Down sharply yesterday, up sharply today - that’s the nature of the market now.
The S&P/ASX200 gained 114.80 points or 1.72% to 6,779.20. Over the last five days, the index has gained 2.02% but is down 8.94% for the last year to date.
Top-performing stocks in this index were Novonix (ASX:NVX) Ltd and HUB24 Ltd, up 18.72% and 15.31% respectively.
Of the sectors, only Energy was in the red down 0.60%. Information Technology was the best performed sitting 4.19% higher. Real Estate also performed well moving 3.21% higher.
Rio to unlock giant ore body, but not all rosy
Rio Tinto Ltd (ASX:RIO) expects to unlock the six billion-tonne Rhodes Ridge deposit in the East Pilbara, after agreeing to update a 50-year-old joint venture agreement with Wright Prospecting.
“We’ve been having a go at it for probably 30 or 40 years,” Rio Tinto iron ore chief executive Simon Trott said of the JV and the company’s dealings with the heirs of prospector Peter Wright.
“So, really happy to get there.”
Rhodes Ridge is significant in that it has more than two billion tonnes of ore close to 64% iron; it is also accessible to a Rio rail line that runs across it.
Rio released its third-quarter production results today. Its key Pilbara division shipped 82.9 million tonnes of iron ore over the three months to September, however full-year shipments are expected to be at the lower end of its forecast of 320 to 335 million tonne range.
Chief executive Jakob Stausholm also said that demand was likely to taper more as the global economy cooled, including China’s steel production and consumption.
Iron ore is a key ingredient in steelmaking and Australia’s hottest commodity, contributing $135 billion to Australia’s overall export earnings in the last financial year.
Rio said it would also be affected by a drop in confidence in China’s property market.
Looking at the company’s 1% drop in shipments in Q3, eToro market analyst Josh Gilbert said, "Rio Tinto has today reported that iron ore shipments fell 1% year-over-year in Q3, with the mining multinational warning that demand could fall further.
"China’s economic slowdown is having a massive impact on our local miners. If the global economy continues to slow down, we could see further demand risk for iron ore, particularly in China, where we’ve seen steel output cuts and an ongoing property crisis.
"Despite the warning of a slowdown, Rio hasn't wavered from its guidance for iron ore shipments, which is for between 320 and 335 million tonnes for the year. However, it did downgrade guidance for copper production, which may be down to mining issues rather than demand.
"While news of an economic slowdown is nothing groundbreaking, investors will likely be disappointed with this trading update. Some weakness in Rio Tinto’s share price this week may be expected."
Is China in a technical recession?
China has delayed the release of its third-quarter economic data, ahead of President Xi Jinping being given a historic third term in power.
However, if figures are correct, it won’t be long before the country announces a 1.2% decline in GDP and moves into a technical recession.
"Whenever the release occurs, we should all be prepared for some global financial market reaction if the world's two largest economies are both in recession this year. Especially, as the global economic slowdown remains ongoing," ACY Securities chief economist Clifford Bennett said.
Bennett points to a zero-COVID policy causing further economic disruption to China.
"Europe has war and energy scarcity. China, a policy recession risk. In the USA, an actual recession," Bennett said.
"The whole world is dealing with super inflation and lingering supply chain disruption."
Due to these issues, the mini market comeback we have seen, won’t last.
"Some short covering and the ‘buy the dip’ cult playing its cards yet again is unlikely to overwhelm the ‘out the window' reality of an economic situation which continues to deteriorate in every direction," Bennett said.
Rent contributes to high inflation
The Reserve Bank of Australia has said that Australia's rental crisis is contributing to high inflation.
In its October board meeting minutes, the RBA said that we would see supply-side factors ease, however utilities prices and rents would counter supply-side effects on inflation and cause further inflationary pressures.
"The very limited supply of properties available for rent, as reflected in low and declining vacancy rates, was supporting large increases in advertised rents and this was starting to flow through to the stock of rents as recorded in the CPI," the RBA noted.
The monthly CPI indicator confirmed the RBA’s expectation that inflation had picked up further in July and August.
"Overall, headline inflation was expected to be around 7¾% and underlying inflation around 6% over 2022," the RBA stated.
According to PropTrack data, the number of properties advertised for rent for less than $400 per week fell to a record low of 19.3% of listings in September – a decline from 41.9% in March 2020.
The rental market is likely to get worse before it gets better.
“We basically need more supply, which means we need more investors buying properties. But servicing debt on an additional property at the moment is pretty difficult given how much interest rates have risen,” PropTrack’s economic research director Cameron Kusher said.
“Or we need to be getting more first home buyers into their own home. And, again, you might start to see that soon, but first-time buyers can’t borrow as much as they could have six months ago, even though prices have fallen.”
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