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The share market retreated ahead of this afternoon’s RBA taper decision as declines in bank and mining stocks outweighed gains in the healthcare and consumer sectors.

The S&P/ASX 200 dropped 12 points or 0.16 per cent.

A near double-digit dive in iron ore weighed on BHP, Rio Tinto and Fortescue Metals. CSL, Brambles and Aristocrat Leisure were the best of the gainers on the ASX 20 index of heavyweights.  

What’s driving the market

A US market holiday overnight and a too-close-to-call RBA stimulus decision this afternoon pushed many traders to the sidelines.

The Reserve Bank met this morning for a gathering where the key question was whether to press ahead with plans to reduce support for the economy. The bank announced last month that it intended to reduce its weekly purchases of government bonds by $1 billion to $4 billion each week from this month.

Some economists have since called for the bank to delay the “taper” as rising Covid case numbers in the eastern states delay the economic rebound the central bank anticipates upon reopening. Westpac’s influential chief economist Bill Evans said the bank should not just delay, but temporarily increase spending. NAB, on the other hand, predicted the central bank will stick to its guns.

NAB expects the RBA to continue with the scheduled taper to the pace of bond purchases to $4bn per week from the current $5bn per week as expectations for a strong rebound in activity after the current lockdowns remain largely intact, though the optics of tapering amid protracted lockdowns means it is likely to be a close decision,” NAB Head of FX Strategy Ray Attrill said.

Credit Suisse this morning declared the economic outlook had deteriorated so sharply the RBA will be unable to raise the cash rate until 2025 – a year later than the central bank’s last projection.

“Previously, we expected the Australian economy to return to its pre COVID trend in 2024, early 2024,” Jasmin Argyrou, Credit Suisse portfolio manager and director, told Livewire. “Now, we don’t expect that to happen until 2025.

“And that’s really an important point in the recovery phase of the Australian economy. Because it’s only until GDP growth reaches the level that it would have achieved had the pandemic never happened, it’s only when that point is achieved, that the RBA can really start seriously contemplate raising the cash rate, but we don’t see that happening until 2025.”

The morning’s economic data reaffirmed the impact of lockdowns. Services sector activity contracted last month, as expected. The Australian Industry Group’s Performance of Services Index fell to 45.6 from 51.7 in July. Readings below 50 indicate shrinking activity. Retail and hospitality took the biggest hits.

Consumer sentiment dipped last week. The ANZ-Roy Morgan Consumer Confidence Index retreated 1.8 points to 100.

Going up

Heavyweight risers were scarce as traders awaited the 2.30pm AEST Reserve Bank policy update. Aristocrat Leisure climbed 1.26 per cent, Brambles 1.3 per cent and CSL 0.64 per cent. Macquarie Group edged up 0.29 per cent, Woodside 0.18 per cent and Telstra 0.13 per cent.

On the wider market, Flight Centre rallied 5.89 per cent to a four-month high. Chalice Mining resisted broader down-pressure on the materials sector to add 6.2 per cent. Whitehaven Coal and Lynas Rare Earths also bucked the negative trend, rising 2.25 and 2.87 per cent, respectively.

A 0.11 per cent dip in tech giant Afterpay kept the sector flat, but other companies saw gains. Megaport put on 2.9 per cent, Technology One 3.08 per cent and Altium 2.7 per cent.  

Western Australian gold explorer Midas Minerals debuted with a rise of 7.5 per cent. Shares that listed at 20 cents hit 29 cents and were last at 21.5 cents.

Going down

Bulk metal exporters fell after evidence of softening demand and strong supply pushed Chinese spot iron ore prices down 9.3 per cent. SteelHome reported ore stocks at Chinese ports last week rose to their highest since late April.

Fortescue Metals traded below $18 for the first time since December. Shares in the miner fell as low as $17.96 before trimming their fall to 3.18 per cent at $17.99. The miner is due to pay a record dividend this month.

BHP touched a nine-month low as it fell 1.07 per cent. Rio Tinto shed 1.25 per cent.

The big four banks have largely ignored a three-session rebound in lending rates while a cloud hangs over the RBA’s purchasing program. The yield on ten-year Australian government bonds touched a seven-week high this morning. NAB fell 0.83 per cent, ANZ 0.25 per cent, Westpac 0.15 per cent and CBA 0.25 per cent.

Among stocks going ex-dividend, Sonic Healthcare shed 2.71 per cent, Amcor 0.74 per cent, Iluka 1.29 per cent, IGO 0.05 per cent, BlueScope 1.43 per cent and IOOF 1.27 per cent. Origin Energy gained 0.23  per cent.

Other markets

Asian markets improved for a second day. The Asia Dow put on 0.64 per cent, China’s Shanghai Composite 0.45 per cent, Hong Kong’s Hang Seng 0.74 per cent and Japan’s Nikkei 0.87 per cent.

US futures trimmed an overnight advance ahead of the resumption of trade tonight. S&P 500 futures were lately up five points or 0.11 per cent.

Oil recovered from an overnight reversal. Brent crude rallied 21 US cents or 0.29 per cent to US$72.43 a barrel.

Gold edged off this morning’s low in electronic trade. The metal was lately down US$5.30 or 0.3 per cent at US$1,828.40 an ounce.

The dollar firmed 0.16 per cent to 74.48 US cents.

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