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The share market clawed back a fraction of yesterday’s heavy loss but remained firmly on track for its first negative week in three.

The S&P/ASX 200 rebounded 12 points or 0.16 per cent after yesterday front-running a sharper slide on Wall Street than eventuated overnight.

The miners and most of the banks rallied, offsetting down-pressure on defensive stocks. Santos and Oil Search advanced after agreeing terms to form one of the world’s largest energy companies.

Despite today’s recovery, at mid-session the index was heading for a weekly loss of more than 1.8 per cent.

What’s driving the market

The market took a welcome breather at the end of a volatile week characterised by sharp morning declines and afternoon revivals. Or at least, that was the theme until yesterday, when the cavalry failed to show. The ASX 200 tumbled 142.5 points or 1.9 per cent to its heaviest loss since February. Buyers returned this morning to take advantage of prices at six-week lows.

“A spurt of bargain hunting by some investors appears to be delivering a tentative rebound to the Australian share market despite overnight losses in Wall Street,” Kalkine Group CEO Kunal Sawhney said.

“In the week ahead, a series of crucial events like the RBA Governor’s speech at the ANIKA Foundation, Westpac consumer sentiment, and August’s jobless rate data are expected to drive the market sentiment.”  

Cyclical sectors filled most of the top slots after strong US labour data went some way towards assuaging concerns about slowing economic growth. First-time claims for unemployment benefits dropped 10 per cent to a pandemic-era low.

The benefits news failed to halt a four-day slide on the Dow and S&P 500 but helped limit losses to below 0.5 per cent – a scratch compared to yesterday’s ASX blood letting.

The heavyweight miners picked themselves off nine-month lows, rising in the face of another down-leg in iron ore. Fortescue Metals firmed 2.08 per cent, Rio Tinto 0.77 per cent and BHP 0.64 per cent. Spot ore prices in China eased 1.9 per cent yesterday to their weakest since last October.  

Santos and Oil Search announced mid-morning they had agreed terms for a $21 billion merger. Oil Search shareholders will receive 0.6275 new Santos shares for each of their OSH shares. The merger will create a top-20 ASX company and one of the 20 largest global oil and gas companies.

Santos shareholders will hold roughly 61.5 per cent of the merged entity and Oil Search shareholders 38.5 per cent. Santos shares rallied 1.16 per cent. Oil Search gained 2.6 per cent.

Going up

The materials sector bounced almost 1.4 per cent off a five-month low. A 13-year high in aluminium prices lifted Alumina 7.56 per cent back to a pandemic-era peak. Aluminium markets shot higher this week after a military coup in Guinea threatened supplies of bauxite, the ore from which the metal is extracted.  

“Political unrest in Guinea has significantly raised the risk of disruption,” Daniel Hynes, strategist at Hynes Commodities, said. “At the same time, power shortages and environmental measures are restricting output in China.

“We estimate over 1m tonnes have been disrupted in China this year. So we see the global aluminium market recording a deficit of around 750k tonnes in 2021. This is likely to spill over into 2020 if China’s production is further restricted, leading to a deeper deficit.”

Nickel Mines climbed 6.03 per cent, South32 4.64 per cent, Lynas Rare Earths 4.41 per cent and Mineral Resources 4.41 per cent.

Most of the banks shrugged off a decline in lending rates. CBA gained 0.31 per cent, ANZ 0.04 per cent and Westpac 0.02 per cent. NAB eased 0.28 per cent. The yield on ten-year Australian government bonds dropped three basis points.

Investment group Washington H. Soul Pattinson rose 2.63 per cent to a third straight record.

Zoom2u Technologies made a spectacular start to listed life, briefly doubling in value before trimming its rally to 72.5 per cent.

Going down

Traditional defensive stocks declined in the wake of a US rotation back into cyclicals. CSL dipped 1.35 per cent, Goodman Group 1.02 per cent, Woolworths 0.73 per cent and Transurban 0.92 per cent.

Takeover target Iress fell 4 per cent on news suitor EQT Fund Management had asked for ten more days to complete due diligence. Iress granted the Swedish private-equity firm an initial 30 days after EQT made an unsolicited, non-binding offer in late July that was later revised to $15.91 cash per share.

Medical device developer PolyNovo sank 4.68 per cent on news Chief Operating Officer Dr Anthony Kaye had resigned to rejoin CSL.

Other markets

US futures firmed with Asian markets. The Asia Dow climbed 0.87 per cent, China’s Shanghai Composite 0.73 per cent, Hong Kong’s Hang Seng 1.55 per cent and Japan’s Nikkei 1.19 per cent.

S&P 500 futures bounced seven points or 0.15 per cent.

Oil mounted a tentative recovery from news China intends to sell some of its strategic reserve. Brent crude inched up 19 US cents or 0.27 per cent to US$71.64 a barrel.

Gold dipped 70 US cents or 0.04 per cent to US$1799.30 an ounce.

The dollar rose 0.17 per cent to 73.81 US cents.

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