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A push into defensive assets helped offset declines in mining stocks as consumer sentiment deteriorated and renewed Chinese Covid restrictions weighed on commodity prices.

Mid-session, the S&P/ASX 200 was ahead 26 points or 0.4 per cent after earlier rising as much as 47.5 points.

The market trimmed its advance as the heavily-weighted materials sector hit an eight-month low. Gains in healthcare providers, supermarkets and utilities kept the index in the black.

What’s driving the market

The share market recouped some of yesterday’s 76-point fall as investors turned defensive ahead of a huge week of economic data and US company earnings. Health giant CSL and supermarkets Coles and Woolworths provided much of the upwards momentum.

BHP dragged as China’s pursuit of zero Covid continued to muddy demand for raw materials. Iron prices fell 2.5 per cent in China this morning. Brent crude declined US$1.18 or 1.1 per cent to US$105.92 a barrel.

Shanghai and Guangzhou have reintroduced mass screening in several districts this week. Six million people in three other cities faced temporary restrictions. A town in Henan province locked down 700,000 residents.  

“The sell-off in industrial metals resumed on Monday, as a resurgence of Covid cases in China along with a strong [US] dollar (reaching a 20-year high) weighed on risk assets and overshadowed the latest stimulus hopes from China,” Warren Patterson, head of commodities strategy at ING, said.

Back home, consumer sentiment declined for a seventh straight month, continuing a pattern only seen in periods of extreme economic disruption. The Westpac-Melbourne Institute index fell 3 per cent to 83.8.

“The Index has now fallen 19.7% since December 2021, a precipitous tumble comparable to the two–month plunge during COVID (–20.8%); and the six–monthly declines seen heading into the Global Financial Crisis (–29.7%); the early 1990s recession (–20.5%); the mid–1980s downturn (–23.8%); and early 1980s recession (–18.8%),” Westpac chief economist Bill Evans said.

Business confidence also declined. NAB’s confidence index fell to a below-average +1 point. However, business conditions remained strong, easing two points to +13.

“Confidence sank below average in June as inflation and interest rate hikes clouded the outlook,” NAB Group Chief Economist Alan Oster said. “Confidence in the retail sector took a significant hit, falling more than 20pts to be well into negative territory, reflecting concerns about the outlook for household spending.

“While confidence fell, business conditions held up in June. Conditions remain strong across the states and in most industries. Construction continues to be the only real outlier with building costs weighing, despite a healthy pipeline of work in the sector.”

Today’s ASX rally flew in the face of weak leads. The S&P 500 sank 1.15 per cent overnight as investors reduced exposure to this week’s risk events.

Going up

Bond proxies outperformed as a three-session bounce in bond yields unwound. The yield on Australian ten-year government bonds fell ten basis points. Bond proxies gain in institutional appeal when yields weaken.

CSL climbed 1.72 per cent. ResMed advanced 1.96 per cent. Supermarkets Coles and Woolworths firmed 1.97 and 1.69 per cent, respectively.

In the utilities space, APA Group put on 1.84 per cent, AGL Energy 1.51 per cent and Origin 0.45 per cent.

Coal miners continued their strong run since trade data last week showed coal surpassed iron ore as the nation’s biggest export. New Hope climbed 6.1 per cent, Whitehaven 4.73 per cent and Coronado 3.3 per cent.

Viva Energy rose 2.01 per cent on news first-half earnings were expected to be more than double the same period last year. Unaudited underlying earnings were forecast to be $614 million, an improvement of 140 per cent.

A profit upgrade lifted car dealership Eagers Automotive 2.56 per cent. The firm expects half-year statutory net profit to be $246 million, ahead of previous guidance of $225-$240 million. The improved outlook reflects record orders for new cars, as well as productivity and cost-out programs.

Going down

Sezzle plunged 34.94 per cent after scrapping a plan to merge with Zip Co. The BNPL companies agreed to abandon the merger “in light of current macroeconomic and market conditions”. Sezzle said it was well-positioned with US$71 million in cash on hand. Zip Co shares bounced 5 per cent.

Costa Group eased 1.32 per cent despite reiterating it does not expect first-half earnings to surprise the market. The fruit and veg grower’s shares skidded 8 per cent yesterday after Credit Suisse downgraded its rating, citing a poor citrus crop.  

BHP was the biggest drag as the falling iron ore price dragged. The Big Australian dropped 0.68 per cent. Rivals Rio Tinto and Fortescue Metals bounced 0.62 and 0.53 per cent, respectively.

Lithium miners were notably weak. Core Lithium shed 5.43 per cent, Liontown 4.55 per cent and Allkem 5.85 per cent. Other substantial falls included Life360 -8.71 per cent and Imugene -7.45 per cent.

Lake Resources placed its shares in a trading halt to prepare a response to an attack from a short seller. The report from J Capital Research accused the miner of relying on “unproven” lithium extraction technology and of granting options to institutions that published favourable coverage.   

Other markets

Asian markets declined under the threat of widening Covid restrictions in China. The Shanghai Composite dipped 0.25 per cent. Hong Kong’s Hang Seng gave up 0.68 per cent. Japan’s Nikkei shed 1.69 per cent. The Asia Dow lost 0.81 per cent.

US futures tracked lower. S&P 500 futures eased 19 points or 0.48 per cent.

Gold bounced US$1.60 or 0.1 per cent to US$1,733.30 an ounce from last night’s nine-month low.

The dollar eased 0.1 per cent to 67.33 US cents, close to its lowest level since May 2020 .

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