The S&P/ASX200 has dropped 19.00 points or 0.26% to 7,280.80 in this morning’s trading, crossing below its 125-day moving average.
Over the last five days, the index has gained 0.45% and is currently 4.61% off its 52-week high.
The bottom performing stocks at time of writing were Ansell Limited down 4.93% and REA Group down 3.07%.
Despite the market falling, iron ore has continued a comeback of sorts which has helped to lift BHP Group, Fortescue and Rio Tinto higher on the day.
The tech sector is still suffering with Afterpay down 2.4% and Computershare down 1.9%.
We know that much of the Australian share market’s volatility is due to poor consumer sentiment. According to National Australia Bank’s business confidence survey, the sentiment is set to rebound. It was already up 19 points for a positive index return of 13 points.
“The improvement was driven by large shifts in confidence in NSW and Victoria following the announcement of reopening roadmaps in these states as well as rising vaccination rates across the country,” a NAB statement said.
“Recreation & personal services, wholesale trade and retail – some of the sectors worst affected by lockdowns – all saw a significant confidence boost, as did construction.”
After three months of lockdowns, business conditions have declined.
“NSW and Victoria were into their third month of lockdown in September and that shows in the way business conditions have deteriorated,” said NAB chief economist Alan Oster.
“There were large falls in NSW and Victoria but conditions were down across the board. From an industry perspective, recreation & personal services continue to be hit hard by health restrictions.”
Let’s hope it’s a quick turnaround.
What’s going on with iron ore?
The iron ore price has continued to rebound and related companies are making hay while the sun shines.
The commodity has recovered from a 14-month low, with the spot price on Monday climbing 9.4% to US$135.03 a tonne – a 45% climb in just three weeks.
Commodity strategists believe this is an anomaly and the price of iron ore will fall until the end of the year.
Co-head of mining research at UBS Lachlan Shaw said the revival is “being driven partly by restocking from the National Day holidays and so the question mark is how long that continues for. Underlying demand is still not that strong, and we don’t have conviction yet as to how long the current rally can endure.”
Word is that as Chinese workers returned to work following their week-long National Day, traders pushed the price higher.
It was given a further boost when reports surfaced that steel mills in Tangshan, Jiangsu, Zhejiang and Anhui were increasing output in October due to steel production cuts in September exceeding targets.
Macquarie reports no sequential cuts are now needed from September’s levels for the industry to meet its zero-growth target in 2021.
So, we’ve had some good short-term news, but what about the long-term outlook?
“Demand is being impacted by power cuts in manufacturing and the property slowdown, so we’d still not have much conviction there,” Shaw said.
“Property activity has slowed and it’s been slowing all year, so there’s been no significant sign of easing. And with infrastructure, there’s no sign of significant increase either so it’s hard to form a view that demand is structurally strengthening.”
Investment bank Morgan Stanley (NYSE:MS) also remains bearish with commodity strategist Marius van Straaten stating, “It looks like that China’s strong steel mill margins are holding the price up for now.
“That said, we believe that the iron ore price should be set by its own supply-demand fundamentals eventually, especially given the overhang of China’s rising iron ore port stocks and more than 200 vessels queuing to discharge an estimated 25 million tonnes of ore. Therefore, we are still iron ore bears, and it remains our least preferred commodity on a six-month horizon.”
Morgan Stanley forecasts iron ore to average US$85 a tonne in the year’s final quarter, with a bounce-back expected in Q2 2022.
On the small cap front
- Twenty Seven Co Ltd (ASX:TSC) is up 20% as it begins targeting prospective gold anomalies with a reverse circulation (RC) drilling campaign at its wholly-owned Rover Gold Project in WA.
- White Rock Minerals Ltd (ASX:WRM, OTCQX:WRMCF) has gained 7.14% today after encountering bonanza-grade gold during exploration drilling at its newly acquired Woods Point Gold Project in Victoria.
- Westar Resources Ltd (ASX:WSR) is up 3.33% with farm-in partner Ramelius Resources Ltd starting a reverse circulation (RC) drilling campaign of up to 3,400 metres at the Mt Finnerty Project, north of Southern Cross in the Archaean Marda-Diemals greenstone belt.
- American Rare Earths Ltd (ASX:ARR) is up 2.94% after announcing its wholly-owned US subsidiary Western Rare Earths (WRE) is supplying feedstock to researchers seeking funding from the US Defense Advanced Research Projects Agency’s (DARPA) new Rare Earth Elements (REE) bioengineering research program.
- XTEK Ltd (ASX:XTE) is up 1.89% after its subsidiary received a purchase order worth $1.1 million.