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Aussie shares fell to a four-week low as traders reduced their exposure ahead of a long weekend and a potentially explosive US inflation report.

The S&P/ASX 200 dived to within four points of a four-month low before paring its loss to 58.5 points or 0.83 per cent.

The slide dragged the benchmark below the psychologically-significant 7000 level for the first time in four weeks. At the halfway mark, the index was around 25 points off its session low at 6961.

A tepid rebound in some of the banks was dwarfed by falls among miners after China reimposed Covid restrictions in parts of Shanghai. Tech firms, REITS and speculative stocks also declined.

What’s driving the market

Risk appetite was constrained by the looming Queen’s Birthday market holiday. Traders were reluctant to hold positions with Wall Street set to trade twice before the ASX reopens on Tuesday.

“Losses in the market were led by miners and technology stocks, which tracked a weak lead from Wall Street. Miners were probably hit by developments in China, which said it would mass test Shanghai residents, leading to a drop in commodity prices,” Kalkine Group CEO Kunal Sawhney said.

US stocks plunged overnight amid creeping pessimism about tonight’s May inflation data. The S&P 500 skidded 2.38 per cent. The Dow lost more than 600 points. The Nasdaq shed 2.75 per cent.

A White House official warned reporters the administration expected a strong inflation reading due to a rebound in energy prices. An uptick in consumer prices would overthrow the recent narrative that inflation peaked in March.

“Ultimately the fear going forward is that inflation has become so hot that it will become ‘sticky’ at higher levels,” City Index senior market analyst Matt Simpson said. “The longer prices remain high the more of a drag it becomes on consumption, consumer and business sentiment and therefore growth.”

Elevated inflation also means higher interest rates for longer. The Federal Reserve is expected to raise its rates benchmark by 50 basis points at the next two meetings, but may pause in September if inflation has cooled enough. The RBA is also expected to raise by 50 basis points next month.  

Going up

Three of the big four banks rallied for the first time since Tuesday’s interest rate rise. The financial sector was briefly the session’s best performer a day after hitting a 15-month low.

CBA bounced 0.56 per cent, NAB 0.35 per cent and ANZ 0.21 per cent. Westpac faded 0.28 per cent.

“Concerns loom that Australian banks that have recently recovered from bad debt problems may again slip into the bad debt trap, potentially bringing down their profits,” Kalkine’s Sawhney said.

“Although there is a minor pullback in banking stocks today, it would be too early to say that the bottom is in place. It is yet to be seen if there will be another round of sell-off in banking stocks or if these stocks will surprise the market to the upside.”

Other gains included traditional havens such as supermarkets and healthcare companies. Woolworths rose 0.7 per cent, CSL 0.7 per cent and Coles 0.6 per cent.

Bubs climbed 7.56 per cent on news it expects to have infant formula on American shelves by June 20. The company said the first air cargo of its formula will be purchased by two major retailers in the US, expediting delivery.

Breville edged up 2.11 per cent are reaffirming full-year guidance. The appliance maker also announced the acquisition of Italian coffee group LELIT will complete ahead of schedule on July 1.

Toll road operator Atlas Arteria firmed 0.74 per cent after rejecting a request from potential suitor IFM Global Infrastructure Fund for access to confidential information. The board decided not to provide “non-public information at this time”, instead offering IFM a meeting with senior management.

Going down

Miners slumped on news parts of Shanghai re-entered lockdown to contain a Covid outbreak, dampening the outlook for demand for raw materials. The development dragged on crude, iron ore and metals.

Lynas Rare Earths slumped 7.26 per cent. Paladin Energy shed 6.13 per cent, Alumina 5.61 per cent and Liontown Resources 5.26 per cent.

At the heavyweight end, Fortescue Metals dropped 1.99 per cent, Woodside Energy 2.36 per cent, Rio Tinto 2.52 per cent and BHP 1.12 per cent.

Tech stocks took their cues from Nasdaq losses. Afterpay parent Square declined 6.91 per cent, Novonix 4.04 per cent and WiseTech 1.98 per cent.

Sims slid 4.66 per cent after settling a shareholder class action. The action alleged the firm beached its obligations under the Corporations Act between July 2014 and February 2016. The scrap metal recycler will pay $29.5 million to settle the matter without admission of liability.

News of a delay in restoring the Loy Yang A Unit 2 power plant to service dragged AGL Energy down 0.11 per cent. The utility said it expected the outage to last until the second half of September, outside the initial estimate of August 1.

Air New Zealand fell 4.46 per cent to a 13-year low on news the airline expects to lose $750 million this financial year.

Other markets

A broadly negative session on Asian markets saw the Asia Dow down 0.94 per cent, Hong Kong’s Hang Seng down 0.6 per cent and Japan’s Nikkei down 1.46 per cent. China’s Shanghai Composite overcame early weakness to edge up 0.19 per cent.

US futures edged higher. S&P 500 futures firmed four points or 0.1 per cent.

Oil continued to lose ground. Brent crude declined 97 US cents or 0.8 per cent to US$122.11 a barrel.

Gold retreated US$4 or 0.2 per cent to US$1,848.80 an ounce.

The dollar was steady at 70.98 US cents after falling 1.2 per cent overnight.

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