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Aussie shares unwound two days of gains as weakening iron ore prices and falling bond yields weighed on the heavyweight miners and banks.

The S&P/ASX 200 shed 41 points or 0.54 per cent by mid-session after US stocks fell for the sixth time in seven sessions. The index briefly lost as much as 58 points, but rebounded before last week’s seven-week low.

BHP, Brambles and CBA were among major drags. Newcrest, Afterpay and CSL resisted the sell-off. The energy sector – yesterday’s best performer – was today’s worst, falling almost 2 per cent.

What’s driving the market

Wall Street has the September blues, resuming its downtrend overnight following a brief respite on Monday. The weakest month of the year by historic measures has so far stripped 2.2 per cent from the Dow and more than 1 per cent from the S&P 500 and Nasdaq Composite.

Overnight, the Dow shed 292 points or 0.84 per cent. The S&P 500 gave up 0.57 per cent and the Nasdaq 0.45 per cent.

“It seems the uncertainty over a potential rise in corporate taxes overshadowed easing inflation concerns,” Kalkine Group CEO Kunal Sawhney said.

“Consumer prices in the US rose at their slowest pace in the six months in August, supporting the Fed’s argument that much of the recent spike in inflation is due to transitory factors… All eyes are now glued to the central bank’s two-day monetary policy meeting due next week, which may provide some clarity on the timing of bond taper.”

A sharp contraction in US treasury yields fuelled a similar down-move in Australia.  The yield on ten-year Australian government bonds declined more than four basis points to an eight-session low.

Rate-sensitive bank stocks followed yields lower. NAB dropped 0.71 per cent, CBA 0.69 per cent, ANZ 0.43 per cent and Westpac 0.52 per cent.

Also weighing was a fresh ten-month low in iron ore prices. The spot price for ore landed at Tianjin declined 1.8 per cent to a level last seen in November.

BHP gave up 3.21 per cent after outlining details of its venture into Canadian potash. The Jansen project is expected to turn into one of the world’s largest potash operations, capitalising on demand for environmentally-sensitive fertilisers.

Rio Tinto dropped 1.53 per cent. Fortescue Metals fell 1.96 per cent.

A mid-morning recovery stalled when the August Chinese economic update came in weaker than expected. Retail sales grew just 2.5 per cent from August 2020, compared to growth of 8.5 per cent in July. Industrial production also missed expectations, easing to 5.3 per cent from 6.4 per cent in July.

Consumer confidence rose this month as rising vaccination rates boosted reopening hopes. The Westpac-Melbourne Institute sentiment index improved 2 per cent to 106.2 from 104.1 last month.

Optimists outnumbered pessimists except among anti-vaxxers and the undecided. Westpac said sentiment within this group lagged at 90.

“The clear theme from this survey is that consumers are looking through current lockdown disruptions to a sustained improvement once vaccinations reach levels that allow for a reopening,” senior economist Bill Evans said.

Going up

Defensive assets attracted a bid as cyclicals retreated. Healthcare was the pick of the sectors as institutional investors sought alternatives to bonds. ResMed firmed 1.92 per cent, CSL 1.16 per cent and Cochlear 2.11 per cent.

The lithium frenzy showed no signs of waning. Pilbara Minerals climbed 9.29 per cent to a record. Orocobre also hit fresh highs before trimming its advance to 1.36 per cent.

Uranium stocks added to this week’s bumper gains. Bannnerman Energy firmed 17.74 per cent, Toto Energy 10.26 per cent, Vimy Resources 13.11 per cent and Paladin 8.04 per cent.

“Lithium and uranium are faring as the two hottest metals in the commodity market,” Kalkine’s Mr Sawhney said. “While lithium chemical prices are surging in double digits in percentage terms on a weekly basis, uranium spot prices are also breaking records. 

“It is yet to be seen if these commodities can sustain the current momentum into next year, given that their demand-supply fundamentals have not significantly changed over the recent months.” 

The morning’s other top performers were a mix of growth and defensive stocks, both groups that attract funds when yields decline. Altium put on 2.99 per cent, Elders 3.35 per cent, Breville 2.73 per cent and Stockland 2.53 per cent.

The speculative end of the market has been untouched by recent weakness at the top end, setting new highs for much of the last three weeks. The S&P/ASX Emerging Companies Index rallied 0.97 per cent to a record. The Small Ords took a breather, falling 0.1 per cent.

Going down

The energy sector switched from tailwind to headwind despite a flat night on crude markets. Beach Energy dropped 3.81 per cent, Santos 2.77 per cent and Woodside 1.15 per cent.  

AGL Energy‘s brief recovery yesterday was obliterated by a 6.65 per cent slump to a near-decade low. Rival Origin dipped 2.73 per cent.

Brambles sagged another 3.2 per cent in the wake of yesterday’s poorly-received investor update. Other drags at the top end included Aristocrat Leisure -1.12 per cent, Coles -1.33 per cent and Wesfarmers -0.48 per cent.

Telecom Uniti fell 1.28 per cent after announcing executive director Vaughan Bowen will stay in his role with the company until charges of insider trading relating to a previous role are resolved. ASIC filed two charges yesterday alleging Mr Bowen had inside knowledge when he sold 5.6 million shares in Vocus Group a day before EQT Infrastructure withdrew a takeover offer. Uniti said Mr Bowen denies the allegations and will vigorously defend the matter.

Mastermyne fell 17.87 per cent on news mining operations had been suspended while authorities investigate the death of an employee at the Crinium coal mine in Queensland. Mastermyne had been contracted by owner Sojitc to operate the mine for seven years.  

Among companies going ex-dividend, Cimic shed 4.25 per cent, Lovisa 0.15 per cent and Regis Healthcare 4.11 per cent. Pro-Pac was unchanged. Costa Group bounced 2.04 per cent.

Other markets

A downbeat morning on Asian markets saw the Asia Dow shed 0.83 per cent, China’s Shanghai Composite 0.12 per cent, Hong Kong’s Hang Seng 0.52 per cent and Japan’s Nikkei 0.6 per cent.

US futures were cautiously positive. S&P 500 futures inched up two points or 0.05 per cent.

Oil had a third straight rise in its sights. Brent crude rallied 34 US cents or 0.46 per cent to US$73.94 a barrel.

Gold dropped US$1.90 or 0.1 per cent to US$1,805.20 an ounce.

The dollar was steady at 73.16 US cents.

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