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ASX tumbles on iron ore falls

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Plunging iron ore prices and a renewed focus on geopolitical tensions sent the ASX lower on Thursday, erasing around half the gains made earlier in the week. 

The benchmark S&P/ASX200 fell 0.7 per cent to 5889.9 in broad-based losses, while the broader All Ordinaries index was 0.7 per cent lower to 5925.9. That drove the ASX to a small weekly gain, with the ASX200 up 0.5 per cent.

Weighing most on the index were the iron ore miners, after iron ore tumbled 8.5 per cent overnight. Weighing most on the index were the iron ore miners, after iron ore tumbled 8.5 per cent overnight. Photo: AFR

Weighing most on the index were the miners, after iron ore tumbled 8.5 per cent overnight. While iron ore futures did point to the metal recovering later in the day, it wasn’t enough to save Australia’s major resource companies, with the materials index weighing heavily – down 2.9 per cent – on the index.

BHP and Rio Tinto were 4.0 per cent and 4.4 per cent lower respectively. Pure-play iron ore miner Fortescue was savaged, falling 6.8 per cent. 

The benchmark S&P/ASX200 fell 0.7 per cent to 5889.9. The benchmark S&P/ASX200 fell 0.7 per cent to 5889.9. 

Meanwhile gold miners, who’d already done well earlier in the week, posted the index’s largest gains. Northern Star Resources surged 6.8 per cent, Evolution Mining was up 2.9 per cent while Independence Group added 3.0 per cent. The All Ordinaries Gold Index rose 2.2 per cent over the week’s four trading sessions. 

Defensive buying could also be discerned in some of the ASX’s best performers on Thursday. Yield stocks like Sydney Airport and REA Group rose strongly, both up 1.9 per cent. 

“There is a lot of risks out there at the moment and a lot of unknowns,” said Chris Conway, chief strategist and head of trading at Australian Stock Report. “Geopolitical tensions – Russia, Syria and North Korea – must be on investors’ mind at the moment.”

Not that investors should panic, he added. “At this stage, the current pullback looks like any other pullback we’ve seen over the past few months,”

“Such pullbacks have been greeted as a buying opportunity from the market.”

The Australian dollar moved up from yesterday’s three month lows, boosted by both the jobs figures as well as a Wall Street Journal interview in which Donald Trump talked down the US currency, boosting the Aussie. It traded at US75.92¢ at the close. 

Stock watch: Fortescue 

Fortescue shares were hammered in Thursday trade, falling 6.8 per cent to $5.50 after an overnight plunge in the iron ore price. Adding to pressure, the miner reported lower iron ore shipments for the fiscal third-quarter, with its cash costs also rising for the first time in 13 quarters, due to the impact of wet weather. It shipped 39.6 million tonnes of iron ore in the three months to March 31, down 6 per cent from the 42 million tonnes a year earlier, and also down 6 per cent decline on the second-quarter. The miner said it expects the iron ore price to fall further, to between $US60 and $US65 a tonne, as imports to China continue to rise.

Jobs surprise

The economy added 60,900 jobs in March, but a rise in the participation rate kept the unemployment rate steady at 5.9 per cent. The number of new jobs was triple what economists had expected, and in even better news the new positions were all full-time. Altogether 74,500 full-time jobs were created, while 13,600 part-time jobs were lost. The participation rate came in at 64.8 per cent, up from February’s 64.6 per cent. The Aussie dollar bounced on the data, rising about a quarter of a cent to the day’s high of US75.70¢.

Stability concerns

The Reserve Bank has become more concerned about the surge in household debt and a rise in interest only loans that is making the financial system vulnerable to a correction in property prices or rising interest rates. In its semi-annual health check of the financial system, the RBA issued its strongest warning yet that rampant debt fuelled property speculation, spurred on by tax policies and surging house prices would amplify financial shocks and inflict pain on the entire economy. “A highly indebted household sector is likely to be more sensitive to declines in income and wealth,” it said. 

Chocolate blues

While Australians will dig into Easter chocolates over the next few days, it’s unlikely to reverse the bad news for the world’s cocoa producers, who’ve seen prices for the commodity tumble 34 per cent in the past 12 months. Meanwhile, those slightly further down the supply chain aren’t doing much better, with chocolate consumption falling across much of the developed world. “Our research reveals that changes in per capita consumption points to an important shift in consumers’ eating habits, as consumption of chocolate confectionery is declining in the top five markets,” said Marcia Mogelonsky from researcher Mintel.

Coal sale

The largest acquisition by a Chinese government entity of Australian assets has been given the green light, with the Foreign Investment Review Board recommending the $US2.5 billion purchase of Rio Tinto’s suite of NSW coal assets. The buyer is Yancoal Australia, which is 78 per cent owned by Yanzhou Coal Mining Co of Hong Kong, which is in turn controlled by an arm of the Chinese government. Chinese bids to acquire Australian assets have been controversial, with a string of planned acquisitions – from Ausgrid to the Kidman rural empire –  having been blocked in the past. 

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