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Strong gains in Afterpay helped cushion the market from declines in mining and bank stocks ahead of this afternoon’s RBA policy update.

The S&P/ASX 200 eased 18 points or 0.25 per cent from yesterday’s all-time closing high.

A retreat in bond yields lifted growth stocks, but depressed lenders. Afterpay jumped more than 12 per cent following a positive reception in the US to Square’s plans to acquire the Aussie firm.

The big miners fell further from record levels on signs of a slowdown in Chinese factory activity.

What’s driving the market

The market took a well-earned breather after a giant stride to new highs yesterday. The ASX 200 traded briefly above 7500 for the first time yesterday before trimming its advance to 99 points or 1.34 per cent.

Weak leads from the US and declines on Asian markets weighed today as bond yields contracted and cyclical stocks responded to tepid growth signals from Chinese and US manufacturing. The S&P 500 faded late in the session to a loss of 0.18 per cent.

“US equity markets have begun the new week in a tentative manner with a nervous feeling in the air,” NAB currency strategist Rodrigo Catril said. “A slightly softer, but still elevated [Institute of Supply Management manufacturing PMI] print added fuel to peak growth concerns.”  

The Reserve Bank met this morning and was due to unveil a revised policy update at 2.30 pm AEST. The bank was expected to revise plans to reduce its bond buying program in the face of a lockdown-fuelled contraction in economic activity.

“NAB’s view is that the RBA will reverse its taper decision, keeping purchases at $5bn a week until February 2022 with the lockdown meaning the RBA is further away from its goals of full employment and inflation sustainably at target,” Mr Catril said.

Data this morning showed consumer confidence rebounded last week as Victoria and South Australia emerged from lockdown. The ANZ-Roy Morgan confidence index improved 1.1 per cent. Melbourne and Adelaide saw improvements of 2 and 2.9 per cent, respectively.

Building approvals weakened more than expected. The number of dwellings approved declined for a third month, down 6.7 per cent in June, according to the Australian Bureau of Statistics. The decline was almost twice the consensus among economists.

Going up

Afterpay‘s share price is now firmly tied to Square’s performance on the New York Stock Exchange after the board backed the US giant’s all-stock bid for the Australian BNPL pioneer. Afterpay jumped 12.37 per cent as US investors welcomed news of the acquisition. Square shares jumped 10.16 per cent. Under the terms of the friendly takeover announced yesterday, Afterpay shareholders will receive 0.375 Square shares for each share they hold in the Aussie fintech.

The wider tech sector rallied as the yield on ten-year Australian government bonds dropped three basis points to a six-month low. Yields are seen by some investors as an indicator of growth expectations: falling yields equal weakening growth expectations.

Appen put on 6.27 per cent, EML Payments 5.16 per cent and Nearmap 3.33 per cent. The halo effect from Afterpay’s takeover lifted other BNPL players. Z1p Co rose 8.7 per cent, Sezzle 2.74 per cent and Splitit 3 per cent.

Bond proxies attracted interest following the decline in yields. Healius gained 2.03 per cent, Vicinity Centres 1.87 per cent and Metcash 1.74 per cent. Supermarket Coles edged up 0.53 per cent.

Crown Resorts climbed 0.78 per cent as the casino group made its closing submission to the Victorian Royal Commission. The commission is due to report findings and recommendations by October 15. Crown also announced the departure of Crown Melbourne CEO Xavier Walsh.

Brickworks rallied 2.38 per cent towards record levels on news it will acquire the largest independent brick distributor in the US for $70 million. The Illinois Brick Company, currently owned by Southfield Corporation, operates 17 showrooms and distribution yards across two states.

Chalice Mining rose 10.47 per cent following a well-received presentation at the Diggers and Dealers Forum.

Going down

The major iron ore producers continued to back off record levels in the wake of soft Chinese factory data. Fortescue Metals shed 1.7 per cent, BHP 1.64 per cent and Rio Tinto 1.25 per cent.

Declines in lending rates sapped interest in banks. CBA eased 0.25 per cent, ANZ 0.57 per cent, NAB 0.87 per cent and Westpac 0.92 per cent.

Energy stocks retreated in the wake of a 3 per cent overnight drop in crude. Woodside Petroleum fell 1.36 per cent. Beach Energy 1.82 lost per cent. Merger partners Santos and Oil Search shed 0.69 and 0.63 per cent, respectively.

Qantas lost altitude after standing down 2,500 frontline employees as the Greater Sydney lockdown stretches on. The airline said the stand-down was a temporary measure “for an estimated two months”, due to a “significant drop in flying”. Shares in the airline fell 0.99 per cent.

“Qantas and Jetstar have gone from operating almost 100 per cent of their usual domestic flying in May to less than 40 per cent in July because of lockdowns in three states,” CEO Alan Joyce said.

PointsBet sank 9.68 per cent to $9.90 after raising $81 million from institutional investors at $8 per share. The fund raise includes an entitlement offer for retail investors at the same price.

Other markets

Falls on Asian markets accelerated as the morning wore on. The Asia Dow dropped 1.02 per cent, China’s Shanghai Composite 0.67 per cent, Hong Kong’s Hang Seng 1.63 per cent and Japan’s Nikkei 0.9 per cent.

US futures inched higher. S&P 500 futures were recently up four points or 0.1 per cent.

Brent crude bounced nine US cents or 0.12 per cent to US$72.98 a barrel.

Gold retreated US$8.10 or 0.44 per cent to US$1,814.10 an ounce.

The dollar edged up 0.05 per cent to 73.64 US cents.

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