Nickel and aluminium continued to retreat from multi-year peaks.  Benchmark nickel on the London Metal Exchange fell 0.6 per cent to US$19,638.50 a tonne. Aluminium dropped 2.6 per cent to US$2,809.75. Copper gave up 1.3 per cent, lead 0.9 per cent, zinc 1.1 per cent and tin 0.7 per cent.

Oil closed little changed near a six-week high. Brent crude settled nine US cents or 0.1 per cent higher at US$73.60 a barrel.

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