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The share market recouped almost half of yesterday’s losses despite another red night on Wall Street as investors repositioned for higher rates this year.

The S&P/ASX 200 bounced 93 points or 1.27 per cent after overshooting to the downside yesterday. The Australian benchmark tumbled 2.7 per cent on Thursday to its heaviest loss since March 2020.

All 11 sectors recovered this morning, led by battered REITs and the rate-hike friendly financial sector. Wesfarmers emerged as the likely winner of a bidding war for Australian Pharmaceutical Industries after Woolworths withdrew its offer.

What’s driving the market

Yesterday’s market panic subsided after Wall Street steadied overnight. While the major US indices closed modestly lower, there was little evidence of the frenzied selling on Wednesday night that drove the Nasdaq Composite to its heaviest loss since last February.  

The Nasdaq eased 0.13 per cent as some of the tech leaders rebounded. The S&P 500 dropped 0.1 per cent. The Dow shed 0.47 per cent.

“The dip in stocks seems a bit overdone,” UBS Global Wealth Management told clients. “The normalization of Fed policy shouldn’t dent the outlook for corporate profit growth, which remains on solid footing due to strong consumer spending, rising wages, and still-easy access to capital.”

Overnight gains in oil and iron ore helped the ASX recover. Brent crude improved for a fourth straight night. Iron ore traded at levels last seen in October.

“Energy and mining stocks were seen to be driving gains on the ASX, backed by firmer commodity prices,” Kalkine Group CEO Kunal Sawhney said.

“While oil prices surged on escalating unrest in Kazakhstan and Libyan supply outages, iron ore prices jumped on hopes of demand revival after the Beijing Olympics. The recovery in the Australian shares can also be credited to bargain hunting by investors and traders following a recent slump.”

The spotlight in the US will swing tonight from the rates outlook to the strength of the labour market. The December nonfarm payrolls report is expected to show the latest Covid wave had limited effect on employment. A report on Wednesday showed the private sector added 807,000 jobs.

Citi this morning warned it expects the Omicron outbreak to knock a hole in Australian economic activity this quarter. The bank’s economists downgraded their Q1 2022 GDP outlook to 1.3 per cent from 2.3 per cent.

The downgrade came as media reports suggested NSW will reintroduce some Covid restrictions to contain soaring case numbers. The state reported 38,365 new cases this morning. Possible changes include closing nightclubs and restricting crowds at public events.

Going up

Wesfarmers jumped 1.29 per cent after firming as the likely winner of a bidding war for Australian Pharmaceutical Industries (API). Rival Woolworths announced it was walking away from its non-binding proposal to acquire the pharmacy wholesaler and retailer following due diligence.

“Woolworths Group has advised API that it has withdrawn its proposal as it has not been able to validate the financial returns it requires in line with the Group’s capital allocation framework,” the company said.

API said a Scheme Implementation Deed with Wesfarmers remained in place and was due to complete this quarter. The firm’s shares declined 12.43 per cent from close to Woolworths’ $1.75 per share offer price to $1.51.50, nearer Wesfarmers’ bid of $1.55. Shares in Woolworths dropped 0.19 per cent.

Some of yesterday’s worst performers were amongst today’s best. Real estate investment trusts bounced off a one-month low. Unibail-Rodamco-Westfield rallied 5.84 per cent, Goodman Group 1.93 per cent and Dexus 1.92 per cent.

In the tech space, WiseTech recouped 2.85 per cent, EML Payments 2.75 per cent and Afterpay 2.44 per cent.

BHP was the pick of the big three bulk metal producers, rising 2.2 per cent. Rio Tinto added 1.73 per cent and Fortescue Metals 2.28 per cent.

Energy giant Woodside gained 2.43 per cent, Santos 2.2 per cent and Beach Energy 2.57 per cent.

A strong session for insurers saw Medibank Private gain 5.29 per cent, IAG 3.9 per cent, Suncorp 2.65 per cent and NIB 2.87 per cent.

The financial sector reversed almost all of yesterday’s sell-off. Commonwealth Bank put on 2.64 per cent, ANZ 2.73 per cent, Westpac 1.35 per cent and NAB 1.52 per cent.

Going down

James Hardie dived 4.72 per cent after the fiber cement supplier punted CEO James Truong following complaints about workplace behaviour. The board concluded after due diligence that Mr Truong’s conduct breached the company’s code of conduct. Harold Wiens will act as interim CEO.

Investment manager Pinnacle added to yesterday’s 13.14 per cent plunge after reporting it will receive $18 million in performance fees for the last half. The firm expects a net return on first-half investments of $2 million. The share price declined 0.37 per cent.

Magellan eased 2.4 per cent on news of further fund outflows last quarter in addition to the loss of a major mandate from the UK’s St James’s Place. The investment manager saw net outflows of $1.552 billion. The firm expects performance fees of $11 million for the first half.

Other markets

A rebound session on Asian markets saw the Asia Dow rise 0.38 per cent, China’s Shanghai Composite 0.39 per cent, Hong Kong’s Hang Seng 0.64 per cent and Japan’s Nikkei 0.59 per cent.

US futures moved sharply higher. S&P 500 futures were recently up 16 points or 0.34 per cent.

Oil rose for a fifth session. Brent crude climbed 52 US cents or 0.6 per cent to US$82.51 a barrel.

Gold bounced US$1.40 or 0.1 per cent to US$1,790.60 an ounce.

The dollar firmed 0.2 per cent to 71.76 US cents.

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