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The share market looked set to lose its grip on record levels as a three-week low in iron ore and a rebound in the dollar offset slender gains on Wall Street.

ASX futures dropped 15 points or 0.21 per cent, signalling a modest early retreat.

Mining giants BHP and Rio Tinto fell in overseas trade as iron ore slumped more than 5 per cent. The dollar rallied around half a percentage point. US stocks overcame early weakness to eke out a third day of gains.

The S&P/ASX 200 rallied 78 points or 1.06 per cent yesterday, securing an all-time closing high by two-tenths of a point.

Wall Street

Unexpectedly weak jobless claims took the wind out of a rally in US stocks that had delivered two days of exceptional gains. The major indices recovered to log slim advances.

Strength in “Big Tech” lifted the Nasdaq Composite 53 points or 0.36 per cent. The S&P 500 added nine points or 0.2 per cent. The Dow Jones Industrial Average trailled with a rise of 25 points or 0.07 per cent.

Investors rotated from economically-sensitive cyclical stocks back to growth stocks following an unexpected spike in claims for unemployment benefits. First-time claims jumped to a two-month high of 419,000 last week from a revised 368,000 the week before.

Claims have been trending gently lower for more than a year as the labour market recovered. The upswing confounded expectations for a decline to 350,000. Analysts dismissed the increase as a temporary anomaly, rather than a change of trend.

“We’re inclined to believe that this is once again a ‘one-off’ situation with this week’s back-up in claims as demand for labor remains extremely strong and there is nothing that stands out to us as a reason to have expected layoff activity to rebound. We will be looking for claims to resume their downward trend next week,” investment bank Jefferies told clients.

The data sent bond yields lower, denting a recovery that had helped fuel this week’s strong equity rally. Rate-sensitive lenders declined, pulling the financial sector down more than 1 per cent.

Small caps and reopening plays mostly retreated. The Russell 2000 index of small caps sank 1.55 per cent. The S&P 1500 airlines index dropped 1.72 per cent. Major cruise lines lost more than 2 per cent.

Growth stocks, seen as more resilient to any economic downturn, rallied. A broker upgrade lifted Microsoft 1.68 per cent to a 52-week high. Apple climbed 0.96 per cent, Amazon 1.47 per cent, Facebook 1.43 per cent and Alphabet 0.68 per cent.

Australian outlook

The breakneck rally over the last two sessions looks likely to pause following several negative developments beneath the generally positive headline figures overnight.

Index heavyweights BHP, Rio Tinto and Fortescue Metals are likely to drag following a sharp retreat in iron ore. The spot price for ore landed in China dropped $12.10 or 5.7 per cent to US$210.50 a tonne. The decline followed reports of increased imports and claims the Chinese government ordered steel producers in some provinces to reduce output.

“The government has a relatively strong determination to control steel output this year, which could affect demand for raw materials,” Li Wentao, an analyst with Tianfeng Futures, told Reuters.

Rio Tinto declined 1.04 per cent in US trade and 2.09 per cent in the UK. BHP‘s US-listed stock dipped 0.15 per cent. Its UK-listed stock shed 0.82 per cent.

Financials, the other pillar of the ASX, fell 1.04 per cent in the US as bond yields reversed some of this week’s rise. Australian yields are likely to follow their US counterparts lower, exerting similar down-pressure on local lenders.

Finally, the dollar ticked higher, a general negative for an export-driven economy. The Aussie rose 0.44 per cent to 73.83 US cents.

The most likely prospects for returns today look to be technology (+0.71 per cent in the US) and bond proxies that attract funds when yields weaken. US health stocks gained 0.66 per cent and utilities 0.17 per cent.

New South Wales yesterday recorded the worst figures of the current coronavirus outbreak, meaning there is no end in sight for lockdown-weary Sydneysiders. Premier Gladys Berejiklian warned figures were likely to rise before they get better. The longer the lockdown lasts, the bigger the hits to GDP and employment.

Preliminary July manufacturing and services industry reports at 9 am AEST may reflect the early impact of this month’s lockdowns. Both purchasing managers’ indices have been running exceptionally hot for months as the economic recovery accelerated.

IPOs: Western Gold Resources is slated to list at 1 pm AEST. The company, a subsidiary of GWR, owns the Wiluna West Gold Project in the Northern Goldfields of WA.

Commodities

A falling US dollar helped lift crude and metals. Brent crude rose $1.56 or 2.2 per cent to settle at US$73.79 a barrel. Oil prices have now reversed all of Monday’s “growth scare” 6-7 per cent plunge. Brent finished at its highest since July 14.

Gold inched ahead as soft US jobs data encouraged some hedging. Metal for August delivery settled $2 or 0.1 per cent ahead at US$1,805.40 an ounce. The NYSE Arca Gold Bugs Index eased 1.09 per cent.

Industrial metals rallied on a weaker dollar and general mid-week improvement in risk appetite. Benchmark copper on the London Metal Exchange climbed 1.1 per cent to US$9,417.78 a tonne. Aluminium gained 1.3 per cent, nickel 1.9 per cent, lead 2.8 per cent, zinc 0.4 per cent and tin 2.2 per cent.

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