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ASX hits seven day low as lockdowns bite

Published: 13:04 17 Aug 2021 AEST

Magellan Financial Group Ltd - ASX hits seven day low as lockdowns bite

Predictions of a strong start to the morning’s trading were quickly thwarted, with the ASX dropping to a seven-day low.

Markets tumbled against the backdrop of falls in heavyweight banks and miners.

Magellan Financial Group Ltd (ASX:MFG) and Breville Group (ASX:BRG) Ltd also sustained sharp falls after reporting failed to excite investors.

BHP Group Ltd is already down 1.4% ahead of its earnings report this afternoon.

In the winners’ circle were Wesfarmers Ltd (ASX:WES), ResMed CDI (NYSE:CDI) and Woolworths Group Ltd, who eked out small gains.

At time of writing, the S&P/ASX 200 share index had fallen 0.83% to a 7-day low of 7,519.80 and was on track for its first two-day fall and biggest-one-day fall in the past four weeks.

The All Ordinaries was down 0.85% to 7,782.9

Lockdowns could be having impact

The dip could be attributed to biting lockdowns across Melbourne and Sydney, which have led analysts to rethink the Reserve Bank of Australia’s baseline economic assumptions: those restrictions would ease through the September quarter and vaccine roll-out would facilitate the opening of international borders.   

Those assumptions are now highly unlikely, with targeted vaccination rates of 80% unlikely to happen by November at the earliest.

The RBA is prepared to act if the economic situation in Australia worsens.

"The Board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery."

The RBA "will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range" and the "central scenario for the economy is that this condition will not be met before 2024.

"Meeting this condition will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently," the bank says.

The current cash rate stands at 0.1%.

Despite growing case numbers, the RBA is remaining positive, forecasting GDP to grow by 4% through 2022 and 2.5% in 2023.

The RBA expects the economy to bounce back strongly.

“Experience to date had been that, once virus outbreaks were contained, the economy bounced back quickly. The vaccination program would assist with containment of the virus and longer-term economic recovery,” the RBA’s minutes showed.

“Although uncertainty had increased, the central scenario was still that the Australian economy would grow strongly again next year.”

On the small cap front

There are a couple of small caps defying the odds today.

Maximus Resources Ltd (ASX:MXR) is currently up 6.58% after it announced it had secured a new cornerstone investor in Pantoro Ltd, as it seeks to advance its gold and nickel exploration and development strategy in WA. Pantoro took a 19.9% strategic shareholding as part of Maximus’ recent $12 million raise.

Mako Gold Ltd (ASX:MKG) was up 4.65% at the time of writing after intersecting its highest-ever grade of 1-metre at 174.60 g/t gold at its Tchaga prospect of the Napié Project in Côte d’Ivoire. Mako was up as high as 17% in early trading.

The S&P/ASX Small Ordinaries is down 0.65% to 3,475.3

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