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Australian shares eased from a four-week high as declines in miners following sharp falls in commodity prices narrowly outweighed gains in defensive stocks.

The S&P/ASX 200 dropped ten points or 0.14 per cent.

Resource stocks led the sell-off following declines in iron ore, coal, crude, natural gas and industrial metals. Advances in Wesfarmers, Woolworths and Telstra helped cushion the fall.

The market briefly turned positive following Chinese reports that troubled property developer Evergrande had avoided defaulting on its debt with a last-minute payment.

What’s driving the market

Mining stocks led the retreat after some of the air came out of ballooning commodity prices. Industrial metals and iron ore retreated amid fears of a plunge in demand if Evergrande, China’s second-largest developer, collapses. The spot ore price skidded 5.6 per cent, copper 3.8 per cent, aluminium 5.2 per cent and nickel 4.9 per cent.

The major miners pared their losses after Chinese media reported Evergrande paid US$83.5 million in dollar bond interest a day before a 30-day deadline to avoid a default. The developer announced on Wednesday that a deal for a rival to take a stake in the business had fallen through, pushing it closer to the brink.

The troubled real estate developer failed to offload a stake in its property management arm, which was supposed to ease its cash crisis. With the property sector representing nearly a quarter of China’s economic output, the collapse of the company could send shock waves across the commodity sector,” ANZ senior commodities strategist Daniel Hynes said.

Thermal coal futures tumbled after China’s state developer forced four major producers to agree to price limits. Coal futures on a Chinese exchange hit a 10 per cent limit down yesterday.

Defensive sectors rallied after the RBA acted to contain soaring interest rates. The central bank this morning offered to buy $1 billion in government bonds. The offer was the central bank’s first attempt to defend its 0.1 per cent three-year yield target since February. The intervention came after the three-year rate passed 0.17 per cent. The yield promptly dropped more than five basis points.

The central bank has found itself at odds with the market over the outlook for interest rates. While the RBA has repeatedly said it does not expect to lift the cash rate from a record-low 0.1 per cent until at least 2024, futures trading has priced in a rate of 1 per cent by the end of 2023. This morning’s intervention suggests the bank is willing to back its stance with actions.

The mid-morning news boosted stocks that compete with bonds for institutional investment flows – so-called bond proxies. Wesfarmers climbed 3.08 per cent, Goodman Group 1.4 per cent and Transurban 1.17 per cent. Supermarkets Woolworths and Coles added 0.78 and 0.45 per cent, respectively. Telstra added 0.67 per cent.

US stocks finished mixed but broadly higher overnight amid generally positive corporate earnings. The S&P 500 put on 0.3 per cent and the Nasdaq 0.62 per cent. The Dow dipped 0.02 per cent.

“Investors seem to be becoming used to the idea of hot inflation,” Kalkine Group CEO Kunal Sawhney said. “With stocks reaching new highs, investors and traders can brace themselves for wild market swings amid inflationary pressures in the days ahead.”

In economic news, a measure of private-sector business activity in Australia turned positive for the first time in four months. The IHS Markit composite purchasing managers’ index rose to 52.2 this month from 46 in September, according to preliminary figures.

“Survey respondents reported that the easing of COVID-19 restrictions enabled a marked improvement in demand and activity which translated to sustained employment growth. At the same time, export business rose for the first time in four months,” Markit reported.

Going up

Qantas hit a pandemic-era peak before trimming its rise to 0.18 per cent after announcing it will resume international flights earlier than planned. The move follows a federal and NSW government decision to reopen borders on November 1 and for NSW to scrap quarantine requirements for fully-vaccinated arrivals.

IAG edged up 1.19 per cent after reaffirming full-year guidance. The insurer said it recorded mid single-digit growth in written premiums over the first quarter.

Analytics software firm Nuix jumped 5.22 per cent on news former Infomedia chief Jonathan Rubinsztein will join as CEO. Rubinsztein will replace Rod Vawdrey, who stood down following the firm’s disastrous ASX debut. Shares that listed at $5.31 and quickly hit $11.85 traded today at $3.03.

Going down

Commodity stocks were the biggest drag on the market. BHP declined 2.21 per cent, Rio Tinto 1.84 per cent, Woodside Petroleum 2.05 per cent and Fortescue Metals 1.46 per cent. Champion Iron shed 4.39 per cent, Mineral Resources 3.34 per cent and IGO 2.85 per cent.

Lynas Rare Earths sank 8.47 per cent following a sharp Covid-affected slump in sales revenues last quarter. Revenues dropped to $121.6 million from $185.9 million over the previous three months amid limited shipping availability and plant shutdowns due to staff isolating.

The major banks retreated with interest rates. CBA dropped 0.53 per cent, ANZ 0.39 per cent, NAB 0.48 per cent and Westpac 0.68 per cent.

Rail freight operator Aurizon skidded 4.37 per cent after announcing it will acquire One Rail Australia from Macquarie Asset Management for $2.35 billion. The deal includes bulk rail haulage and general freight assets in South Australia, NSW, Queensland and the Northern Territory. The purchase will be funded from existing debt and new committed debt facilities.

Other markets

Most Asian markets advanced. China’s Shanghai Composite gained 0.11 per cent, Hong Kong’s Hang Seng 0.31 per cent and Japan’s Nikkei 0.83 per cent. The Asia Dow dipped 0.03 per cent.

US futures pared early losses. S&P 500 futures were recently off three points or less than 0.1 per cent.

Brent crude bounced 50 US cents or 0.6 per cent to US$85.11 a barrel.

Gold firmed US$4.90 or 0.27 per cent to US$1,786.80 an ounce.

The dollar rallied 0.32 per cent to 74.87 US cents.

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