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Australian stocks retreated as investors juggled positive leads, spikes in jobs and Covid cases, and the largest capital raising in ASX history.

The S&P/ASX 200 declined 42 points or 0.57 per cent by mid-session. The market briefly pared its loss after a surge in employment boosted confidence in the post-lockdown economic recovery.

Health giant CSL was a major drag on the index, falling more than 8 per cent after raising $6.3 billion from institutional investors to fund an acquisition. The scale of the decline outweighed advances in tech and property stocks. Miners also weighed.

What’s driving the market

A massive capital raising by Australia’s third-largest listed company proved too big a handicap for the local market to follow positive overnight leads. CSL shares dived 8.24 per cent to a seven-month low after the health giant tapped investors for funds to acquire Swiss firm Vifor Pharma.

Shares fell as low as $271.14, below the $273 placement price set by a book-build. Retail shareholders will get a chance to take part in a placement to raise an additional $750 million.  

CSL’s Chief Executive Officer and Managing Director, Paul Perreault said, “We appreciate the support we received from the investment community, including existing and new shareholders, for what is the largest ever primary equity raise in Australia.”

The market temporarily trimmed its loss on mid-morning news the jobless rate dropped to 4.6 per cent last month from 5.2 per cent in October. Total employment increased by 366,100 as NSW, Victoria and the ACT came out of lockdown.

Both figures were much stronger than economists expected. The pre-announcement consensus was for employment to drop to 5 per cent on a jobs gain of around 200,000. The dollar climbed 0.18 per cent to 71.79 US cents.

Overnight, Wall Street surged back towards record levels after the Federal Reserve mapped out plans to tighten monetary policy over the next two years. The US central bank will end its bond-buying program in March. A majority of committee members favour three rate rises next year and three more in 2023.

“Now I have seen how high rates are going and how fast it’s going to happen, the uncertainty is removed from the market,” Jim Caron, chief strategist on the global fixed income team at Morgan Stanley Investment Management, told CNBC.

The S&P 500 bounced 76 points or 1.63 per cent to within three points of last week’s record close. The Dow put on 1.08 per cent and the Nasdaq 2.15 per cent. The Fed announcement followed a surge in US inflation to the highest in almost 40 years.

Reserve Bank Governor Philip Lowe told an Australian audience this morning inflationary pressures here were milder than in the US, but the central bank would likely end its bond-buying program in May. Lowe reiterated that the bank was a “fair way” from achieving its inflation target for raising the cash rate.

Also affecting market sentiment was news of a record number of Covid cases in NSW. The state reported 1,742 new cases, its highest daily total since the pandemic began. Health Minister Brad Hazzard warned yesterday case numbers could double every few days as omicron takes hold. Victoria recorded 1,622 new cases.

Going up

Battered biotech Mesoblast bounced 12.03 per cent following positive feedback from the US regulator for a potential treatment for chronic lower back pain. The company plans to conduct a Phase 3 trial with the intention of seeking approval to launch the product in the US and European Union.

Tech stocks outperformed in line with last night’s Wall Street trend. WiseTech rallied 4.59 per cent, Appen 3.38 per cent and Tyro Payments 3.2 per cent. Afterpay bounced 1.59 per cent from a seven-month low.  

Property stocks were the morning’s other standout. Stockland firmed 2.81 per cent after announcing a 12 cent estimated interim distribution. SCA Property gained 2.22 per cent, Abacus 2.08 per cent and Goodman 1.72 per cent.

Going down

Qantas declined 1.54 per cent after flagging an underlying loss in earnings of more than $1.1 billion this half. The airline hopes to reduce its earnings loss to $250-$300 million in the second half.

“This has been one of the worst halves of the entire pandemic, where most states had their borders closed and the majority of Australians were in lockdown. Domestically, our capacity fell to around 30 per cent of preCOVID levels for several months,” CEO Alan Joyce said.

The airline reduced its debt burden by selling land at Mascot in Sydney for $802 million. Domestic and international capacities are expected to lift dramatically in the second half.

The competition watchdog cleared the way for Woodside Petroleum to acquire BHP’s Petroleum business. The ACCC said there was adequate competition from rival suppliers.

BHP shares dropped 1.34 per cent and Woodside 1.4 per cent during a soft session for commodity producers. Industrial metals fell in the wake of an economic update yesterday that implied slower demand from China.

“Weak economic data weighed on commodity markets. This was exacerbated by ongoing concerns of the Omicron variants, which have led to renewed restrictions. Industrial metals and bulk commodities led the complex lower,” ANZ senior commodity strategist Daniel Hynes said.

Champion Iron fell 5.4 per cent, Alumina 2.8 per cent and Beach Energy 2.18 per cent.

Sims eased 2.2 per cent after acquiring a US recycling business. The Australian firm will pay US$37 million to acquire the assets of Baltimore-based Atlantic Recycling Group.

Nickel miners IGO and Western Areas entered trading halts after weeks of acquisition talks. IGO asked for a halt pending an announcement about a potential acquisition. Western Areas said it would announce a potential change of control.

Other markets

Asian markets were mixed. The Asia Dow shed 0.36 per cent and Hong Kong’s Hang Seng 0.62 per cent. China’s Shanghai Composite gained 0.1 per cent and Japan’s Nikkei 1.74 per cent.

US futures hinted at further gains tonight. S&P 500 futures firmed six points or 0.13 per cent.

Gold added to post-Fed gains, climbing US$17.60 or 1 per cent to US$1,781.90 an ounce.

Brent crude rallied 82 US cents or 1.1 per cent to US$74.70 a barrel.

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