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Australian shares trimmed two days of strong gains as regional markets took a breather ahead of the resumption of US trade after the Memorial Day holiday.

The S&P/ASX 200 eased 29 points or 0.4 per cent on the final morning of a volatile month.

The market gave back roughly a sixth of its 2.5 per cent rally since Friday. Slim gains in Santos and the mining majors were outweighed by declines across the wider market.

What’s driving the market

A two-day rally stuttered as US equity futures halved their gains ahead of the first session of a holiday-shortened week. S&P 500 futures were up more than 0.5 per cent when the ASX opened, but just 0.25 per cent as the session reached the halfway mark.

Asian markets marked time as energy prices re-emerged as a headwind for the global economy. The Asia Dow retreated 0.17 per cent. Japan’s Nikkei inched up 0.04 per cent. China’s Shanghai Composite added 0.09 per cent and Hong Kong’s Hang Seng 0.11 per cent.

Oil hit a two-month high this morning after European Union leaders reached a deal to halt roughly 90 per cent of Russian imports by the end of the year. Brent crude for July delivery settled 1.9 per cent higher overnight at US$121.67 a barrel. The international benchmark climbed another 76 cents or 0.6 per cent this morning to US$122.43 a barrel.

“The Oil market may yet again be the equity market’s undoing,” Clifford Bennett, chief economist at ACY Securities, said.

“The world is facing some serious energy supply concerns. Some nations may well experience energy shortages over the coming twelve months and this will continue to force the price of oil alarmingly higher,” he added.

“The forecast here has always been US$150 a barrel this year, risk $180, and a move as high as the obscene, that is $250 is not out of the question level, for 2023… Chronic extreme energy prices are a planet economy killer.”

Investors had a barrage of economic data to interpret. Chinese manufacturing and services-sector activity contracted less than expected this month. The manufacturing PMI ticked up to 49.6 from 47.4 last month. The services PMI improved to 47.8 from 41.9 in April.  

Back home, private-sector credit and company operating profits were both stronger than expected, offsetting weak results for building approvals and the current account.

Consumer confidence, already at low levels, showed little response to the federal election. The ANZ-Roy Morgan confidence index dipped 0.1 per cent.

Going up

Energy and materials were the pick of the sectors as the EU’s embargo on Russia pointed to higher prices. Santos climbed 1.16 per cent. Beach Energy put on 3.51 per cent. Woodside dragged, falling 0.38 per cent.

Bulk metal miners were boosted by overnight gains in iron ore and industrial metals as China eased Covid restrictions. Fortescue Metals put on 2.04 per cent, Rio Tinto 1.07 per cent and BHP 0.24 per cent.

Dairy stocks consolidated gains after surging yesterday on news the US was fast-tracking imports of infant formula to meet a national shortage.

Australian Dairy Group climbed 8.05 per cent on news it was working with authorities to gain access for its Gradulac Gentle range. A2 Milk, which also has applications in the pipeline, retreated 1.57 per cent. Bubs shaved yesterday’s 40 per cent rally, falling 4.78 per cent.

Other agribusinesses strengthened. Elders firmed 2.05 per cent, United Malt 1.33 per cent and GrainCorp 0.92 per cent. Fruit and veg wholesaler Costa Group added 2.25 per cent.

Appen rose for the first time in three days since Canada’s Telus International walked away from takeover talks. The data sourcing firm shrugged off a broker downgrade from Wilsons, rising 2.54 per cent.

Going down

The tech sector gave back some of yesterday’s 4.6 per cent rally. Megaport shed 2.85 per cent, WiseTech 2.54 per cent and NextDC 1.78 per cent.

In the fintech space, Zip Co eased 5.13 per cent, Tyro Payments 3.96 per cent, EML Payments 3.92 per cent and Afterpay parent Block 2.89 per cent.

Crown Resorts declined 0.39 per cent after being whacked with an $80 million fine for breaches of Victoria’s Casino Act. The Victorian Gambling and Casino Control Commission said Crown helped gamblers circumvent restrictions on Chinese foreign currency movements by disguising spending on gambling as hotel expenses.

Centuria Capital announced the acquisition of $223 million worth of healthcare and retail assets. The acquisitions include a private hospital development in Sydney and a shopping centre near Newcastle. The share price dropped 1.12 per cent.  

Orica dipped 0.98 per cent as its shares traded ex-dividend.

Other markets

The dollar retreated 0.23 per cent to 71.78 US cents after trading briefly above 72 US cents overnight.

Gold declined US$4.40 or 0.24 per cent to US$1,852.90 an ounce.

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