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The ASX faded towards its first loss in four sessions but remained on track for a winning week after optimism over an improving economy lifted Wall Street to fresh highs.  

The S&P/ASX 200 struggled for traction at the end of another strong week, reaching mid-session 19 points or 0.27 per cent lower.

Advances in gold miners, REITs and tech stocks were outweighed by declines in banks and oil companies.

Despite the setback, a close around these levels would secure a weekly gain of 44 points or about 0.6 per cent.

What’s driving the market

Traders locked in profits from four weeks of gains after Wall Street embraced fresh highs. Fuelled by bumper March retail sales and sharp declines in unemployment benefit claims and bond yields, the S&P 500 and Dow rose 1.11 and 0.9 per cent, respectively.

“US indices charged ahead towards new records overnight, powered by a series of first-rate earnings and a dazzling run of US economic data. The rollout of Covid-19 vaccines and plentiful government and consumer spending also provided support, suggesting, dare I say, the market can go higher, especially if active managers start entering the buys,” Axi Chief Global Market Strategist Stephen Innes said.

He added, “The most crucial factor may have been the delivery of over US$280 billion in economic impact payments to households during the month following the American Rescue Plan’s enactment… US consumers wasted little time stuffing stimulus checks into starving retailer cash registers with stocks surging to cash register rings across the United States as consumers are made willing and able to spend thanks to the US’s speedy vaccine rollout.” 

Australian bond yields followed US counterparts lower, triggering selling in the rate-sensitive banks. (Lenders benefit from higher interest rates through the opportunity to increase their margins.) CBA eased 0.27 per cent, ANZ 0.76 per cent, NAB 1.36 per cent and Westpac 1.22 per cent. The Australian ten-year yield dropped almost five basis points to 1.674 per cent, near its lowest level in a week.

“Unlike recently when investors feared inflation, the plunge in Treasury yields suggests now they expect deflation in the longer term once stimulus is gone and U.S. growth normalises,” Kalkine Group CEO Kunal Sawhney said. “Having said that, overcoming bottlenecks in the global vaccination rollout is critical from an economic, health and market standpoint.”

This morning’s retreat peaked after Chinese GDP and factory data fell short of expectations. Quarterly GDP increased 18.3 per cent, below expectations for growth of around 19 per cent. March industrial production was 14.1 per cent stronger than the same month last year, below the 18.3 per cent reading anticipated by economists.

Going up

A seven-week high in gold lifted the index of local miners to its strongest level since mid-February. Evolution Mining gained 3.85 per cent, Newcrest 3.58 per cent and Perseus 3.53 per cent.

The wider mining spectrum was mixed, with gains of 0.24 per cent for Rio Tinto and 0.06 per cent for BHP offset by a drop of 1.15 per cent in Fortescue Metals.

The fall in bond yields lifted some traditional surrogates, but by no means all. Goodman Group put on 1.66 per cent, Centuria REIT 2.06 per cent and Charter Hall Group 1.2 per cent. APA Group climbed 0.95 per cent, while AGL Energy sank 2.08 per cent to a new 16-year low.

Pharmaceutical group Mayne hit its highest level in 18 months after US regulators approved its contraceptive pill. Nextstellis will launch in June following the Food and Drug Administration’s stamp of approval. Mayne’s share price jumped as high as 59 cents before paring its advance to 9.78 per cent at 50.5 cents.

A well-received trading update pushed Eagers Automotive back towards all-time highs. The car dealership said “strong market dynamics” helped it record an underlying pre-tax profit of around $98 million for the first three months of the year. Shares climbed 2.44 per cent.

Engineering firm Monadelphous rallied 6.02 per cent after reaching a settlement with Rio Tinto over a fire at Rio’s iron ore processing facility in Cape Lambert.

Going down

Oil companies were unmoved by a fourth straight advance in crude. Woodside slipped 1.38 per cent, Oil Search 1.36 per cent and Santos 0.9 per cent.

Origin Energy sank 7.98 per cent after an arbitrator awarded Beach Energy a higher wholesale gas supply price than Origin anticipated. Origin said the new price was “materially above Origin’s expectations” and would increase the company’s cost of supply by $30-40 million this financial year. Beach shares climbed 3.62 per cent.

A transport downgrade prompted by a shortage of drivers dragged Mineral Resources down 5.02 per cent. The mining services contractor lowered its full-year iron ore shipment guidance to 17.4-18 wet metric tonnes, citing haulage constraints following border closures.

Brambles dipped 1.41 per cent after completing the merger of its Kegstar keg rental business with US supplier MicroStar.

Other markets

US futures retreated as the Asia Dow shed 0.34 per cent. S&P 500 dropped seven points or 0.17 per cent. China’s Shanghai Composite gained 0.33 per cent, Hong Kong’s Hang Seng 0.07 per cent and Japan’s Nikkei 0.11 per cent.

Oil pared a fourth night of gains. Brent crude dipped four cents or 0.06 per cent to US$66.90 a barrel. Gold declined $5.70 or 0.32 per cent to US$1,761.10 an ounce.

The dollar deteriorated 0.26 per cent to 77.31 US cents.

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