ASX set to tumble on delays in US/China trade negotiations

Stock Markets

Australian shares are set to fall today as shares on Wall Street tumbled on fading US/China trade optimism. The two economic powerhouses had taken a 90-day hiatus in their trade war to talk about creating a deal, and another round of talks is scheduled for next week in China. Yesterday, White House economic adviser Larry Kudlow told reporters that the two countries were still “a pretty sizeable distance” from striking a deal. At a function in the Oval office, President Trump added that the two presidents would not be meeting before the 1 March deadline. These comments sent a flurry of signals which rekindled fears of global economic slowdown and crushed investor hopes of striking a deal before the deadline. This news saw Wall Street’s main indices slide overnight. The Dow Jones, S&P 500 and NASDAQ 100 all down overnight, losing 220.77 (-0.87%), 26.12 (-0.96%) and 92.64 (-1.32%) points respectively.

ASX200 futures are currently down 41.0 points. 

Today’s data releases: RBA’s Statement on Monetary Policy

Commodities and Currencies

Brent crude prices are currently down 1.1% to $US60.94 a barrel and are experiencing sideways movement between a trading range of $US58.90 and $US63.73.

Iron ore is currently flat at $US85.53 per tonne. The worlds top steelmaker, ArcelorMittal, as well as smaller European producers are warning about weakening market conditions in China. China uses about half of the world’s steel and is now expected to see a 0.5% drop in demand to 1.5% this year, compared with growth of 3.5% in 2018. The industry is also facing a squeeze on profit margins as prices of iron ore surge in the aftermath of Vale SA’s dam collapse in Brazil. It is expected that the falling demand for steel would in turn trigger a fall in the price of iron which is one of the main raw materials for making steel.   

Nickel prices have benefited from concerns that a force majeure by Brazil’s Vale on some iron ore contracts could lead to restrictions in its nickel supply. Consequently, nickel has hit its highest in more than four months and is currently sitting at $US12925 per tonne.

The spot price of gold is up 0.3% and is now hovering around US$1310.85.

The AUD hit a one-week low on the RBA’s neutral interest rate outlook and is currently flat at US71.00¢.

This article was written by Mithun Fernando – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via mithun.fernando@rivkin.com.au or by phoning +612 8302 3633.