Global markets were mixed overnight (S&P 500 index -0.1%) as US small cap stocks outperformed.
The US dollar’s slide deepened as investors weighed prospects for fresh fiscal support from Washington. Senate Majority Leader Mitch McConnell said Thursday that it was “heartening” that Democrats embraced a smaller price tag for a stimulus package but again called for passing narrowly targeted relief while leaving a broader agreement for later.
Fortescue Metals (FMG:ASX)
The Fortescue share price has jumped 13% yesterday – investors have been buying Fortescue and other iron ore producers after the spot price of the steel making ingredient climbed to a six-year high. The catalyst for this was news that Brazilian mining giant Vale is expecting to produce less iron ore than previously expected in the near term. This could keep prices higher for longer.
The spot price for iron ore leapt $US4.16, or 3.1 per cent, to $US136, leaving prices for the steel-making ingredient at their highest level since the end of 2013.
As we touched on earlier this week, we are positive on the mining sector right now as while there are always commodity price risks, we think the sector currently has strong fundamentals – from a weakening dollar to healthy free cash flows and everything in between. Since August, the mining sector share price performance has decoupled from strength in commodity prices and we think stock prices could catch up and move higher.
We maintain our BUY rating on BHP as our top mining pick given its attractive dividend (4% yield) and as a diverse and efficient mining business.
Australia & New Zealand Market Movers
The Australian market was in positive territory on Thursday (ASX 200 index +0.4%) as Australia's iron ore miners carried the sharemarket higher.
Three of the largest companies on the stock exchange propelled the advance: Fortescue Metals Group shares jumped 13.3 per cent to $20.65, BHP shares climbed 4.9 per cent to $41.25, and Rio Tinto shares advanced 6.9 per cent to $112.20.
The major banks all closed lower with Commonwealth Bank leading the declines. Macquarie Group bucked the trend, as the financial services giant has agreed to buy New York-listed fund manager Waddell & Reed Financial for $US1.7 billion ($2.3 billion).
Boosted by a record month for iron ore, economic data released showed the economy posted a $7.45 billion October trade surplus, the Australian Bureau of Statistics said. The report bettered economists' expectations of a $5.8 billion surplus.
The New Zealand market slipped yesterday (NZX 50 index -0.6%) as listed exporters such as Fisher & Paykel Healthcare and Pushpay continued to come under pressure given the strength in the NZ dollar. With the kiwi dollar sitting comfortably at 30-month highs and flirting with a break above 71 US cents investors sold their holdings in exporters drawing revenue from the United States.
Serko shares were little changed as it provided a brief trading update yesterday which highlighted transaction volume trends largely in line with broker expectations for March of reaching 50% pre-Covid ANZ volumes.
3 Things Markets Will be Watching this Week
- COVID related news flow, including vaccines are likely to dominate headlines for another week.
- US economic data is due at the end of the week – including nonfarm payrolls and the ISM manufacturing survey.
- The latest decision from the RBA on its Cash rate target is due Tuesday.