Soft Day Ahead Despite Commodity Rises

By Glenn Dyer | More Articles by Glenn Dyer

Normally they would have been good news for Australian investors with iron ore and oil prices rising, but those gains were ignored and the local market will start in the red as overnight futures traders took their cue from a sliding Wall Street on Monday than from commodity prices.

Iron ore prices surged by 9% to 10% on Monday, thermal coal prices hit new highs and oil bounced to new multi-year highs Monday but Wall Street shares fell thanks to a late fade as traders fretted about the damage those high energy prices might do.

The Dow shed 250.19 points, or 0.7%, to close at 34,496.06 after being up more than 200 points at its intraday high. The S&P 500 also fell 0.7% to 4,361.19 while the Nasdaq dipped 0.6% to 14,486.20.

All had been positive for much of the session but faded as oil prices strengthened.

US bond yields traded around the 1.61% level of late Friday while the Aussie dollar rose well past 73 US cents as the greenback softened.

But the late Wall Street fade saw ASX 200 futures trading go red and end with a loss of around 27 points, meaning a weak start again to trading on the local exchange this morning to follow Monday’s 0.3% dip.

The rise in oil prices will help shares of local oil and gas groups like Woodside and surging thermal coal prices in China and Asia (the Newcastle index price jumped nearly $US34 a tonne on the ICE exchange on Monday to end at $US259.50 a tonne or more than $A350 a tonne) will boost local coal stocks like Whitehaven.

Iron ore prices surged on the second full day of trading after last week’s break, building on Friday’s 5% to 6% gain and that will be good news for BHP, Rio Tinto and Fortescue which is basking on its green hydrogen PR and spending push.

The price of 62% Fe Pilbara fines delivered to northern China jumped $US11.65 or more than 9% to $US135.03 while the price of 58% Fe fines jumped more than 10% or $US9.73 a tonne to regain the $US100 level for the first time in weeks and close at $US105.59.

Gold and sliver fell, but copper rose nearly 1.7%, despite more bad news from China where the country’s power crisis has been made worse by flooding in a key coal producing province that has seen dozens of mines forced to close, stranding tens of millions of tonnes of much needed steaming and coking coal.

Oil prices though led the way on Monday as they surged to multi-year peaks, leading to renewed fears about the inflationary impact and fears that rising prices would worsen supply-chain snags.

Higher vaccination rates against the coronavirus have supported a revival in economic activity, helping Brent prices to rise for five weeks in a row and US West Texas style crude for seven.

US crude jumped more than 3% to a day’s peak of $US82.13 a barrel, a level not seen since late 2014, and Brent jumped more than 2% to $US84.60 before settling back to finish at $US83.65 a barrel.

“High or rapid increase in energy costs have triggered recessions in the past and there is a possibility that history could repeat itself if energy prices continue to rise. Higher energy prices result in lower disposable income for consumers,” Bernstein’s analysts warned in a Monday note.

Goldman Sachs lowered its US 2022 growth estimate to 4% from 4.4% and took its 2021 estimate down a tick to 5.6% from 5.7%. The firm’s economists cited the expiration of fiscal support from Congress and a slower-than-expected recovery in consumer spending, especially services.

“For activities like going to a movie theater, many individuals don’t anticipate resuming normal spending patterns for at least another 6 months, suggesting a full normalization in economic activity may take some time,” Goldman economist Joseph Briggs said in the report.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →