Bank Earnings

ASX drops as iron ore prices fall and Rio Tinto warns of economic hit from war in Ukraine and slowdown in China

Australia’s equity market ended a three-day winning streak as falling commodity prices sent heavy miners tumbling and China’s zero COVID-10 policy hammered its economy.

During the first hour of trading, the market lost up to 1.7% of its value, before heading closer to its lows.

As of 12:50 p.m. AEST, the All Ordinaries index fell 1% or 69 points to 6,780, while the ASX 200 index fell 1% to 6,585, with most sectors in the red led by miners.

Big miners fell as iron ore prices fell 7.6% to $100.45 a tonne, according to ANZ, as investors worried about a global economic slowdown caused by war in Ukraine and rising interest rates.

The crisis spread to other industrial metals due to problems in the Chinese real estate sector.

Technology company WiseTech Global (+4.1%) was the best performer on the ASX 200 index and investment firm Pendal Group (-6.9%) was the worst performer as investors withdrew their money company funds.

The Australian dollar fell to 67.48 US cents after climbing to nearly 68 US cents yesterday as the national unemployment rate fell to 3.5%, the lowest in nearly 50 years.

Slowdown in China

China’s tough zero-COVID policy saw its economic growth slow sharply in the second quarter.

China’s economy grew just 0.4% from the same period last year, according to China’s National Bureau of Statistics, as widespread lockdowns to curb record COVID cases hit output factories and consumer spending.

This is a steep decline from the annual growth rate of 4.8% in the year to March.

Gross domestic product is expected to rise 1% in the April-June quarter from a year earlier, according to a Reuters survey of economists.

GDP contracted by 2.6% during the quarter, compared to the first months of the year.

China’s economy grew 2.5% in the first half of 2022.

A Reuters poll predicts China’s growth could slow to 4% in 2022, well below the official growth target of around 5.5%.

Disclaimer from Rio Tinto

Global miner Rio Tinto said it was facing a shortage of workers in Western Australia due to rising COVID-19 cases at its mines in Pilbara, Western Australia’s northwest.

He also warned that rising inflation would eat away at its profits in the second half of the financial year.

In its quarterly production, Rio said an increase in coronavirus cases at its Pilbara operations had led to “high levels of unplanned absences”, which saw iron ore shipments fall 2% over the course of the year. first half of fiscal year 2022.

During the second quarter, iron ore shipments increased nearly 5% to 79.9 million tonnes from the same period a year ago.

It expects to ship between 320 and 335 million tonnes of steel ingredients this year.

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

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

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

Shares of Rio Tinto fell 2.8% to $93.27 at lunchtime, while rival BHP fell 3.7% to $36.02 and Fortescue Metals Group lost 5, 5% to $16.45.

The nervousness of Wall Street

U.S. stocks fell as soaring inflation in North America left investors jittery and amid weaker-than-expected earnings from a Wall Street titan.

North America’s largest bank, JP Morgan Chase, announced a 28% drop in second-quarter profits to $8.6 billion ($12.75 million) and suspended share buybacks.

Investment banking profits fell by nearly two-thirds.

Chief Executive Jamie Dimon warned that geopolitical tensions, high inflation, loss of consumer confidence, withdrawal of stimulus measures and war in Ukraine “are very likely to have negative consequences for the global economy. at one point”.

Rival bank Morgan Stanley has seen investment banking revenues halve as the war in Ukraine has hit M&A revenues.

All three major indices sold off heavily before paring their losses.

The Dow Jones index fell 0.5% to 30,630, the S&P500 fell 0.3% to 3,791, while the Nasdaq Composite index ended flat, up 0.03%, at 11,251.

Why interest rates won’t rise as high as expected

Producer price

Data released overnight showed that farmgate and factory gate prices rose more than expected in June in the United States.

The US producer price index rose 1.1% in June and 11.3% on an annual basis.

This followed official data on Wednesday which showed consumer prices in the United States jumped 9.1% on the year to June, from an 8.6% annual rise in May.

The sharp price spike could prompt more aggressive interest rate hikes from the US Federal Reserve, with a 1 percentage point rate hike a possibility at the US central bank‘s meeting this month. , according to Atlanta Federal Reserve Chairman Raphael Bostic.

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

The Monetary Authority of Singapore and the Central Bank of the Philippines added to the list of central banks that raised interest rates this week.

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

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

“During the last bull cycle, we observed that inflation continued to rise during the bull cycle…It takes time for monetary policy to affect inflation.”

Mr Cheng said riskier assets would be the “collateral damage” of the Federal Reserve’s attempts to contain inflation.

European stocks

The European Commission has revised down its forecast for eurozone economic growth in 2022 and raised its inflation estimates.

In London, the FTSE 100 index fell 1.6% to 7,040, the DAX in Germany lost 1.9% to 12,520 and the CAC 40 in Paris fell 1.4% to 5,915.

Oil prices fell as traders expected a sharp interest rate hike from the Fed to curb demand for fuel.

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

Brent crude pared losses and stabilized 0.5% at US$99.10 a barrel overnight.

Spot gold fell 1.5% to US$1,709.46 an ounce.


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