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The share market slumped to an eight-month low before paring its losses as rising US futures sharpened hopes of a relief rally following several weeks of down-pressure on global equities.

The S&P/ASX 200 whittled an opening loss of 89 points to 33 points or 0.45 per cent mid-session. The opening plunge drove the index to its lowest since late May.

Investors rotated into defensive sectors as tech and mining stocks continued to retreat. Supermarkets and property stocks led the recovery.

What’s driving the market

Bargain-hunters dipped their toes as the benchmark dropped below 7100 for the first time since May 27. Traders waiting for an entry signal were encouraged by positive signs from the US following Wall Street’s worst week since the initial pandemic market collapse in 2020.

S&P 500 futures firmed 30 points or 0.7 per cent this morning. The index dived 1.89 per cent on Friday as a weak result from Netflix added to rates jitters. The broadest of the three major US indices has fallen 8.3 per cent from its peak earlier this month.

The Nasdaq Composite fared even worse as investors abandoned highly-priced growth stocks amid questions over valuations as the era of easy monetary policy ends. The index tanked 2.72 per cent on Friday to extend its retreat from last year’s high to 14 per cent.

“What had initially been a stimulus withdrawal-driven decline morphed last week to include earnings jitters,” Adam Crisafulli, founder of Vital Knowledge, said. “So investors are now worried not just about the multiple placed on earnings, but the EPS forecasts themselves.”

A potentially explosive week ahead includes earnings updates from market giants Apple, Microsoft and Tesla, as well as a Federal Reserve rates meeting. In Australia, inflation figures tomorrow could increase pressure on the RBA to join a global shift towards raising rates. However, the bank also has to deal with a collapse in economic activity as the Omicron wave hit.

The scale of the Omicron-induced economic crunch in Australia was underlined by a collapse in private-sector activity to a five-month low. Markit’s Composite Output Index slumped to 45.3 this month from 54.9 in December.

“The Australian economy had slipped from a state of strong recovery in end-2021 to being affected by the surge in COVID-19 infections at the start of 2022,” Jingyi Pan, Economics Associate Director at IHS Markit, said.

“Supply issues meanwhile remained prevalent, with lengthening of lead times, reports of supply shortages and labour constraints persisting and made worse by the latest surge in COVID-19 cases,” he added.

Going up

Defensive sectors have suffered this year as a surge in bond yields made their returns less appealing. REITs, consumer staples and telecoms led this morning’s revival as multi-month sector lows attracted buyers.

Industrial property giant Goodman Group firmed 3 per cent. Supermarkets Coles and Woolworths gained 1.67 and 1.94 per cent, respectively. Retail conglomerate Wesfarmers put on 0.6 per cent.

Uniti Group jumped 9.55 per cent on news of buying interest from potential suitors. The telecom services provider said it had received approaches from “more than one party” interested in acquiring the company.

The morning’s other best performers were online property ad group REA +2.81 per cent, Domino’s Pizza +2.61 per cent and tech firm Megaport +2.57 per cent.

At the speculative end of the market, Greenstone Resources climbed 17.24 per cent before its shares entered a trading halt, pending a response to a price query from the market operator. Nickel miner Estrella Resources added 11.76 per cent after intersecting massive sulphides at its Carr Boyd Mine.

Virdis Mining and Minerals listed with a bounce of 52.5 per cent. The Perth-based gold explorer intends to drill in Canada’s far north.

Cooper Metals gained 18.87 per cent after commencing survey work at its Mt Isa copper-gold project.

Going down

Fortescue Metals continued its move into green energy with the acquisition of the UK’s Williams Advanced Engineering. If the purchase passes UK regulators, Fortescue will pay private equity firm EMK Capital and Williams Grand Prix Engineering US$223 million for the business, which has extensive skills in battery development.

WAE will be integrated into Fortescue’s diversified resources and green energy business. Fortescue shares eased 1.7 per cent.

A mixed quarterly dragged diversified miner South32 down 4.65 per cent. Increased nickel, zinc and alumina production was offset by declines in coal, manganese, silver, aluminium and lead.

A production downgrade pushed Regis Resources down 12.62 per cent. Guidance for the Duketon gold operation was revised to 300-340,000 ounces from previous guidance of 340-380,000 ounces. The miner attributed the setback to a wall slip and other operational challenges.

Gold miner Alkane Resources dipped 0.58 per cent after warning production costs will rise due to heavy rainfall and the impact of Covid on labour.   

Shares in Adairs dived 19.95 per cent after the online furniture retailer warned first-half sales were expected to be flat. Unaudited group sales were $242 million, $1 million below the equivalent period last financial year. The retailer warned margins had been impacted by increased delivery and marketing costs, and supply chain issues.

Other markets

The Asia Dow retreated 0.99 per cent, China’s Shanghai Composite 0.91 per cent, Hong Kong’s Hang Seng 1.09 per cent and Japan’s Nikkei 0.8 per cent.

Oil opened the week on the rebound from two days of losses. Brent crude bounced 74 US cents or 0.8 per cent to US$88.63 a barrel.

Gold crept up US$1.20 or 0.1 per cent to US$1,833 an ounce.

The dollar eased 0.07 per cent to 71.82 US cents.

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