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The share market tested six-week lows after growth concerns triggered Wall Street’s worst fall in nine months.  

Local shares joined a global sell-off after a resurgence in Covid-19 cases sent benchmarks in Europe and the US down more than 2 per cent overnight.

The S&P/ASX 200 touched 7205, a level last seen in early June, before trimming its fall to 16 points or 0.22 per cent at 7270. The domestic benchmark yesterday pre-empted some of the overnight weakness with a fall of 62 points.

Declines in mining stocks and some of the banks outweighed gains in Afterpay, CSL and ANZ.

 What’s driving the market

Fears of a global correction mounted overnight as the spread of the highly-contagious delta coronavirus variant sharpened fears of further lockdowns and a slowdown in economic growth.

The Dow slumped 2.09 per cent to its worst loss since October as cyclical stocks took the brunt of the selling. The broader S&P 500 gave up 1.59 per cent. The pan-European Stoxx 600 lost 2.3 per cent as benchmarks in the UK, Germany and France shed between 2.3 and 2.6 per cent. Bond yields fell sharply.

“A decline in bond yields can be a sign of anticipations for a weaker economy amid the spread of new COVID-19 variants and hot inflation readings,” Kalkine Group CEO Kunal Sawhney said. “At a time when the [Federal Reserve] is preparing the markets for tapering for  bond purchases, there seems to be a rush to purchase bonds, resulting in a drop in bond yields. All in all, the market appears to be re-evaluating the strength of the recovery and the central bank’s response to inflation.”

Any drop below 7250 on the ASX 200 over the last month has been seized on by technical traders as a buying opportunity. The market hit its low in the first 15 minutes of trade and improved steadily from there as US futures hinted at a recovery tonight. S&P 500 futures were last up 23 points or 0.54 per cent.

The local market took in its stride news South Australia will enter a one-week lockdown from tonight after a cluster in the state expanded to five cases. Victoria will remain in lockdown for another week after recording 13 new local cases, four of which were reported yesterday. New South Wales reported 78 new local cases.

The cyclical mining and energy sectors took the biggest hits as raw materials responded to the threat of slower growth.

“A risk-off tone enveloped commodity markets as increased concerns rising variants of the coronavirus will hamper economic growth,” commodities strategist Daniel Hynes of Hynes Commodities said. “A stronger USD and rising geopolitical risks didn’t help risk appetite either.

“The ANZ China Commodity Index subsequently came under pressure, falling 1.5% for the session. The energy sector led the complex lower, with crude oil falling sharply following the OPEC deal. Industrial metals were also hit hard, with nickel and copper down sharply.”

Household spending in NSW slumped to pre-pandemic levels last week, according to Commonwealth Bank card transaction data. Card spend slowed 0.6 per cent to levels last seen in 2019.

Consumer confidence also declined last week, but remained well above levels seen at the start of the pandemic. The ANZ-Roy Morgan weekly index fell 5.2 per cent to 104.3 points.

The Reserve Bank stuck to its conviction the conditions for raising the cash rate will not be met until at least 2024. The bank said it remained committed to maintaining highly supportive monetary conditions until employment and inflation met its targets.

Going up

Oil Search rebounded from yesterday’s tumble after announcing it rejected a merger offer from Santos that would have created one of the 20 largest oil and gas companies in the world. The non-binding, indicative all-scrip offer valued Oil Search shares at around $4.25. If approved, Oil Search shareholders would have owned around 37 per cent of the new entity and Santos shareholders 63 per cent.

The Oil Search board said the offer was not in the best interests of shareholders. Shares in the company bounced 5.99 per cent to $3.81. Santos dropped 3.81 per cent.

A 67.4 per cent lift in full-year net profit boosted JB Hi-Fi 2.2 per cent. The retailer said earnings increased by 53.8 per cent during FY21, but warned lockdowns were having an impact on sales this month.

The healthcare sector climbed for a third session as investors favoured defensive sectors over cyclicals. Fisher & Paykel Healthcare climbed 2.08 per cent, Ansell 1.3 per cent and CSL 0.89 per cent.  

Ramsay Healthcare edged up 0.69 per cent after shareholders of UK takeover target Spire Healthcare rejected Ramsay’s offer. At 69 per cent, votes in favour fell short of the 75 per cent needed for the acquisition to proceed.

ANZ rallied on plans to buy back up to $1.5 billion shares on-market. CEO Shayne Elliott said the bank’s balance sheet was strong enough to “return a modest amount of surplus capital to shareholders through a buy-back”. The share price rose 1.47 per cent.

A drop in bond yields to their lowest since early February reignited interest in growth stocks. Z1p Co put on 5.69 per cent, Afterpay 2.56 per cent and Xero 2.12 per cent.  

Going down

A record quarter for iron ore and metallurgical coal production failed to protect BHP from down-pressure on commodity stocks. The share price fell 1.94 per cent.

“We achieved production records at our Western Australia Iron Ore operations and the Goonyella Riverside metallurgical coal mine in Queensland. We maintained all-time high concentrator throughput at our Escondida copper mine in Chile. Olympic Dam in South Australia had its highest annual copper production since BHP acquired the asset in 2005, and its best-ever gold production,” CEO Mike Henry said.

Rio Tinto dropped 1.99 per cent, Fortescue Metals 0.53 per cent and Champion Iron 2.6 per cent.

Woodside Petroleum fell 1.79 per cent following a 6.8 per cent dive in Brent crude overnight. Beach Energy shed 2.54 per cent.

Most financials declined as falling bond yields threatened lending margins. NAB fell 0.58 per cent to its weakest since March. Westpac sank 0.28 per cent. CBA touched a two-month low before bouncing 0.03 per cent.

Other markets

Asian markets trimmed losses as US futures rallied. The Asia Dow was last down 0.5 per cent, China’s Shanghai Composite 0.55 per cent, Hong Kong’s Hang Seng 0.2 per cent and Japan’s Nikkei 0.55 per cent.

Gold advanced as the US dollar retreated. The yellow metal climbed $9 or 0.5 per cent to US$1,818.20 an ounce. Brent crude edged up three cents or 0.04 per cent to US$68.65 a barrel.

The dollar rebounded 0.19 per cent to 73.51 US cents after an overnight “flight to safety” pushed it towards 73 US cents.

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