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Australian stocks fell for the third time in four sessions after the dollar sagged to a one-year low and a report showed the economy contracted less than expected last quarter.

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

All sectors declined, with defensive stocks leading the sell-off. Healthcare and mining stocks weathered the downturn best.

What’s driving the market

US and European markets turned sharply lower overnight as investors reassessed the economic implications of the new Omicron Covid variant and the US Federal Reserve indicated it was ready to act on inflation.

The S&P 500 skidded 1.9 per cent. The Dow sank 652 points or 1.86 per cent,  erasing Monday’s rebound. Europe’s pan-European Stoxx 600 shed 0.92 per cent.

Markets sold off after Moderna’s CEO questioned the efficacy of existing vaccines against Omicron. Wall Street accelerated its decline when Fed Chair Jerome Powell indicated he favoured reducing support for the economy faster than the current timetable.

“While investors let their anxieties around the Omicron variant get the better of them, the Fed Chair’s comments widened the sell-off already in progress,” Kalkine Group CEO Kunal Sawhney said. 

“The Fed Chair signalled that the US central bank could tighten its monetary policy quickly as it no more sees the inflationary pressures to be transitory. Powell’s turnabout from its initial positive stance on inflation heightened concerns around the latest COVID-19 variant and the US economic recovery.” 

The ASX 200 broke below 7200 this morning for only the second time in two months. The index traded as low as 7183.4 before steadying to 7224. A close below 7185.5 this afternoon would be the weakest since early June.

The market trimmed its fall after GDP data showed the economy contracted less than economists expected during September-quarter lockdowns. Gross domestic product declined 1.9 per cent, versus the -2.7 per cent consensus forecast. Despite the setback, GDP was 3.9 per cent higher through the year.

“Domestic demand drove the fall, with prolonged lockdowns across NSW, Victoria and the ACT resulting in a substantial decline in household spending,” ABS Acting Head of National Accounts, Sean Crick, said. “The fall in domestic demand was only partly offset by growth in net trade and public sector expenditure.”

The dramatic overnight pivot back to “risk off” drove the dollar as low as 70.64 US cents. The Aussie traded at its weakest since last November before recovering to 71.4 US cents.

“The domestic currency fell as the new variant worries kept a bid in safe-haven currencies, like the US dollar,” Kalkine’s Sawhney said. “In case the new variant alters the path or pace of Australia’s economic recovery from the pandemic, one can expect greater volatility in AUD in the months ahead.”  

Going up

Fortescue Metals shrugged off a broker downgrade from Citigroup, rising 1.06 per cent. Rio Tinto gained 2.01 per cent and BHP 0.94 per cent.

Iron ore has been one of the few industrial commodities untouched by Omicron ructions. The spot price edged back above US$100 a tonne yesterday, supported by restocking by Chinese steel mills.

Wesfarmers bounced 0.62 per cent from yesterday’s end-of-month drop. CSL gained 0.48 per cent.

The morning’s best performers were miners. Lynas Rare Earths climbed 2.59 per cent, South32 2.48 per cent and Iluka Resources 2.26 per cent. NIB Holdings added 1.29 per cent, GrainCorp 1.47 per cent and Oil Search 1.84 per cent.

Going down

ANZ eased 0.79 per cent after class action proceedings were filed against the bank. The action alleges unfair credit card contracts between 2010 and 2019. CBA shed 0.18 per cent, NAB 0.29 per cent and Westpac 0.07 per cent.

GUD slid 3.5 per cent to $11.26 after raising $120 million from institutional investors at $10.40 per share. The funds raised will be used to acquire trailer and 4WD accessory manufacturer AutoPacific Group. GUD also announced it had completed the acquisition of automotive lighting firm Vision X.  

Metal detector and communications firm Codan dipped 0.31 per cent after acquiring UK firm Broadcast Wireless Systems. Codan will pay up to $8.5 million if earn-out targets are achieved. The company said the acquisition will be earnings-per-share accretive from day 1.

Worley shed 0.63 per cent after reaffirming its outlook for the first half. The project manager told investors it saw “positive indicators for improved performance in the second half of this financial year and beyond”.

Investment manager Australian Ethical declined 4.05 per cent despite lifting guidance. The company expects underlying profit to be $5 – $5.5 million. Funds under management increased by 9 per cent to $6.64 billion in the four months to October 31.

Charter Hall Retail REIT tightened its full-year guidance after acquiring a 49 per cent interest in 20 Ampol fuel and convenience retail centres for $50.5 million. The trust expects earnings per unit to be no less than 28.2 cents per unit, a modest upgrade from previous guidance of 27.8 – 28.2 cents per unit. The share price eased 1.8 per cent.

Among companies trading ex-dividend, Incitec Pivot shed 4.53 per cent, United Malt 1.93 per cent and Aristocrat Leisure 1.02 per cent.

Other markets

Asian markets took the overnight weakness in their stride as US futures rebounded. The Asia Dow firmed 0.79 per cent, China’s Shanghai Composite 0.05 per cent, Hong Kong’s Hang Seng 0.51 per cent and Japan’s Nikkei 0.34 per cent.

S&P 500 futures rallied 21 points or almost 0.5 per cent.

Oil pared a 5.5 per cent overnight loss. Brent crude bounced 90 US cents or 1.5 per cent to US$70.25 a barrel.

Gold retreated US$1 or 0.06 per cent to US$1,775.50 an ounce.

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