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An upbeat economic outlook from the Reserve Bank and multi-week highs in some of the banks helped keep the ASX near record levels despite falls in mining stocks.

The S&P/ASX 200 reached mid-session unchanged at 7511. Today’s action continued a run of tight, range-bound sessions as declines in iron ore miners largely cancel gains on the wider market.

A 7 per cent dive in ore prices helped lower BHP, Rio Tinto and Fortescue Metals. Afterpay, CSL, Wesfarmers and the banks kept the market on the upswing. News Corp hit a record on a strong return to profit.

What’s driving the market

The Reserve Bank doused fears the economy was heading for a deep hole after Victoria and the NSW Hunter region joined South-east Queensland and Greater Sydney in lockdown. Governor Philip Lowe told the House of Representatives Standing Committee on Economics it was “quite unlikely” the economy would fall into recession (defined as two quarters of negative GDP). Mr Lowe said the economy would contract this quarter, but start to recover before the end of the year.

“Significant parts of the Australian economy are still on the positive trajectory that was in place before the recent outbreaks. This is quite different from the situation in the first half of last year, when the whole of Australia was in lockdown,” Mr Lowe said.

“The economy is expected to bounce back quickly once the restrictions ease,” he added. “The experience both in Australia and elsewhere is that once restrictions are lifted, spending recovers strongly, especially if people have confidence about the future. While the exact timing of the bounce-back is difficult to predict, it is likely to start well before the end of the year.”

The effects of recent lockdowns have been showing up in economic data all week. The Australian Industry Group’s Performance of Services Index, released this morning, sagged to 51.7 last month from 57.8 in June. The employment measure dipped 3.2 points to 51 as the Sydney lockdown took effect.

Case numbers continued to climb. New South Wales recorded 291 new local cases in the 24 hours to 8 pm last night, the highest single-day tally yet. Queensland recorded ten new cases and Victoria four.

Property advertising group REA warned investors that listings had been negatively impacted by lockdowns. In addition, the company’s Indian business remained “volatile” due to the effects of Covid. REA hit record levels this year in anticipation of strong revenue growth as property prices flew higher. The company’s share price sagged 5.6 per cent this morning despite revenue growth of 13 per cent and an increase in net profit of 18 per cent.  

Domestic concerns largely overshadowed positive US leads. The S&P 500 rallied 0.6 per cent overnight as improved economic data fuelled a recovery in cyclical sectors.

“A broad rally on Wall Street drove stocks higher overnight, pushing both the S&P 500 and NASDAQ indexes to record highs,” Kalkine Group CEO Kunal Sawhney said.

“Investors will closely eye jobs and earnings data heading into tonight’s crucial payroll report. Now, this could either answer or raise difficult questions associated with the pace of economic growth over the second half of the year.”

Going up

The financial sector has provided the heft for this week’s push to record levels. CBA hit a seven-week high this morning before paring its gain to 0.2 per cent. The bank reports earnings next week. ANZ added 0.67 per cent, NAB 0.24 per cent and Westpac 0.48 per cent.

Afterpay was the biggest mover at the top end, rising 5.1 per cent. US suitor Square’s share price rallied 1.09 per cent overnight.

Other tech/BNPL gains included Z1p Co +1.25 per cent, EML Payments +3.31 per cent, Nuix +2.48 per cent and Altium +1.26 per cent.

News Corp was the index’s best performer after a 30 per cent increase in Q4 revenues helped the media giant raise full-year revenues by 4 per cent to $9.36 billion. Highlights included record digital subscriptions, record profits at Move and HarperCollins and the largest profit at Dow Jones since it was acquired in 2007. The share price climbed 5.58 per cent to its highest level since a corporate shake-up.

“Fiscal Year 2021 was the most profitable year since we created the new News Corp in 2013,” Chief Executive Robert Thomson said.

BetMakers surged 13.46 per cent on news New Jersey had become the first state in the US to legalise fixed odds betting on horse racing. BetMakers has an exclusive ten-year deal to manage and deliver fixed odds racing in the state.

Wesfarmers‘ run of records continued with a rise of 0.62 per cent. CSL firmed 1.09 per cent.

Going down

Bulk metal miners were the heaviest weight on the index following a sharp deterioration in iron ore prices. The spot price for ore landed in China dived 7.2 per cent to its weakest level since April.

“It looks like China wants to redirect its economy towards strategic industries. For this, regulators are pushing companies to do more to serve the Communist Party’s goals, rattling markets,” Kalkine’s Mr Sawhney said.

BHP fell 2.54 per cent to a two-week low. The company this morning announced it will proceed with the Shenzi North oil project in the Gulf of Mexico. The new wells are expected to pay back an initial investment of US$544 million within two years.

Fortescue Metals dropped 1.42 per cent, Rio Tinto 1.79 per cent and Champion Iron 4.39 per cent.

ResMed fell 0.89 per cent from record levels after a warning about component shortages took some of the shine off strong revenue growth. Full-year revenues increased by 8 per cent to $3.2 billion. Operating profit improved 12 per cent. CEO Mick Farrell reportedly told analysts on a call this morning that production over the next six months would be crimped by supply constraints.

Domain Holdings fell 7.41 per cent after online property ad rival REA warned about a drop in listings amid creeping lockdowns. Domain reports later this month.

Other markets

Record Covid numbers for the current outbreak in China kept a lid on Asian markets. China’s Shanghai Composite retreated 0.4 per cent. Hong Kong’s Hang Seng shed 0.32 per cent and the Asia Dow 0.28 per cent. Japan’s Nikkei inched up 0.06 per cent.

US futures tracked Asian declines. S&P 500 futures eased almost four points or 0.08 per cent.

Oil edged higher for a second session. Brent crude rose seven US cents or 0.14 per cent to US$71.36 a barrel.

A rising US dollar pushed gold down US$6.20 or 0.34 per cent to US$1,802.70 an ounce.

The dollar retreated 0.31 per cent to 73.8 US cents.

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