A busy night – iron ore prices fell, again, to new lows, the Aussie dollar sprinted sharply higher, markets in Asia jumped, eased in Europe, but rose solidly in the US by around 1%.
So will local investors again ignore the obvious and push Australian shares sharply higher as they did yesterday with the 99 point, 1.9% surge in the ASX 200?
Many of the same factors from last night were present at the opening yesterday and yet investors ignored them and chased shares higher all day, aided by short covering in stocks like Metcash and Dick Smith.
The Reserve bank’s decision to sit on interest rates helped yesterday afternoon, as did a reasonable session in Shanghai, but the performance of the market by the close was somewhat surreal, given usual the negative triggers of falling iron roe prices and weak Chinese manufacturing
Our normally nervy China-shy investors in fact ignored another weak month for Chinese manufacturing – normally the gloomy duo of reports on the health of Chinese manufacturing would have been enough to send shares lower, or sideways at best. But nope, the reports had no impact.
So overnight Tuesday iron ore dipped 1.7% to trade at $US42.24, according to The Metal Bulletin, with tips it will fall under $US40 a tonne in the next week or so as Gina Rinehart’s Roy Hill mine tips the first of its 55 million tonnes a year of output onto an already oversupplied global market.
The overnight traders on the ASX 200 futures market couldn’t make up their minds, and although the market was slight in the red at the close, that was irrelevant after yesterday’s explosive start.
The Australian dollar surged higher overnight, extending gains made on Tuesday after the Reserve Bank left the cash rate unchanged for a seventh straight month.
It was trading around 73.30 US cents around 8 am, up a cent in the past day. Some of those gains from the lower currency are slowly being eaten away, despite another sharp fall in our terms of trade.
Since hitting a six-year low of US68.96 cents in September, the dollar has risen slowly but surely as more evidence emerged the local economy was doing well and that further rate cuts would not be needed, except in an emergency.
That’s despite a 30% slide in the value of iron ore in the same time, weaker prices for gold, copper, lead, zinc, oil and gas, as well. Our terms of trade fell 2.4% in the September quarter – but all that has been ignored.
This morning the September quarter national accounts will show a solid performance by the economy, helped by a strong effort from the trade account for the second quarter this year (after the March quarter boost).
The US dollar sold off overnight, allowing the euro and the Aussie to close higher, and for commodity prices to rise. Oil, gold and gas all edged higher in New York and base metal prices firmed in London on the LME.
Copper firmed overnight on moves by China’s top 10 smelters to cut output (zinc smelters did the same two weeks ago to no avail). The 10 smelters say they will cut production by 350,000 tonnes next year and want the Chinese government to support the metal by buying extra stocks for the country’s strategic stockpile.
But a cut in production would mean a fall in demand by China for copper metal and concentrates, which would be a negative for foreign producers like BHP and Rio Tinto.
The weak manufacturing activity reports had no impact at all globally yesterday and last night. And even a dip into contraction by the huge US manufacturing sector in November was noticed, but didn’t stop Wall Street from ending with a solid rise of between 0.9% and just over 1% for the Dow, S&P 500 and the Nasdaq.
