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The share market dropped to a three-week low as US equity futures declined and a huge week of corporate earnings got off to a rocky start.

The S&P/ASX 200 slid 19 points or 0.26 per cent to 7414.5 by mid-session.

Casino group Star Entertainment, rail freight firm Aurizon and property giant Lendlease were among the biggest drags following poorly-received trading updates. Reports from drinks business Endeavour and insurer IAG met with a warmer reception.  

What’s driving the market

Domestic earnings set the tone following a mixed end to a losing week on Wall Street. Losers outweighed winners on the first day of the heaviest week so far of the interim reporting season.

IAG, Endeavour and Carsales.com rallied, but their gains were significantly smaller than falls among Star Entertainment, Fletcher Building, Aurizon and Lendlease. JB Hi-Fi, Orora and News Corp also declined following recent reports. Beach Energy was flat.  

The earnings impact of adverse weather was a theme in updates from Aurizon and Fletcher Building. Legislative changes dented the outlook at Star and Lendlease. JB Hi-Fi warned its recent strong trading momentum slowed last month.

Stock futures trended lower in the US this morning followed a mixed end to last week. S&P 500 futures retreated 20 points or almost 0.5 per cent. Dow and Nasdaq futures eased 0.35 and 0.6 per cent, respectively.

Wall Street’s main indices fell last week as market pricing on interest rates shifted closer to Federal Reserve guidance. The Nasdaq and S&P 500 had their worst weeks since December. The Nasdaq declined 2.41 per cent, the S&P 500 lost 1.11 per cent and the Dow dipped 0.17 per cent.

The declines came as a succession of Fed policymakers insisted interest rates had further to go and would likely remain elevated through this year.

“A number of Fed speakers this week have talked up rates expectations, pushing back on Powell’s dovish talk.” Barclays analyst Emmanuel Cau wrote. “As a result, the disconnect between the Fed’s own rates forecasts and market pricing has noticeably narrowed, which has hurt US equities.”

Going up

The energy sector bounced 2.2 per cent after Russia retaliated against western price caps by slashing crude production. Woodside rallied 2.68 per cent. Santos gained 1.94 per cent.

Other heavyweights to advance included James Hardie +0.94 per cent, Woolworths +0.75 per cent and Fortescue Metals +0.61 per cent.

Coal miners rebounded after a 0.27 per cent improvement in Newcastle prices on Friday. Whitehaven lifted 3.17 per cent, Coronado 2.56 per cent and New Hope 1.79 per cent.

The first restriction-free festive season in three years helped hotels and bottlos business Endeavour Group increase sales and hike its dividend. The operator of the Dan Murphys and BWS brands will pay shareholders 14.3 cents per share, an increase of 14.4 per cent, after raising first-half group sales 2.6 per cent to $6.5 billion. The share price gained 3.81 per cent.

“December saw customers return to more normal holiday activities and a full social calendar. Domestic travel has returned to regional and coastal towns, with stores and hotels in these areas performing strongly,” Endeavour Managing Director and CEO Steve Donohue said.

Insurance Australia Group rallied 4.14 per cent after reporting its biggest lift in written premiums in seven years. Gross written premiums increased 7.5 per cent in the first half. The company reaffirmed its full-year outlook.

A 15 per cent improvement in first-half revenue and a 37 per cent jump in net profit helped lift Carsales.com 1.73 per cent.

Beach Energy was unchanged as an improved dividend payout ratio helped offset a full-year production downgrade. Underlying first-half net profit dipped 10 per cent as energy prices cooled. The company will target a payout ratio of 40-50 per cent of pre-growth free cash flow.

Going down

Star Entertainment Group slumped 20.93 per cent after warning increased competition, tighter restrictions following the Bell Review and a proposed casino tax hike will impact earnings.

The casino group said proposed duty increases by the NSW government “would have a significant adverse impact on the profitability of The Star Sydney”. The company is also dealing with increased competition from Crown Sydney and costs associated with the fallout from a review into its operations.  

Appen plunged 13.86 per cent after marking down the value of company assets and business units. The artificial intelligence data provider announced it will take an impairment charge of $204.3 million against its first-half result, due on February 27. Underlying earnings and net profit were unaffected.

Wet weather and a two-week derailment outage knocked Aurizon’s first-half underlying earnings down 4 per cent, prompting a full-year downgrade. The rail freight firm now expects underlying earnings of $1.42-$1.47 billion, a cut of 4 per cent. The share price shed 6.91 per cent.

Adverse weather also impacted Fletcher Building. The Kiwi builder’s shares sagged 6.48 per cent after it warned last month’s floods will dent earnings. The company reported a half-year net profit of $92 million, down 46 per cent from 1H22.

JB Hi-Fi slipped 3.37 per cent after warning sales growth slowed last month. Total sales growth in January was 2.5 per cent, down from 4.3 per cent in the prior corresponding period.

Group CEO Terry Smart said, “While we are pleased with the January trading result, with sales continuing to be well above pre Covid January 2020, we have seen sales growth start to moderate from the elevated levels seen in the first half of FY23.”

Lendlease reported a $141 million first-half loss after taking a $200 million provision following new UK legislation extending liability for building defects from six years to 30 years. The provision overshadowed a core operating profit of $105 million. The share price declined 6.14 per cent.

Nuix plunged 26.07 per cent following media speculation the software maker’s relationship with corporate regulator ASIC is under threat. The Australian Financial Review said anonymous insiders indicated Nuix may miss out on a 10-year tender to provide ASIC with digital forensics.  

Other markets

Asian markets got off to a negative start. The Asia Dow declined 0.87 per cent, China’s Shanghai Composite 0.11 per cent, Hong Kong’s Hang Seng 1.32 per cent and Japan’s Nikkei 1.34 per cent.

Oil reversed almost half of Friday’s 2.2 per cent rally. Brent crude slid 88 US cents or 1 per cent to US$85.51 a barrel.

Gold added to last week’s 0.1 per cent loss, falling US$5.60 or 0.3 per cent to US$1,868.90 an ounce.

The dollar dropped 0.19 per cent to 68.99 US cents.

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