Sector movers: Miners hit by poor market sentiment around China
(ShareCast News) - The roof fell in on miners as a wave of risk aversion swept over markets at the start of the week amid sharp falls in the prices of many industrial metals and iron ore in particular, with strength in the pound after May's announcement of snap general elections further denting the sector.
Also weighing on sentiment, US Treasury Secretary Steven Mnuchin confirmed to the FT that approving tax cuts before the Congressional recess in August was not "realistic".
"European equity markets are negative as the UK Prime Minister adds a snap UK general election to simmering global geopolitics. This has made matters worse for the FTSE by sending GBP to multi-week highs versus the USD and EUR, exacerbating the FX hindrance on its big international component and compounding commodity sector weakness," said Mike Van Dulken, head of research at Accendo Markets.
Overnight, Chinese steel rebar futures fell from $522.4 a metric tonne to $512.7 a tonne. In parallel, spot iron ore prices crumbled, with the price of 62% Fe iron ore at Tianjin falling from $66.5 a tonne to $61.2 a tonne, despite better than expected data on the Chinese economy the day before.
China's economy expanded by 6.9% year-on-year in the first quarter and separate reports on retail sales, industrial production and fixed asset investment for March all came in ahead of economists' projections.
Despite that, analysts at Capital Economics said that with property controls starting to bite and with the acceleration in credit which has driven the economy now going into reverse "the economy will begin slowing before long".
In parallel, analysts at Macquarie struck a bearish note on the outlook for global industrial production, telling clients it expected momentum to fade over the next few months, "before rolling over during the summer".
The Australian broker forecast that the year-on-year rate of growth in steel output would decline from 8.1% for January to 1.6% for all of 2017 and then shrink by 0.3% in 2018, as construction activity in China weakens.
Downwards target price revisions from Jefferies were also acting as a drag on the sector.
After updating their models to factor in current commodity prices, analysts at the broker lowered their target for shares of BHP Billiton from 1,800p to 1,700p and on Anglo American from 1,400p to 1,300p.
Bottom performing sectors so far today
Industrial Metals & Mining 2,207.89 -5.45%
Mining 14,977.55 -3.57%
Oil & Gas Producers 7,693.39 -2.79%
General Industrials 5,688.85 -1.94%
Construction & Materials 6,561.23 -1.91%