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A late revival on Wall Street points to a cautiously positive start to Australian trade following yesterday’s setback, the market’s first in almost two weeks.

The Dow and S&P 500 ended at fresh highs despite concerns about global growth. Weak Chinese economic data weighed on oil and copper. Iron ore and gold edged higher.

ASX futures firmed nine points or 0.12 per cent. The S&P/ASX 200 declined 46 points or 0.61 per cent yesterday to its first loss in nine sessions.

Wall Street

Defensive sectors lifted the Dow and S&P 500 to record closes as soft Chinese factory and retail data hinted at a slowdown in global economic growth. Cyclical stocks sold off. Bond yields fell.

The Dow Jones Industrial Average finished 110 points or 0.31 per cent ahead after being down more than 280 points. The S&P 500 reversed to a gain of 12 points or 0.26 per cent. The Nasdaq Composite trimmed its loss to 29 points or 0.2 per cent.

The major indices opened deep in the red following the fall of the US’s proxy government in Afghanistan and a dour set of Chinese economic figures. July industrial  production, retail sales and asset investments fell well short of forecasts during a month characterised by Covid lockdowns, flooding and an environmental crackdown on emissions. ANZ downgraded its full-year Chinese GDP forecast to 8.3 per cent from 8.8 per cent in the report’s wake.

“Delta driven slowdown grips China,” CNBC’s Jim Cramer tweeted. “Not sure of impact here yet.”

Manufacturing activity in the greater New York region also missed expectations. The NY Fed’s “Empire State” index fell from 25 to 18.3 last month. Economists polled by Reuters had predicted a rise to 29.

The market recovered as investors picked up equities considered attractive alternatives to bonds when treasury yields decline. Health stocks, utilities and consumer staples rallied. Banks declined under the threat of shrinking margins as lending rates tightened.

“There is just huge amounts of liquidity, massive amounts of cash out there, both on corporate balance sheets and in private investors’ pockets, and because of that every tiny dip that there is, people look for bargains and they buy and they keep it buoyant,” Randy Frederick, vice president of trading and derivatives for Charles Schwab, said.

Energy stocks slid 1.83 per cent as oil fell to a one-week low. Brent crude settled US$1.08 or 1.5 per cent weaker at US$69.51 a barrel.

“In the short term, concerns about the spread of the Delta variant in China, and the effects this will have on oil demand, are continuing to weigh on prices,” Commerzbank analysts wrote. “These concerns were additionally fuelled by data published overnight in China: industrial production turned out to be significantly softer than anticipated.”

Australian outlook

A cautious start coming up ahead of another big day of domestic corporate earnings. The tone on world markets remains constructive, but became increasingly defensive towards the end of last week.

Wall Street made fresh highs, but relied on traditional havens to do the heavy lifting. Healthcare climbed 1.13 per cent, utilities 0.65 per cent and consumer staples 0.64 per cent. Tech stocks attracted a bid as treasury yields wilted: the sector gained 0.44 per cent.

The two sectors that matter most here – financials and materials – fell 0.17 and 0.49 per cent, respectively. The consumer discretionary sector dipped 0.38 per cent under the threat of weakening demand.

The S&P/ASX 200 has climbed the wall of worry for almost two weeks without blinking, but dropped 46 points or 0.61 per cent yesterday as headwinds increased. Poorly-received earnings, China’s data miss and lockdown extensions in Melbourne and the ACT handed investors a reason to take profits.

Earnings will have a big say in how this session plays out. Ahead are reports from Westpac, Dexus, Magellan, Breville, Sims, Amcor, Abacus Property, ARB Corp, Adacel, Shopping Centres Australasia and Domain Holdings (sources: CommSec, Bell Potter). BHP reports at 5 pm, after the market closes.

The session’s other potential mood-changer is the minutes from this month’s Reserve Bank policy meeting at 11.30 am AEST. Market participants will be particularly interested in the bank’s reasoning for winding down its bond-buying program in the middle of a contraction in the economy.

The dollar remained well within its recent trading range, easing 0.38 per cent overnight to 73.36 US cents.

Commodities

A second day of gains lifted gold to its highest in more than a week after soft Chinese and US economic data triggered a move towards havens. Gold for December delivery settled US$11.60 or 0.7 per cent higher at US$1,789.90 an ounce. The NYSE Arca Gold Bugs Index dropped 0.48 per cent.

“Gold is surprisingly thriving a week after a small flash crash sent it tumbling back towards $1,680,” Craig Erlam, senior market analyst at Oanda, wrote. “Since then, the yellow metal has done well; a combination of an overexaggerated initial move being unwound and a softer [US] dollar/lower yields giving it new life.”

Copper declined following negative demand signals from Chinese data. Benchmark copper on the London Metal Exchange fell 1.3 per cent to US$9,419.50 a tonne. Nickel gave up 0.7 per cent and zinc 0.1 per cent. Aluminium improved 0.4 per cent, lead 0.2 per cent and tin 1.3 per cent.

Iron ore prices steadied despite slowing growth in Chinese factory activity. The spot price for ore landed in China rose US$1.65 or 1 per cent to US$162.50 a tonne.

BHP‘s US-listed stock sagged 2.57 per cent after its UK-listed stock shed 1.81 per cent. Rio Tinto lost 1.77 per cent in the US and 2.05 per cent in the UK.

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