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Aussie shares started the week on the back foot as Friday’s best performers unwound some gains.

The S&P/ASX 200 declined 32 points or 0.44 per cent by mid-session.

Leading the retreat were the tech and materials sectors that outperformed on Friday. Energy, healthcare and consumer stocks resisted the downtrend.

What’s driving the market

Recession fears dragged the Dow Jones Industrial Average to its ninth losing week from ten after strong jobs data gave the Federal Reserve more cause to lift rates aggressively. The Dow fell 1.05 per cent. The broader S&P 500 shed 1.63 per cent and the tech-heavy Nasdaq 2.47 per cent.

“Markets took the strong US payroll gains on Friday as affirming the near-term path for continued Fed tightening. Good news was bad news, then, for risk assets with US equities lower,” NAB economist Taylor Nugent said.

Worries about the risk of recession have swirled all year as central banks belatedly attempt to rein in inflationary pressures that have lifted prices at the fastest rate in decades. The RBA meets tomorrow and is expected to lift the cash rate target by up to 40 basis points.

Job advertising data this morning underlined the strength of the labour market. Total employment ads increased by 0.4 per cent month-on-month, according to ANZ.

“It remains close to the March peak, indicating significant unmet demand for labour,” ANZ senior economist Catherine Birch said.

While some economists expect the Reserve Bank to signal it is getting serious about the soaring cost of living by lifting the cash rate by 40 basis points tomorrow, NAB expects the central bank to be more cautious.

“We see the RBA lifting rates by 25bp to 0.60%,” Nugent said. “The RBA’s guidance for rates in May set up a string of ‘business as usual’ 25bp rises in our view, and there has been nothing in the data flow since May to wrest them from the outlook painted at that time.”

Going up

Energy was the morning’s best-performing sector amid scepticism about OPEC’s ability to increase output enough to offset embargoes against Russia. Woodside Energy climbed 2.08 per cent to a six-week high. Beach Energy put on 1.37 per cent. Santos added 1.37 per cent.

A 1.36 per cent increase in sector giant CSL lifted healthcare. Clinuvel Pharmaceuticals firmed 7.48 per cent.  

Tabcorp jumped 4.26 per cent after settling a fees dispute with Racing Queensland. The gaming group will pay the racing authority $150 million to settle proceedings related to the introduction of a state consumption tax in 2018.

Also helping sentiment, the Queensland government announced it will level the playing field for waging operators by reforming its licensing system. The move will benefit Tabcorp, which was paying twice the fees paid by some other operators, according to Managing Director and CEO Adam Rytenskild.

Production and sales upgrades lifted gas producer Cooper Energy 7.41 per cent. Improved processing rates and rising wholesale prices prompted the firm to revise its outlook to the upper half of previous guidance.

VGI Partners edged up 0.24 per cent after completing a merger with Regal Funds Management. The company name has changed to Regal Partners Limited and will soon trade under the ticker code RPL (date to be announced).

Going down

Declines in the heavily-weighted mining and banking sectors kept the index underwater. NAB dropped 1.2 per cent, Newcrest 1.12 per cent and Fortescue Metals 0.84 per cent. BHP dipped 0.64 per cent and Macquarie Group 0.63 per cent. The rest of the big four banks lost between 0.37 and 0.6 per cent.

Ongoing outflows of funds under management (FUM) drove Magellan down 12.93 per cent to a fresh eight-year low. The investment manager’s FUM slumped by $3.6 billion last month to $65 billion.  

Lithium miner Liontown Resources announced it had executed a binding supply deal with Tesla. The five-year off-take agreement is expected to commence in 2024. The share price dipped 2.36 per cent.

Tech stocks dragged after an increase in long-term borrowing costs dulled the appeal of future equity earnings. Tyro Payments slid 5.42 per cent, Appen 4.22 per cent and Afterpay parent Block 4.07 per cent.

Link Administration eased 0.69 per cent on news the competition regulator needs more time to assess a takeover proposal from Dye & Durham. The Australian Competition and Consumer Commission delayed a decision until June 16.

Growthpoint Properties retreated 0.26 per cent after confirming media reports it was running the ruler over privately-owned property investment group Fortius Funds Management. Growthpoint said it was “in discussions with Fortius regarding a potential transaction”, but “there is no certainty that a transaction will result”.

Among companies trading ex-dividend, Incitec Pivot dropped 1.9 per cent, Champion Iron 2.17 per cent and ALS Limited 1.25 per cent.

A tough morning for investors in junior energy explorers saw heavy declines following disappointing drilling results. Global Oil & Gas plunged 76.19 per cent after the Sasanof-1 well off the coast of WA reached total depth without intersecting commercial hydrocarbons. Prominence Energy dived 75 per cent.

Other markets

Asian markets overcame early weakness. The Asia Dow gained 0.26 per cent. China’s Shanghai Composite advanced 0.65 per cent, Hong Kong’s Hang Seng 0.95 per cent and Japan’s Nikkei 0.3 per cent.

Rising US futures hinted at a recovery tonight. S&P 500 futures improved 16 points or 0.4 per cent.

Oil‘s seemingly unstoppable rise continued. Brent crude climbed 79 US cents or 0.66 per cent to US$120.51 a barrel.

Gold bounced back from its worst session in three weeks. The yellow metal firmed US$6.20 or 0.34 per cent to US$1,856.40 an ounce.

The dollar was steady at 72.03 US cents.

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