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Defensive sectors looked set to bring the share market early relief following a mixed close on Wall Street and heavy falls on commodity markets.

ASX futures rallied 34 points or 0.46 per cent, signalling the first positive start of a losing week. The S&P/ASX 200 sank 0.5 per cent yesterday to a fourth straight loss, the index’s worst run of the year.

Overnight, the S&P 500 and Nasdaq inched higher. The Dow fell as cyclical sectors retreated.  

Iron ore tumbled almost 15 per cent. Oil logged its longest losing run since the start of the pandemic. Copper faded to a four-month low. The dollar touched a nine-month nadir.

Wall Street

US stocks steadied after two days of falls, but struggled for traction as the market continued to adjust to the prospect of stimulus cutbacks. The minutes from the latest Federal Reserve policy meeting on Wednesday night indicated a majority of policymakers believe the economy will be strong enough to reduce the bank’s bond purchases this year.

The S&P 500 finished six points or 0.13 per cent ahead in choppy trade. The Nasdaq Composite added 16 points or 0.11 per cent. The Dow Jones Industrial Average declined 67 points or 0.19 per cent.

“It’s very much investors grappling with the growth outlook for the global economy, and how aggressive the Fed will taper when they get around to it,” Paul Nolte, portfolio manager at Kingsview Investment Management, said.

Tech and defensive sectors outperformed as treasury yields declined. Nvidia led a rally in computer chip stocks, rising 3.98 per cent on a strong quarterly update.

Energy, materials, industrials and financials fell despite broadly supportive economic data.

Claims for unemployment benefits fell more than expected last week to a pandemic-era low. First-time claims dropped by 29,000 to 348,000, below the Dow Jones estimate of 365,000. Continuing claims declined by 79,000 to 2.82 million, also the smallest since the start of the pandemic.  

Goldman Sachs slashed its growth forecast for this quarter to 5.5 per cent from 8.5 per cent. The bank cited the deadening effect of the Delta Covid variant on economic activity.

“The impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,”  the bank’s chief economist Jan Hatzius wrote.

Australian outlook

A two-speed market coming up, with gains in bond proxies and tech stocks looking like the market’s best chance to break its longest losing run this year. Companies with strong US earnings should benefit from favourable moves on currency markets. Miners and energy stocks appear set for another torrid session.

The US tech sector climbed 0.99 per cent. Broader market support came from sectors that attract a bid when bond yields decline. Real estate put on 0.92 per cent, consumer staples 0.85 per cent, health 0.49 per cent and utilities 0.38 per cent.

Carnage on iron ore markets sets up another tough day for BHP and other bulk metal miners. The spot price for ore landed in China tumbled US$22.85 or 14.9 per cent to US$130.20 a tonne.

Ore prices have collapsed, shrinking by more than a third in five weeks as Chinese authorities rein in steel production to reduce emissions. Tax rebates have been withdrawn and production curbs introduced to ensure this year’s output does not exceed 2020.

Steel production in China is already up 9.5 per cent between January and July this year compared to the same period in 2020 (according to China’s National Bureau of Statistics), which means that it would have to shrink considerably in the months ahead for overall output in 2021 to be unchanged from last year,” economist Kieran Clancy of Capital Economics wrote.

The major miners fell to multi-month lows yesterday and may have further to go. Overnight, BHP‘s US-listed stock shed 4.02 per cent and its UK-listed stock 2.46 per cent. Rio Tinto lost 2.31 per cent in the US and 2.74 per cent in the UK.

The market will likely draw some support from a swiftly-declining dollar. Australia is viewed almost exclusively by international investors as a commodity exporter, so the currency is tied to commodity prices. Overnight, the Aussie dropped 1.14 per cent to 71.48 per cent, a level last seen in November.

A weaker dollar will be welcomed by exporters and the Reserve Bank – it makes exports cheaper and therefore more competitive. However, the speed of the decline may cause concern. The dollar traded at 80 cents as recently as March and was at 78.5 cents as late as May. The Aussie has given up more than two cents this week alone.  

Earnings season continues with reports today from Cochlear, Stockland, Sydney Airport, Inghams, TPG, Cleanaway, Adairs, Steadfast and MyState (source: CommSec).

Commodities

Oil fell for a sixth session, its worst run since February 2020. Brent crude settled US$1.78 or 2.6 per cent lower at US$66.45 a barrel.

Prices have been smashed by concerns expectations for global growth look over-inflated as the delta variant stifles economic activity. A rising US dollar has added to headwinds.

“Besides the concerns about demand, which have already been discussed at length, the pronounced slide in base metals and the strong U.S. dollar are now weighing on prices,” Carsten Fritsch, commodity analyst at Commerzbank, wrote.

Copper sank below US$9,000 a tonne to its lowest in more than four months. Benchmark copper on the London Metal Exchange fell 1.4 per cent to US$8,894 a tonne. Aluminium lost 0.3 per cent, nickel 2.7 per cent, lead 1 per cent, zinc 1.1 per cent and tin 6.7 per cent.

“China’s government is determined to slow growth – they have been flagging this since March – we have a virus that won’t go away, and Fed officials expecting to reduce bond buying are hurting commodities,” Liberum analyst Tom Price told Reuters.

Gold eased to a third straight loss as the greenback rallied. Gold for December delivery settled US$1.30 or 0.1 per cent weaker at US$1,783.10 an ounce. The NYSE Arca Gold Bugs Index shed 1.94 per cent.

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