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A rebound in mining stocks lifted the ASX off 16-week lows as US equity futures recovered from Wall Street’s worst night since May.

The S&P/ASX 200 defied weak leads to reach mid-session 21 points or 0.3 per cent ahead at 7269.

Earlier, the index broke below 7200 for the first time since early June. At its low, the index was down 5.7 per cent from last month’s record.

Gains in the mining heavyweights offset declines in most of the banks. A bidding war for energy infrastructure giant AusNet intensified after APA Group topped an offer from asset manager Brookfield.

What’s driving the market

A jittery market fell as low as 7192 before bargain-hunters scooped up the mining giants responsible for much of this month’s weakness. Rio Tinto rallied 1.73 per cent, BHP 1.23 per cent and Fortescue Metals 1.94 per cent. All three traded at 2021 lows yesterday as iron ore slumped to its weakest in 16 months.  

The early falls followed a sell-off on Wall Street as investors reduced risk ahead of tonight’s Federal Reserve policy meeting and kept a wary eye on trouble in China’s property market. The S&P 500 fell 1.7 per cent to its heaviest loss in four months. The Dow shed 614 points or 1.78 per cent.

“The market sell-off that escalated overnight we believe is primarily driven by technical selling flows in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks,” Marko Kolanovic, JPMorgan chief global market strategist, said.

The domestic market fell nothing like as far as this morning’s futures trade implied, thanks in part to a recovery in US equity futures. S&P 500 futures rallied 13 points or 0.3 per cent. Dow futures bounced 157 points or almost 0.5 per cent.

Hong Kong’s Hang Seng index overcame early weakness to inch up 0.19 per cent as Evergrande Group trimmed its fall to 3.95 per cent. The Chinese property giant is expected to default as soon as this week. Its chairman this morning said he was confident the company would survive its “darkest moment”.

Pullbacks have been scarce during the 18-month bull market since the pandemic sell-off. Neither Wall Street nor the ASX have seen a technical correction, defined as a retrace from a peak of at least 10 per cent. The ASX 200 has fallen 4 per cent so far this month and is on track for just its second losing month since the March 2020 market bottom. The other was last September, underlining seasonal factors at play on both sides of the Pacific.

Going up

The morning’s best performers included several stocks trading at or near 2021 lows. Champion Iron firmed 4.69 per cent, Regis Resources 2.76 per cent and Mesoblast 2.5 per cent.

In the gold sub-sector, which attracts funds in times of market stress, Ramelius gained 3.3 per cent, Perseus 2.45 per cent and St Barbara 1.85 per cent. Newcrest added 1.43 per cent.

A rebound in crude lifted Woodside Petroleum 2.21 per cent. Brent crude rallied 57 cents or 0.8 per cent to US$74.49 a barrel, recouping more than a third of overnight losses. Beach Energy firmed 2.15 per cent and Santos 0.82 per cent.

Beyond the mining space, heavyweight gainers included Aristocrat Leisure +1.04 per cent, Telstra +0.77 per cent, CSL +0.6 per cent and Wesfarmers +0.33 per cent.

Toll road operator Atlas Arteria rose 2.11 per cent after announcing a first-half distribution of 15.5 cents per security, in line with last month’s guidance. Transurban remained in a trading halt while it raises funds to buy out the NSW Government’s stake in the WestConnex toll road in Sydney.

Going down

The financial sector was the biggest drag on the index in the wake of a sharp decline in bond yields. Macquarie Group shed 1.72 per cent. CBA lost 0.71 per cent, NAB 0.79 per cent and Westpac 0.51 per cent. ANZ gained 0.22 per cent. The yield on ten-year Australian government bonds slumped four basis points following a similar retreat in the US.

APA Group slid 3.94 per cent to an 18-month low after topping Brookfield’s offer for electricity infrastructure provider AusNet. A day after Brookfield offered $2.50 a shares, APA made a non-binding, indicative offer of $2.60 in cash and scrip.

“The proposal would bring together two high quality businesses and create a listed flagship Australian group with the scale and capability to accelerate the $20 billion growth in electricity transmission infrastructure needed to support the decarbonisation of Australia’s economy,” APA said in a market release.

The offer values AusNet at around $10 billion. The company’s shares entered a trading halt while it considered its response.

Kathmandu fell 2.45 per cent after warning this year’s first half would be worse than last financial year due to the impact of lockdowns. The outdoor sports retailer said total sales at its namesake stores were 19.9 per cent lower over the six weeks to September 12. Rip Curl sales fell 12.8 per cent.

Pharmaceutical wholesaler Sigma Health declined 2.38 per cent after reporting a first-half net loss of $1.3 million. Underlying earnings increased 14.7 per cent to $39.2 million. The company will pay a dividend of 1 cent per share.

Other markets

A mixed session on Asian markets saw Hong Kong rally off 12-month lows, while other markets fell. The Hang Seng edged up 0.19 per cent. The Asia Dow shed 0.75 per cent and Japan’s Nikkei 2.08 per cent. Chinese markets remained closed for a public holiday.

Gold rallied 70 US cents or 0.04 per cent to US$1,764.50 an ounce.

The dollar improved 0.05 per cent to 72.63 US cents.

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