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Risk aversion ahead of a lunchtime Chinese economic update and a US central bank policy statement tonight helped drive Australian stocks into the red for the week.  

The S&P/ASX 200 declined 42 points or 0.57 per cent by mid-session. The fall pushed the index 17 points lower for this week following a rally on Monday and a flat close yesterday.

Declines in tech companies, miners and healthcare providers outweighed slim advances in some of the banks and utilities.

What’s driving the market

Risk assets declined amid uncertainty over tonight’s Federal Reserve policy outcome and the effect of the rapid spread of the omicron Covid variant. The S&P 500 dropped 0.75 per cent to a second straight loss. The Dow and Nasdaq also retreated.

“All eyes are on the US Fed when it releases its meeting minutes on Wednesday [night],” Peter Escho, co-founder at property investment firm Wealthi, said.

“This is the Main Event for 2022, bigger than any sporting match because the stakes are phenomenal. Not only will the Fed decision impact markets and financial prices around the world, but it also goes to the confidence of the world’s largest central bank.”

The Fed is expected to accelerate the wind-down of its asset-buying program and lay the groundwork for rate rises next year. While the bank has signalled its intentions in recent weeks, markets are wary of surprises.

“If there’s any hint of panic at the Fed, even an ounce, markets are in for a large sell-off,” Esho said.

China was scheduled to release monthly reports on retail sales, employment and industrial production at 1 pm AEDT.

A dramatic spike in reported Covid cases in NSW this morning added to uncertainties. The state reported a 70 per cent increase in new cases to 1,360 from 804 reported yesterday. Today’s tally was nine times last month’s lowest daily figure. Case numbers have accelerated sharply since the emergence of the omicron strain.

“In Australia, the rising number of Omicron variant cases in some parts of the country has become a new cause of concern for health authorities and government alike,” Kalkine Group CEO Kunal Sawhney said.

“The Omicron variant has emerged at a time when the world is already battling inflationary pressures resulting from supply chain constraints and reviving consumer demand. The dual trouble of surging inflation and virus cases has dampened hopes of the Australian economy entering the new year on a firm footing.

“Although the RBA does not expect the Omicron variant to derail the country’s economic recovery, a transitory impact on economic growth seems unavoidable.”

Westpac’s monthly survey showed consumer optimism took a hit from the new variant. The bank’s sentiment index eased 1 per cent to 104.3 as optimism fell sharply in states that had experienced recent lockdowns. Declines of 3.6 per cent in NSW and 3.5 per cent in Victoria were partly offset by improvements in Queensland, SA and WA.  

“There appears to be a heightened sensitivity to virus developments in those states where there is likely more concern about the newly emerging Omicron strain and the continued circulation of COVID locally,” the bank’s chief economist Bill Evans said.

Going up

Westpac firmed 0.72 per cent after Chair John McFarlane apologised to shareholders for a “disappointing” year. The bank’s shares fell from above $26 in October to below $21 earlier this month after full-year earnings highlighted the impact of a mortgage price war on margins.

“Overall, the result was disappointing, leading to a drop in our market value for which I apologise unreservedly on behalf of the Board,” McFarlane told today’s AGM.

“Be assured, remedial action has been instituted by the Board and management to improve performance going forward, including a plan to reduce costs materially over the next three years without jeopardising investment in infrastructure and revenue opportunities.”

The bank was the best of the big four high-street banks. ANZ gained 0.36 per cent and NAB 0.38 per cent. CBA dipped 0.6 per cent.

Woolworths rose 0.61 per cent after Wesfarmers declared it would not support the supermarket chain’s bid to buy Australian Pharmaceutical Industries (API). Woolworths’ bid is seen as unlikely to succeed without Wesfarmers’ support. The retail conglomerate holds a 19.3 per cent stake in API.

Wesfarmers eased 0.5 per cent. API shares put on 0.88 per cent.

Helloworld Travel rallied 6.55 per cent after selling its corporate and entertainment business to Corporate Travel Management for $175 million in cash and equity. The proceeds will be used to pay down debt, provide liquidity and grow the travel agent’s retail and leisure businesses.

Corporate Travel Management entered a trading halt for a capital raising to fund the acquisition.

Insignia Financial shrugged off news the corporate regulator launched an action against the company’s OnePath custody business. Shares in the asset manager formerly known as IOOF Holdings rose 0.83 per cent. The action relates to issues before Insignia acquired the business from ANZ.

Investment manager Challenger climbed 1.21 per cent after naming Nick Hamilton as its new CEO and Managing Director. Hamilton has headed the firm’s funds management business since 2019.

The morning’s best performers were UK lender Virgin Money +3.21 per cent, aluminium manufacturer Alumina +2.63 per cent and utility AGL +1.98 per cent.

Aside from Woolworths and the banks, the best of the heavyweights were Coles +0.98 per cent, Rio Tinto +0.68 per cent and BHP +0.24 per cent.

Going down

Evolution Mining fell 4.36 per cent after completing the sale of its Mt Carlton gold mine to Navarre Minerals. The new owner’s shares eased 2.9 per cent during a soft session for gold miners. The gold sub-sector fell 2 per cent.  

APA eased 0.81 per cent after announcing a 4.2 per cent increase in its interim distribution to 25 cents.  

Mesoblast fell 5.69 per cent to a 21-month low following the loss of a key product development partnership.

At the heavyweight end, Afterpay fell 2.31 per cent, Goodman 2.03 per cent and Aristocrat Leisure 1.92 per cent.

Other markets

A mixed morning on Asian markets saw the Asia Dow rise 0.5 per cent and Japan’s Nikkei edge up 0.04 per cent. China’s Shanghai Composite fell 0.11 per cent and Hong Kong’s Hang Seng 0.21 per cent.

US futures traded modestly lower. S&P 500 futures retreated four points or 0.1 per cent.

Oil added to overnight losses. Brent crude dropped 55 US cents or 0.75 per cent to US$73.15 a barrel.

Gold dipped 50 US cents or 0.03 per cent to US$1,771.80 an ounce.

The dollar inched up 0.02 per cent to 71.06 US cents.

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