The rout in iron ore prices continued yesterday amid steel production cuts in China, but it isn’t the only thing that is expected to drive the ASX lower again.
China’s property market woes, including the collapse of its biggest property developer Evergrande, sent US stocks tumbling – however, losses on Wall St were pared back towards the market’s close.
Economic slowdown is also having an effect with Macquarie Equities adding more defensive exposures to its model share portfolio.
Analysts at Macquarie believe the global economic slowdown is nowhere near over.
"Leading indicators still point to a slowing cycle and COVID lockdowns are not the only driver," Macquarie's Australian equity strategist Matt Brooks said.
"China’s credit impulse is negative and falling and while our Macro Strategy Team expects this to trough in 4Q21, they do not expect property easing until next year.
“With China still slowing, and China leading this cycle by a few months, we are unlikely to see the hoped-for re-acceleration in the global cycle in CY21."
Here’s what we saw:
- The SPI futures index was down 97 points or 1.4% at around 6.30am this morning.
- The Australian dollar is lower at US72.53c.
- Iron ore prices plunged down 6.7% to a 16-month low of $US94.00 a tonne.
- Brent oil fell 1.9% to $US73.92 a barrel.
- Gold futures rose 0.7% to $US1,763.80 an ounce.
- Spot gold was trading near US$1,765 an ounce at the US close.
- Copper was down 2.8%.
- Zinc was down 2.5%.
Australian market
Following more riots in Melbourne’s streets and concerns the spread of COVID within the construction industry is getting out of control, the Andrews government shut down the industry, effective immediately.
Victoria’s $22 billion construction industry will be shut for two weeks following yesterday’s violent protests, which the CFMEU says was infiltrated by militant anti-vaxxers and neo-Nazis.
What this does to the markets remains to be seen, however, it will contribute to economic slowdown.
In other news
There was some good news coming out of Melbourne, well for Airwallex anyway. The Melbourne-based fintech started by students from the University of Melbourne has joined Canva as a billion-dollar company.
Aiwallex is now one of Australia’s richest tech start-ups. Its valuation is now $US4 billion ($5.53 billion) following an oversubscribed $US200 million funding round.
The big banks and miners led the fall on the ASX yesterday.
- BHP fell 4.4% to $37.53.
- Rio Tinto fell 3.6% to $95.24.
- Fortescue Metals fell 3.7% to $14.70.
- CBA fell 2% to $100.81
- Macquarie Group fell 3.6% to $173.69.
Australian indices
- ASX 200 fell 2.10% to 7,248.20
- ASX24 futures fell 1.4% to 7,119
- S&P/ASX Small Ordinaries fell 2.67% to 3,425.50
- All Ordinaries fell 2.14% to 7,537.90
US markets
While it did manage to claw back some losses, Wall St was hit hard on Monday.
Investors were nervous ahead of the US Federal Reserve's policy meeting this week and a credit default in the United States sparked a selloff.
The two-day Federal Reserve meeting begins today.
Certainly, the ongoing impasse in Congress over raising the US debt limit is causing issues.
The White House has warned of an “economic catastrophe” if the Republican opposition does not increase the cap.
“We are really playing with fire, at the risk of the government having to shut down. It’s not catastrophic, but it doesn’t really give confidence in the short term,” said Gregori Volokhine of Meeschaert Capital Markets.
The economic impact of COVID-19 is also worrisome for investors.
“There’s a buildup of negative trends, especially since with the Fed meeting, there’s going to be talk of less liquidity, which isn’t ideal for the markets.”
The good news story in the US is Universal Music Group, the world’s biggest label whose with artists such as The Beatles, Lady Gaga, Kanye West, Metallica and Taylor Swift.
Universal was valued at more than $US39 billion on Monday, as it prepares to list today.
US indices
- Dow Jones fell 1.8% to 33,970.47
- S&P 500 fell 1.7% to 4,357.73
- Nasdaq fell 2.2% to 14,713.90
European markets
European sharemarkets also tumbled in Monday trading. Mining shares plunged 3.6% and commodity prices slid.
Shares in Rio Tinto shed 2.4% and shares in BHP lost 1.6%.
European indices
- STOXX 600 fell 1.67% to 454.12
- German Dax fell 2.3% to 15,132.06
- UK FTSE fell 0.9% to 6,903.91