Global markets recoiled last week as risk sentiment continued to sour with shares weaker, yields lower, and gold higher. The Australian Dollar remained relatively unchanged over the week. Our share market is now down 11.6% from the highs of late April, which meets the technical definition of a “market correction” and is reason enough for a wave of investor worries. The return of market volatility can be explained away by any number of causes including fears of an imploding Chinese economy, collapsing commodity prices, or even the highly anticipated lift-off in US interest rates.
If you’re looking for silver linings you could say low oil prices will lift global growth, China weakness should stir stimulus from Beijing and the Greek elections come after a crucial bailout deal has already been reached. Not to mention Eurozone and US data has been steady and the US Fed could yet delay rate hikes.For now though, traders are hesitant to catch a falling knife, even if there’s a decent chance it might be plastic.
Hold on to your hat as the market was down over the weekend and looks to fall even further on the open this week.
What caught my eye last week was the news that a Canadian iron ore miner (Century Iron) has decided that it is more profitable to sell eggs to China, from Australia, than to continue with its ore exploration plans. This was inspired by two Australian mining giants Gina Rinehart and Andrew Forrest, who both committed to the development of the Australian-rich food industry because of the increasing demand for food in Asia.
This adds to the theme of miners using land to produce agricultural products to export, as well or instead of producing ore. Given the 68% drop in price of iron ore (and profitability), it makes sense. But, this agriculture versus minerals debate has been discussed many times before. Increasing agricultural exports is good for the local economy and they will contribute, but many argue they can’t compete on the scale and completely take the place of energy and mineral exports. The ramp up in in iron ore and LNG volumes to compensate for the lower prices means that there are just not enough eggs to compete. It does, however, highlight that there are options such as agriculture for the smaller miners to consider.
For more details, look at this week’s chart of the week.