Global stock markets were lower last Thursday as rising geopolitical tensions sapped investor risk appetite. However, the US market was open overnight and looks to be recovering, led by a gain in Financial stocks. In the US, we have once again entered quarterly earnings season, with the US Banks being the first to announce quarterly profits.
As we discussed last week, there seems to be an elevated level of caution in global markets which has investors on the side-lines. Investors are watching geopolitical tensions with North Korea and around Syria, while also digesting US corporate profits. On the flipside, faster economic growth figures in China boosted optimism about the strength of the global economy before the US earnings season ramps up.
In saying that, we would not expect political risks to fade with the important French Presidential election set to take place this weekend (23rd of April). We have highlighted European politics this year as potential risks to the Eurozone with major elections set to take place in France and Germany.
Given the recent moves towards populist politics across the globe, with key examples being Brexit and the election of Trump last year, we believe 2017 is once again set to be a year of politics with the key risk being a break-up of the Eurozone. While the recent elections in Netherlands (which were being watched as a barometer of Euro Area political risk) resulted in a win for an establishment candidate against a populist outsider (a welcome change from the recent string of surprise political results) there is a lot more on the line this weekend given the importance of France for the Eurozone.
Closer to home, the iron ore price continues to slide which saw further selling pressure across the mining sector in Australia. Continuing its wild ride was iron ore producer Fortescue Metals Group (FMG.AX).
Fortescue Metals Group (FMG.AX)
Australia's third largest iron ore miner, Fortescue, has brushed off the plunge in the iron ore price, saying it will not fall too much further. "I don't think any of us are surprised the iron ore price has come down, we've seen it overshoot well and truly, and now we are seeing it return to more historical levels… We expect there could be some volatility in the short term, but longer term we expect it will come back to be somewhere around that $US60 to $US65 a tonne" Fortescue chief executive Nev Power said.
has held the view that the iron ore price has surged too far too fast, and it now appears to be reversing significantly. As a result, we continue to prefer the diversified miners such as BHP, given they are not as heavily reliant on the price of iron ore.
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