Even though markets will start the day on the backfoot after weak finishes in most of Europe and across all US markets this morning, a surge in iron ore prices should make local investors think again.
The ASX 200 futures had the local market opening with a small loss – but a 3.3% jump in spot iron ore prices overnight should help sentiment here and boost the share prices of BHP, Rio Tinto, Fortescue and the rest of the sector.
Wall Street lost between 0.2% and 0.5% this morning – gold and oil also fell and US bond yields jumped to their high for the year of 2.28%, while German 10-year bond yields also jumped sharply to end on 0.62% and very close to year highs as well
The surge in iron ore prices though has surprised many of the bears – Goldman Sachs analysts for example overnight repeated their claim that prices will be weak all year and average $US52 a tonne.
Their renewed bearish forecast was made in the face of the overnight jump to $US62.50 a tonne, up from its prior close of $US60.50 a tonne.
That took the current rally in iron ore prices to 35% from the 10-year low of $US46.70 a tonne reached in early last month.
In fact the overnight close was the highest since March 2.
Prices responded to the latest interest rate cut in China on Sunday night. It was probably the biggest reaction to the rate cut after an early rally in Asian markets petered out yesterday afternoon and failed to boost markets in Europe and the US.
Interestingly the fall in US markets came after that big rally on Friday night in the wake of the solid jobs report for April. Second thoughts perhaps?
