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A resilient share market edged to one-month highs as strength in tech stocks and bond proxies helped offset data exposing the economic hit from lockdowns.

The S&P/ASX 200 shook off early weakness to reach mid-session 12 points or 0.16 per cent ahead.

The index had a second-straight record close within reach after cracking 7390 for only the third time in its history. Previous pushes above that level last month faltered later in the session.

Afterpay, CSL and Brambles led today’s push for a third straight advance, offsetting declines in bank and mining stocks. The major supermarkets rallied after NSW reported the worst figures of the current outbreak. A report on slowing business activity underlined the impact of lockdowns.

What’s driving the market

In the Alice in Wonderland world of financial markets, bad news for the economy is not an automatic negative for share prices. Equity markets have pushed higher this week as investors warmed to the idea a slowing global economy will force central banks to retain supportive monetary conditions for longer.

Analysts have stopped scoffing at the Reserve Bank’s conviction the cash rate will remain at record lows until at least 2024. Some economists now expect the economy to contract this quarter as lockdowns bite. Data this morning confirmed suspicions the economy is rapidly turning south.

Business activity in the private sector contracted sharply as lockdowns affected most of the nation’s major cities. The IHS Markit Flash Composite Output Index dived to a 14-month low of 45.2 from a June figure of 56.7. Readings below 50 indicate shrinking activity.

“Latest indications from the IHS Markit Flash Australia Composite PMI suggested that Australia’s growth streak had been brought to a halt in July, and perhaps no surprise given the renewed lockdowns aimed to bring the COVID-19 situation under control,” Jingyi Pan, Economics Associate Director at IHS Markit, said.

“On the outlook, private sector firms were less optimistic given uncertainties surrounding the more infectious Delta variant and the supply situation,” he added.

New South Wales further tightened restrictions in parts of Sydney after reporting 136 new local Covid-19 cases in the 24 hours to 8pm last night, the highest tally of the current outbreak.

“The actions taken to date have averted many cases, but what we are not seeing is the turnaround that we would have liked to see at this stage,” Dr Kerry Chant, NSW Chief Health Officer, said.

Victoria recorded 14 new local cases. Queensland reported three cases. South Australia remained on track to exit lockdown after reporting one new case.

US stocks rose for a third night as gains in growth stocks offset declines in cyclicals. The S&P 500 edged up 0.2 per cent.

Going up

Tech stocks outperformed after the Nasdaq was boosted by a decline in bond yields. Nuix climbed 6.04 per cent, Afterpay 2.95 per cent and Xero 2.27 per cent.

An investment pattern worth watching is investors’ rotation back into growth stocks as benchmark Treasury Yields eased on Thursday,” Kalkine Group CEO Kunal Sawhney said. “Growth stocks that outperformed throughout the virus crisis were seen to be back in favour, with overnight gains in mega-cap tech and tech-adjacent stocks.” 

Traditional alternatives to bonds advanced as a fall in US yields encouraged investors to look beyond treasuries for steady income. CSL gained 1.52 per cent, Brambles 1.65 per cent and Goodman 0.99 per cent. Supermarkets Coles and Woolworths put on 0.75 and 0.41 per cent, respectively.

IAG lifted 0.51 per cent as a positive outlook for this financial year helped offset a reported net loss of $427 million in FY2021, according to preliminary results. CEO Mike Hawkins said the underlying result was sound, within expectations and he expected further improvement this year.

Small caps and speculative stocks played catch-up with the heavyweights. The Small Ords gained 0.51 per cent. The S&P/ASX Emerging Companies Index rallied 0.79 per cent.

Going down

Crown Resorts fell 1.61 per cent after Star Entertainment withdrew a merger offer for the beleaguered casino group. Star said its offer delivered significant cost synergies, but Crown had provided only “limited engagement”. Star also noted uncertainty over the potential loss of Crown’s licence to operate its Melbourne casino.

Crown said it remained willing to engage with its rival. Shares in Star rose 0.28 per cent.

The big four banks spearheaded losses at the sharp end of the market despite a muted response on Australian bond markets to overnight declines in bond yields. ANZ fell 0.64 per cent, Westpac 0.63 per cent, NAB 0.15 per cent and CBA 0.62 per cent. The yield on ten-year Australian government bonds reversed early weakness to reach mid-session unchanged.

Bulk metals producers suffered minor damage from a sharp fall in iron ore to three-week lows. Rio Tinto fell 0.43 per cent, BHP 0.27 per cent and Fortescue Metals 0.16 per cent. Overnight, iron ore sagged 5.7 per cent after Chinese authorities clamped down on steel production.

“Iron ore prices fell as steel output controls dampened demand for the steelmaking ingredient,” Kalkine’s Mr Sawhney said. “The recent plunge in iron ore prices does not seem to be a welcome news for Australia, which ships over half of the world’s iron ore.

“Australia raked in a whooping $310 billion from resources exports in FY 2020-2021, with iron ore playing an instrumental role in this bumper year story. At a time when China has also set its plans in motion for more independence with respect to iron ore, it will be worth watching how Australia retains its spot as a top iron ore exporter.”

Gold miner Silver Lake Resources tumbled 10.48 per cent after reporting production costs will increase next year.

Other markets

US futures hinted at a fourth night of gains. S&P 500 futures rose 12 points or 0.28 per cent.

A negative morning on Asian markets saw the Asia Dow drop 0.33 per cent, China’s Shanghai Composite 0.49 per cent and Hong Kong’s Hang Seng 1.05 per cent.

Oil trimmed overnight gains. Brent crude retreated 17 US cents or 0.23 per cent to US$73.63 a barrel. Gold dipped 80 US cents or 0.04 per cent to US$1,804.60 an ounce.

The dollar edged up 0.02 per cent to 73.81 US cents.

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