Iron ore has plunged below the $US50 per tonne mark as a supply glut and lingering concerns over the health of China’s economy threatens to inflict more pain on junior miners and the Australian budget.
The spot price of iron ore slumped to a new 10 year low overnight of $US49.53 a tonne, a fall of 3.5%. That takes the fall in the spot price so far this year to 30%.
Traders in the ASX 200 futures ignored the iron ore price slide and pushed the contract up 23 points, meaning they are hoping for a rise when trading starts at 10 am.
That was an act of confidence after the market fell yesterday on lower iron ore and other commodity prices. Today, the futures market is saying ‘ignore the iron ore slide’ and focus elsewhere.
Higher oil and especially gold prices overnight added to the optimism in the futures market.
Wall Street was weak after economic reports were weaker than expected.
The S&P 500 closed 8.20 points, or 0.4%, lower at 2,059.69, the Dow dropped 77.94 points, or 0.4% to 17,698.18 and the Nasdaq Composite ended the lost 20.66 points, or 0.4%, to 4,880.23.
Driving the falls and the general weakness in US markets (Europe was stronger overnight) was weaker than expected results of the monthly survey of US manufacturing (which is still growing strongly).
On top of this the weekly update on the oil sector from the US Energy Information Administration (EIA) showed a small fall in weekly production (the first for two months) and a small rise in stocks last week.
The EIA said commercial crude-oil inventories rose 4.8 million barrels in the week ended March 27 to 471.4 million, the highest level 80 years for this time of year, but it was also higher than the 3.5 million rise forecast by the market (so its hard to see that was bullish).
The big surprise (and why oil prices jumped) was the 36,000 barrel-a-day drop in production to 9.386 million barrels. That was seen as being a first step to slowing output and eventually, a fall in the size of the US oil surplus.
In New York, the US WTI contract rose $US2.49, or 5.2%, to close at $US50.09 a barrel, the largest jump in two months. In London May Brent crude jumped $US1.99, or 3.6%, to settle at $US57.10 a barrel.
Gold prices jumped $US25 an ounce at one stage and closed up $US25 at $$US1,208.50, a move that will cheer local gold stocks. It was trading around $US1,205 in early Asian trading.
Bond yields around the world eased, with the key US rate dropping to 1.86% as investors believed that the slowing US economy will delay rate rises from the Fed.
The Aussie dollar dipped to a night’s low of 75.83 US cents, and was trading around 76 cents in early local dealings. The uS dollar eased late in the session, boosting the Aussie.
The Australian market fell Wednesday for a third loss in four sessions.
The ASX 200 Index closed down 31 points, or 0.5%, at 5860.8, while the All Ordinaries dropped 29 points to 5832.9.
Wednesday’s drop came a day after the market closed ended with the best quarterly performance since 1991. Both indices had climbed about 9% in the March quarter.
