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Almost a week’s share market gains evaporated as a collapse in commodity prices dragged the major miners to multi-month lows.

The S&P/ASX 200 sank 48 points or 0.64 per cent by mid-session. The fall left the index clinging to a weekly advance of less than ten points.

A horror session for the materials sector saw Fortescue Metals dive more than 10 per cent to a 14-month low. BHP and Rio Tinto tested 2021 lows. Gains in Afterpay, Wesfarmers, CBA and CSL prevented a deeper index decline.

What’s driving the market

Iron ore and industrial metals dived overnight amid mounting concerns over China’s property market and after China announced plans to sell more metals from state reserves. Spot ore prices fell more than 6 per cent to a 14-month low. Copper shed 2.7 per cent and nickel 3.1 per cent.

“Declining steel production in China, exacerbated by signs of stress in the property market, are weighing on sentiment. China’s largest property developer, Evergrande is facing a debt crisis, forcing it to push discounted real estate onto the market as well as shelving new projects,” commodities strategist Daniel Hynes of Hynes Commodities said.

“Concerns over China’s property market also weighed on sentiment in the base metals market. The real estate sector accounts for a large proportion on copper and other base metals consumption. Investors were also presented with the news that China would continue to sell more metals from state reserves,” he added.

Ore prices have more than halved in four months as China caps steel output to try to clear its skies before the Winter Olympics. Last month’s steel production was 13.2 per cent lower than the same month last year.

Shares in Fortescue Metals that traded as high as $26.58 in late July fell 10.32 per cent today to $15.46. UBS analysts downgraded the miner to ‘Sell’ this morning. BHP shed 2.71 per cent and Rio Tinto 3.28 per cent.

The selling extended all the way down the mining food chain. Whitehaven Coal dropped 7.74 per cent, Minerals Resources 7.09 per cent and South32 3.56 per cent. The gold sub-sector wilted 3.4 per cent following the yellow metal’s worst night in six weeks.

Overnight, US stocks closed mixed but broadly lower as an unexpected increase in retail sales handed the Federal Reserve another reason to reduce stimulus spending. The S&P 500 and Dow dipped between 0.1 and 0.2 per cent. The Nasdaq edged up 0.13 per cent.

“The Wall Street indices swung between gains and losses on Thursday as investors analysed how the latest batch of economic data will influence the Fed’s timeline of tapering bond purchases,” Kalkine Group CEO Kunal Sawhney said. “The S&P 500 and Dow Jones indices fell following an unexpected surge in retail sales in August, which sparked concerns of earlier-than-expected withdrawal of monetary stimulus.” 

US futures added to declines this morning following reports President Joe Biden failed to persuade hold-out Senator Joe Manchin to support his US$3.5 trillion spending bill. S&P 500 futures dropped seven points or 0.16 per cent.

Going up

Tech was the pick of the sectors after the Nasdaq outperformed the other US indices. A 2.53 per cent rise in US suitor Square lifted Afterpay 3.2 per cent. WiseTech gained 2.2 per cent, Xero 1.72 per cent and Megaport 1.67 per cent.

US-facing businesses caught a lift from a surging greenback. Transurban firmed 1.1 per cent, CSL 0.42 per cent, Cochlear 0.22 per cent and ResMed 0.33 per cent.

Wesfarmers rose 0.74 per cent towards a second straight gain since raising its bid for pharmaceutical wholesaler API. Woodside edged up 0.62 per cent and Brambles 0.27 per cent.

Qantas rallied 0.83 per cent to a six-month high. Travel and tourism stocks traded near multi-month highs this week as NSW passed a vaccination milestone and Victoria eased some restrictions.

Going down

Iress tumbled 10 per cent after Swedish private-equity firm EQT abandoned its pursuit of the financial software maker. Iress said discussions had ended with the companies “unable to agree a transaction”. Iress reaffirmed its full-year guidance.

Cimic eased 1.32 per cent despite another contract win. A subsidiary will help deliver the new Western Sydney airport’s civil and pavement works. Design and construction will generate revenue of $265 million.

A week-long rally in uranium stocks showed the first signs of stress after several companies more than doubled in market value. Bannerman Energy slipped 11.84 per cent, Elevate Uranium 10.71 per cent, Peninsula Energy 9.56 per cent and Toro Energy 9.18 per cent.

The gloomy mood pulled most of the big four banks lower despite a spike in lending rates. ANZ lost 0.22 per cent, NAB 0.78 per cent and Westpac 0.8 per cent. CBA gained 0.16 per cent.

Newcrest dived 2.81 per cent to a six-month low after the surging US dollar pushed gold down more than 2 per cent. Perseus gave up 6.65 per cent, St Barbara 6.15 per cent and Gold Road Resources 5.18 per cent.  

Other markets

Asian markets overcame early weakness even as Evergrande declined more than 8 per cent. The Hang Seng in Hong Kong, where the Chinese giant is listed, briefly fell 0.6 per cent to an 11-month low before reversing to a gain of 0.33 per cent. The Asia Dow rose 0.1 per cent, China’s Shanghai Composite 0.02 per cent and Japan’s Nikkei 0.55 per cent.

Gold hovered near last night’s four-week low. The yellow metal inched up 30 US cents or 0.02 per cent to US$1,757 an ounce.

Brent crude eased two US cents or 0.03 per cent to US$75.66 a barrel.

The dollar dipped 0.06 per cent to 72.87 US cents.

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