Australia is filling the void left by a 40-million-tonne fall in Brazilian iron ore output. (ABC: Stephen Stockwell)
Australian share futures show the local market is poised for gains, as a dramatic hump in iron ore prices offsets continued market jitters about trade in the US.
Market snapshot at 8:20am (AEDT):
- ASX SPI futures +0.3pc at 6,021, ASX 200 (Monday’s close) -0.2pc at 6,061
- AUD: 70.61 US cents, 54.91 British pence, 62.61 euro cents, 77.95 Japanese yen, $NZ1.05
- US: Dow Jones -0.2 pc at 25,053, S&P 500 0.0 pc at 2,710, Nasdaq +0.1 pc at 7,308
- Europe: FTSE 100 +0.8pc at 7,129, DAX +1.0pc at 11,015, CAC +1.1pc at 5,014, Euro Stoxx 50 1.0pc at 3,166
- Commodities: Brent crude -1.0pc at $US61.49/barrel, spot gold -0.4pc at $US1,308.18/ounce
US stocks trod water as investors waited for the latest high level trade talks between the US and China in Beijing.
China has expressed confidence about the talks but is also angry at a US Navy mission in the disputed South China Sea.
The US also said that the two countries could be closer to a trade agreement.
They are trying to reach a deal before the March 1 deadline for negotiations runs out, when US tariffs on $US200 billion ($283 billion) of Chinese imports will increase from 10 per cent to 25 per cent.
However, US President Donald Trump said last week that he was not planning to meet Chinese President Xi Jinping before the deadline.
Also the threat of another US Government shutdown weighed on investor confidence amid an impasse over Mr Trump’s plan to build a border wall between the US and Mexico.
US Democrat and Republican congressional leaders met to try and reach a deal by Friday’s deadline to avert another shutdown.
Funding for several departments, including the Department of Homeland Security, will run out on February 15 but politicians are trying to keep the departments operating.
The Dow Jones index ended slightly lower, while the S&P 500 and the Nasdaq were little changed.
Healthcare stocks were the biggest drag on the S&P 500 index.
The index is up about 15 per cent from its lows in December thanks to good profit results.
Around 71 per cent of S&P 500 companies reported better than expected fourth quarter results. However, forecasts are less rosy for the first quarter of the US financial year.
Reuters reported that analysts are forecasting first quarter earnings for US firms could drop by 0.2 per cent over the year. That is a drop from the 5.3 per cent they were forecasting at the start of 2019.
Morgan Stanley analysts predict that earnings could rise by just 1 per cent over 2019.
“Our earnings recession call is playing out even faster than we expected,” they said in a briefing note.
In Europe, markets rose as the trade talks resumed between the US and China.
GDP in the UK expanded by 0.2 per cent over the fourth quarter bringing annual growth to 1.4 per cent, which is the lowest growth rate in six years.
That is because of worries about Brexit and the slowing global economy.
Spot gold fell because of a stronger greenback.
Oil prices were also in the red as worries about the trade dispute overshadowed OPEC production cuts.
Surging iron ore prices boost miners
The Australian dollar has lost its boost from higher iron ore prices because of a stronger greenback.
NAB Markets Research said that the US dollar is at its strongest level so far for 2019, largely by default, with little resolution to the big issues facing global economies namely the trade dispute between the US and China, the US government shutdown and Brexit.
Iron ore futures in China jumped to a record high as traders returned from the Chinese New Year holiday.
Iron ore futures on the Dalian exchange rose to a record $US96.26 a tonne, while the spot price jumped $7 as traders stocked up after their break, pushing prices to a two-year high of $US94.30 a tonne.
Iron ore spot prices are up nearly $US20 a tonne since a dam burst in Brazil triggered a dramatic drop in output from one of the world’s main sources.
Last week, Brazil ordered Vale to stop using eight tailings dams after the deadly mine collapse.
The company has declared force majeure, with 9 per cent of its annual iron ore production hit.
Iron ore prices jumped last week after Vale said its iron ore production will drop by 40 million tonnes as it decommissions its upstream tailing dams over three years.
CBA commodity analyst Vivek Dhar predicts iron ore prices could reach $US100 a tonne this week.
Apple’s shipments of iPhones have plunged an estimated 20 per cent in China as shoppers turn to Huawei phones.
That is according to research firm, IDC.
It argued that China’s slowing economy, the more expensive price of iPhones and longer replacement times are starting to kick in.
Coming up today in Australia, financial services firm Challenger and toll road firm Transurban report profit results.
The National Australia Bank business survey is out and so is the latest loans data including mortgages from the Bureau of Statistics.
ANZ economists expect a 3 per cent fall in the number of owner-occupier loans on a seasonally adjusted basis.