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Weak US leads and the threat of major job losses in New South Wales during an extended lockdown helped drag Australian shares off record levels.

The S&P/ASX 200 fell 40 points or 0.54 per cent after the nation’s largest bank predicted the Greater Sydney lockdown will cost up to 300,000 jobs and tip the economy into contraction.

Declines in mining, banking and tech stocks outweighed advances in defensive sectors. Coles, Telstra and Goodman rallied. Afterpay, CBA and BHP declined.

What’s driving the market

Investors took their cues from a “risk off” session in the US. The S&P 500 fell 0.47 per cent to its first loss in six sessions. The Nasdaq Composite eased 1.21 per cent as tech stocks retreated ahead of earnings updates from Apple, Microsoft and Alphabet.

The mining stocks that have provided much of the ASX’s momentum over the last week retreated from record levels.

“Market sentiment remained fragile after a Commonwealth Bank research note predicted hundreds of thousands of job losses over the coming months due to the Sydney lockdown,” Kalkine Group CEO Kunal Sawhney said.

“The bull run in mining stocks appears to have taken some breather after a week-long rally… [A] rebounding US dollar snapped copper prices’ five-day winning streak on Tuesday, outweighing supply concerns from floods in central China. Meanwhile, the ongoing curbs on Chinese steel production kept investors’ sentiment in the iron ore market weak, weighing on miners to some extent.”

Commonwealth Bank said it expected the economy to contract 2.7 per cent this quarter after the NSW government extended the lockdown for four weeks. Up to 300,000 people in NSW were expected to lose their jobs.

“Our expectation is that in the absence of another JobKeeper style program the contraction in employment will be larger this time in Greater Sydney,” CBA head of economics Gareth Aird said

“A meaningful rebound in production is not expected until November. We forecast a lift in GDP of 1.9% in Q4 21,” Mr Aird added.

ANZ was more circumspect, predicting a 1.3 per cent contraction this quarter and a “solid rebound” in Q4.

AMP economist Shane Oliver said the extension would increase the cost of the lockdown to more than $9 billion. Mr Oliver previously estimated the hit at $7 billion. He expected GDP to decline this quarter, then rebound over the last three months of the year if the lockdown ended in Q3.

The backward-looking Consumer Price Index showed headline inflation ran slightly stronger than expected last quarter, while the RBA’s favoured measure came in on target. Consumer prices increased by 0.8 per cent from the previous quarter, ahead of a predicted 0.7 per cent.

Annual inflation hit 3.8 per cent, the highest rate since 2008. The trimmed mean used by the central bank rose 0.5 per cent, as expected.

Going up

A retreat in bond yields attracted fund flows to equities that offer similar safe, steady returns. The yield on ten-year Australian government bonds sagged more than four basis points to 1.176 per cent.  

ResMed climbed 2.3 per cent to a new record. Vicinity Centres gained 1.86 per cent, Healius 1.89 per cent, SCA Property Group 1.65 per cent and Scentre Group 1.4 per cent.

Among the heavyweights, Coles added 0.62 per cent, Telstra 0.26 per cent, Aristocrat Leisure 1.31 per cent and Goodman 0.07 per cent.

An improved takeover offer lifted utility investment manager Spark Infrastructure 5.38 per cent. A consortium comprising private equity firm KKR and the Ontario Teachers’ Pension Plan Board raised their conditional, non-binding offer a third time to $2.95 per stapled security from an initial offer of $2.6375 and a revised offer of $2.7375. The Spark board said it would allow the consortium to carry out due diligence on a non-exclusive basis.

News of a bumper crop and improved prices helped lift almond grower Select Harvests 2.12 per cent. The agribusiness expects this year’s crop to be around 28,250 metric tonnes, up from 23,250 MT last year. A forecast decline in US crops helped lift prices by 50 cents per kilogram to $6.75 – $7.25kg.

Eagers Automotive rallied 1.91 per cent after reporting an estimated underlying half-year operating profit of $218.6 million, more than five times last year’s Covid-affected profit. The car dealership said new car sales increased 28.3 per cent from the same period last year.

Going down

BHP will extend its north American footprint by buying Canadian miner Noront Resources. The Noront board voted unanimously to accept a BHP subsidiary’s offer of 55 Canadian cents per share, a 69 per cent premium to the last traded price. Noront has a high-grade nickel, copper, platinum and palladium deposit in Ontario. BHP shares eased 1.54 per cent from record levels.

Rio Tinto will proceed with a lithium mine in Serbia after committing $2.4 billion to the greenfields project. The Jadar project will produce battery-grade lithium carbonate. Shares in the miner retreated 0.28 per cent.  

Miner IGO eased 0.66 per cent from near record levels after forecasting an increase in costs and softening production next year.

The major banks were dragged lower by the threat of a surge in bad debts as the NSW lockdown drags on. CBA fell 1.2 per cent, ANZ 0.82 per cent, NAB 0.5 per cent and Westpac 0.52 per cent.

Tech was among the biggest drags after the Nasdaq led the US sell-off overnight. Appen dropped 3.16 per cent, Afterpay 2.65 per cent and Nanosonics 2.67 per cent.

Other markets

Stocks in mainland China fell for a third day in the wake of government intervention in the tech, education and property sectors. The Shanghai Composite sagged 1.46 per cent.

Hong Kong’s Hang Seng rebounded to a gain of 0.13 per cent. Japan’s Nikkei dropped 1.11 per cent. The Asia Dow gave up 0.66 per cent.

US futures pared early falls that followed a broadly negative market reaction to after-hours earnings updates from Apple, Alphabet and Microsoft. S&P 500 futures were last down less than a point or 0.02 per cent.

Oil reversed overnight falls. Brent crude climbed 37 US cents or 0.5 per cent to US$73.89 a barrel.

Gold edged up US$3.60 or 0.2 per cent to US$1,803.40 an ounce.

The dollar was steady at 73.65 US cents.

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