Big miners weigh on ASX as iron ore prices drop

The Australian stock market lost more than 1 percent of its value in early trade and Rio Tinto announced a weaker economic outlook from Russia’s invasion of Ukraine and China’s COVID-19 lockdown.

Key points:

• The Dow Jones index fell 0.5% to 30,630, the S&P500 fell 0.3% to 3,791, while the Nasdaq Composite index was steady at 11,251.
• The FTSE 100 index fell 1.6 percent to 7,040, Germany’s DAX fell 1.9 percent to 12,520 and Paris’ CAC 40 fell 1.4 percent to 5,915.
• Australian stock market is down more than 1 percent in early trading, pulled in by big miners

In the first half hour of trading, the All Ordinaries index was down 1.2 percent, or 89 points, to 6,764, and the ASX 200 index was down 1.3 percent, to 6,565.

Sectors of interest to the market include miners, energy companies, banks and real estate.

Big miners fell as iron ore prices plunged 4.8 percent to 104.96 dollars a tonne on recession fears.

The Australian dollar fell to 67.42 US cents after surging to nearly 68 US cents yesterday as the national unemployment rate fell to 3.5 per cent, its lowest in nearly 50 years.

Rio Tinto Memorial

Global miner Rio Tinto says it is facing a labor shortage in Western Australia due to rising COVID-19 cases at its Pilbara mine, in Western Australia’s northwest.

He also warned that rising inflation would eat into his earnings in the second half of the financial year.

In its quarterly output, Rio said that the increase in coronavirus cases at its Pilbara operations had led to an “unplanned increase in absenteeism”, which saw iron ore shipments fall 2 percent during the first half of the 2022 financial year.

During the second quarter, iron ore shipments rose nearly 5 percent to 79.9 million tonnes from the same time last year.

The company expects to ship between 320 million and 335 million tonnes of steelmaking material this year.

Rio said commodity prices fell during the second quarter amid growing recession fears and falling consumer confidence.

“Economic outlook is weakening due to the Russo-Ukrainian war, tighter monetary policy to curb rising inflation, and targeted COVID-19 restrictions in China.”

“Trade disruptions, food protectionism and a global focus on securing energy supplies continue to put pressure on supply chains, which need to be significantly eased before inflationary pressures subside,” the big miner said in a production report.

Rio Tinto shares were down nearly 4 percent, to $92.25 by 10:20 a.m. AEST, while rivals BHP were down 3.9 percent to $35.91 and Fortescue Metals Group lost 5.6 percent, to $16.43 at 10:30 a.m.

Wall Street Anxiety

US stocks have fallen back as a surge in inflation in North America kept investors on edge and amid weaker-than-expected earnings from the Wall Street giant.

North America’s largest bank, JP Morgan Chase, reported a 28 percent drop in second-quarter profit to $8.6 billion ($12.75 million) and delayed share buybacks.

Income from investment banking fell by almost two-thirds.

Chief executive Jamie Dimon warned that geopolitical tensions, high inflation, waning consumer confidence, withdrawal of stimulus and war in Ukraine, “are very likely to have negative consequences on the global economy someday”.

“Potential outcomes range from a soft landing to something much more difficult,” Dimon said.

Rival bank Morgan Stanley saw investment bank earnings fall by half as the war in Ukraine hit revenue from mergers and acquisitions.

All three major indexes sold off sharply before paring their losses.

The Dow Jones index fell 0.5 percent to 30,630, the S&P500 fell 0.3 percent to 3,791, while the Nasdaq Composite index ended flat, up 0.03 percent, to 11251.

Why won’t interest rates rise as high as expected

Manufacturer Price

Data released overnight showed that prices at farms and factory gates rose more than expected in June in the US.

That follows official data on Wednesday showing that U.S. consumer prices jumped 9.1 percent in the year to June, up from an 8.6 percent annual gain in May.

A big jump in prices could see more aggressive rate hikes from the U.S. Federal Reserve, with the possibility of a 1 percentage point rate hike at the U.S. central bank meeting this month, according to Atlanta Federal Reserve president Raphael Bostic.

The Federal Reserve raised interest rates by 0.75 percentage point last month.

Adding to the list of central banks raising interest rates this week are the Monetary Authority of Singapore and the Philippines’ central bank.

The US dollar surged to a 20-year high as spot gold slumped to near a one-year low.

“The Fed may need to dampen people’s expectations in terms of what they can do,” said Eddie Cheng of Allspring Global Investments.

“In recent upward cycles, we have observed that inflation has continued to rise during an upward cycle … It takes time for monetary policy to affect inflation.”

Mr Cheng said risky assets would be a “collateral damage” in the Federal Reserve’s efforts to control inflation.

The Australian dollar fell overnight and bought around 67.48 US cents by 07:25 AEST.

The ASX SPI 200 Index fell 0.8 percent, to 6,489 after iron prices and the stock price of large miners fell overnight.

european stock

The European Commission cut its forecast for eurozone economic growth in 2022 and raised its inflation forecast.

In London, the FTSE 100 index was down 1.6 percent to 7,040, Germany’s DAX was down 1.9 percent to 12,520 and Paris’ CAC 40 was down 1.4 percent to 5,915.

Oil prices fell as traders expected a big interest rate hike by the Fed to curb fuel demand.

Fuel prices have fallen over the past two weeks on fears of a recession, despite a decline in raw and processed products exported from Russia due to Western sanctions, and supply disruptions in Libya.

Brent crude pared losses and fell 0.5 percent to $99.10 a barrel overnight.

Spot gold fell 1.5 percent to $US1709.46 per ounce.

ABC/Reuters

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