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The share market tested fresh highs, bolstered by the Reserve Bank's confidence in the economy's resilience even as data underscored the negative impact of lockdowns.  

The S&P/ASX 200 reached mid-session 18 points or 0.23 per cent ahead at 7492. Earlier, the index notched a new record at 7509.2.

A rebound in iron ore miners helped offset a mixed morning for the banks, as well as declines in US-facing businesses. BHP, Rio Tinto and Woodside were the pick of the heavyweights. Transurban, CSL and Macquarie Group retreated.

What's driving the market

Positive leads from the US helped the market shake off a wobble yesterday when the RBA confirmed it will start to unwind its support for the economy next month. The decision to reduce monthly purchases of government bonds wrong-footed many economists, who expected the central bank to wait until the Greater Sydney lockdown was lifted.

"The Reserve Bank of Australia’s decision to stick with its planned tapering of bond purchases left market participants in a surprise. The RBA’s hawkish signal was quite unexpected at a time when the reimposition of lockdown restrictions continues to dent the economy," Kalkine Group CEO Kunal Sawhney said.

"The central bank seems to be confident over a rapid recovery in economic growth from a recent COVID-induced contraction once the lockdowns are lifted. However, the immediate economic outlook appears doubtful as uncertainty looms over how long the current lockdown measures will remain in force." 

The morning's economic data underscored the impact of lockdowns. Construction activity declined last month. The Australian Performance of Construction Index fell to 48.7 from 55.5 in June. (Readings below 50 indicate contracting activity.)

Services sector activity also slumped. The final IHS Markit Services PMI dropped to 44.2 from 56.8 in June. Retail sales declined 1.8 per cent in the same month.   

The news was brighter across the Tasman, where unemployment in New Zealand fell to 4 per cent last quarter from 4.6 per cent at the end of March.

A strong night in the US gave the local market a platform for fresh highs. The S&P 500 rallied 0.82 per cent to a new closing record. The Dow put on 0.8 per cent and the Nasdaq 0.55 per cent.

Going up

The nation's mining giants recouped most of yesterday's losses after iron ore edged higher for a second day. Ore prices dropped through the US$200 level late last week but have shown signs of steadying above US$180 a tonne.

"Iron ore prices were seen to be regaining momentum after falling to their lowest level in two and a half months. The uncertainty about steel production cuts in China over the rest of 2021 provided some support to the iron ore prices on Tuesday," Kalkine's Mr Sawhney said.

"However, the commodity broadly appears to be under pressure since China has ramped up its commitment to minimise emissions by reducing steel output in the wake of a slowdown in global manufacturing."  

BHP put on 1.8 per cent, Rio Tinto 1.6 per cent and Fortescue Metals 1 per cent.

Woodside rallied 1.28 per cent during a positive session for energy stocks after announcing its "transformational" Scarborough gas project will cost 5 per cent more than previously estimated. The updated cost estimate of US$12 billion includes modifications for processing gas onshore and an increase to offshore production capacity.

An underlying half-year net profit of $76.4 million and the resumption of dividend payments helped lift Genworth 7.55 per cent. The mortgage insurer declared a statutory profit of $59.4 million and will pay an interim dividend of five cents per share.

“The result reflects the improved economy, housing market appreciation and low interest rates experienced during the half," CEO and Managing Director Pauline Blight-Johnson said.

REA Group ticked up 1.73 per cent after completing the sale of its Malaysian and Thai business to PropertyGuru in exchange for an 18 per cent equity interest in PropertyGuru.

CBA was the best of the big four banks, rising 0.64 per cent. Westpac inched up 0.08 per cent. ANZ dropped 0.29 per cent. NAB lost 0.13 per cent.

Other notable gains at the top end included Newcrest +0.98 per cent, Woolworths +0.74 per cent and Goodman +0.75 per cent. Wesfarmers rose 0.66 per cent to a record.

Going down

The dollar's sudden leap yesterday back above 74 US cents on the RBA's quantitative easing announcement depressed companies that generate much of their income in US dollars. Toll road operator Transurban fell 1.09 per cent, CSL 0.88 per cent, Aristocrat Leisure 0.77 per cent, Macquarie Group 0.23 per cent and Brambles 0.24 per cent.

The landlord for Bunnings Warehouses eased 0.98 per cent despite lifting full-year profits 24.9 per cent as the value of its investment properties increased by $149.2 million. BWP Trust will pay a final distribution of 9.27 cents per share.

The suspension of the trans-Tasman travel bubble prompted a profit warning from Air New Zealand. The airline said it now expected to lose up to $530 million this financial year. The company said as recently as mid-June that it hoped to contain its loss to less than $450 million. The share price dipped 0.35 per cent.

Car parts and swimming pool business GUD sagged 3.55 per cent after declining to provide full-year guidance, citing trading uncertainty caused by Covid lockdowns. The company reported a 27.2 per cent increase in full-year revenues and a 39.6 per cent jump in net profit to $61 million.

Other markets

Asian markets improved as the morning wore on. The Asia Dow put on 0.66 per cent, China's Shanghai Composite 0.65 per cent and Hong Kong's Hang Seng 1.15 per cent. Japan's Nikkei trimmed its loss to 0.12 per cent.

US futures were underwater. S&P 500 futures were recently off four points or 0.11 per cent.

Oil declined for a third day in the wake of weak economic data from China. Brent crude eased 15 US cents or 0.21 per cent to US$72.26 a barrel.

Gold firmed US$1.70 or 0.09 per cent to US$1,815.80 an ounce.

The dollar rose 0.11 per cent to 74.04 US cents.

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