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A four-day rally in Australian shares ran into headwinds as US futures deteriorated after President Donald Trump lashed out at China.

In early action, the S&P/ASX 200 looked set fair for a fifth day of gains, notching a ten-week high and extending its surge since last Friday to 283 points. However, the benchmark index topped out at 5611 and by mid-session had slipped three points or 0.1 per cent underwater at 5571.

The opening rally stuttered as S&P 500 index futures dived 20 points or 0.7 per cent. The decline followed a Tweet storm from President Trump, who accused the Chinese of failing to stop the COVID-19 “plague” when “they could have easily”. Trump also accused the Chinese of launching a massive disinformation campaign to help his Democrat rival Joe Biden win the White House in November.

BHP and the big four banks accounted for much of the local weakness as gains in the energy sector, industrials and tech stocks were cancelled out by a soft morning for financial and defensive stocks.

The local tech sector followed the Nasdaq higher, climbing 0.8 per cent as Afterpay rose 2.6 per cent to an all-time high on news its buy-now-pay-later offering has secured five million active users in the US. Link Administration Holdings put on 2 per cent, Nearmap 1.1 per cent and Computershare 0.6 per cent.

Overnight, the Nasdaq jumped 2.08 per cent after Facebook and Amazon reached record heights.  The broader S&P 500 gained 1.67 per cent as investors cheered signs that lockdown restrictions around the US are easing.

The ASX’s two-month recovery has been largely fuelled by resource stocks, while the banks flounder just above pandemic lows. The remarkable revival in oil this morning lifted the energy sector 2.1 per cent to a fresh ten-week peak. Santos and Beach Energy gained 4.2 per cent and Woodside 1.3 per cent as Brent crude edged up another 19 cents or 0.5 per cent to $US35.94 a barrel, a level last seen in early March. Among the mining majors, Rio Tinto rose 0.3 per cent, partly offsetting declines of 0.9 per cent for Fortescue and 0.1 per cent for BHP.

The financial sector has been in a holding pattern while investors wait to assess the impact of an anticipated wave of bad loans. The big four banks slipped between 0.6 and 0.9 per cent this morning but traded comfortably within their recent trading ranges.

The economy remained under severe pressure this month, according to the latest CBA purchasing managers’ index. The composite PMI edged up to 26.4 from an April reading of 21.7 but fell far short of the 50-point level that indicates expanding activity. A measure of services activity ticked up to 25.5 from 19.5 in April. The manufacturing PMI dropped to 42.8 from 44.1.

“Another incredibly weak result that indicates the contraction in business activity observed in April intensified over May,” Gareth Aird, CBA Head of Australian Economics, said. “Two consecutive reads in the twenties is simply astonishing.”

Asian markets turned neutral as US futures hit the skids. China’s Shanghai Composite was last up 0.1 per cent, Hong Kong’s Hang Seng down 0.3 per cent and Japan’s Nikkei off 0.1 per cent.

Gold deteriorated $7.70 or 0.4 per cent to $US1,744.40 an ounce.

The dollar faded 0.6 per cent to 65.58 US cents.

What’s hot today and what’s not:

Hot today: A major breakthrough in the European market for anti-drone hardware fired DroneShield (ASX:DRO) to a three-month high. The company announced it had won a tender to supply its DroneGun Tactical product to the European Union Police. The product will be rolled out to a range of police units across the EU and will produce “material periodic sales over an extended period of time”, starting this quarter. DroneShield CEO Oleg Vornik said, “This is the first framework rollout of counterdrone equipment by any government customer, anywhere in the world.” The share price jumped 61.9 per cent to 17 cents.

Not today: Aristocrat’s (ASX:ALL) half-year net profit after tax slumped 14 per cent as a surge in its digital division was more than offset by a slump in pokie revenue as casinos, pubs and clubs were closed by the coronavirus lockdown. NPAT dropped from $356.5 million over the six months to March last year to $305.9 million over the same period this year. Earnings per share declined 14.3 per cent to 47.9 cents. The share price fell 4.1 per cent to $26.23.

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