Brace yourself for more red on the market today.
The Australian bourse is expected to open on the back foot yet again as worries arise about slowing bank profits and a pullback in iron ore and gold prices.
The futures market is expecting the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) to ease 0.38% in early trade with 1% plus falls in the US stock indices overnight adding another weight around our neck.
Shareholders in gold miners Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be warily eyeing gold’s worst drop in seven weeks of 2.3% to $US1,182 an ounce; while those in the higher cost iron ore producers Fortescue Metals Group Limited (ASX: FMG) and BC Iron Limited (ASX: BCI) will be getting nervous as the iron ore price fell 1.7% to $US56.18 a tonne.
But iron ore miners may still be able to perform better than the banks today as Vale Inc announced that it is considering cutting output if the commodity price stays weak.
Global iron ore majors have been locked in a standoff and Vale’s comments are likely to break tensions and provide a floor for the steel-making ingredient.
This turn in sentiment towards the embattled iron ore sector coincides with a souring in investors’ mood towards our almighty banks ahead of their reporting season.
Investors should brace for slower earnings growth, which had been bolstered in the past by falling provisions and a hot property market.
Both of these factors are providing less of a tailwind and that’s not a good sign for our largest home lender Commonwealth Bank of Australia (ASX: CBA), although the market is starting to think that Westpac Banking Corp (ASX: WBC) is the one that is likely to slow the most.
It certainly will be an interesting May.
There’s also a lot happening on the corporation action front.
Financial firm Yellow Brick Road Holdings Ltd (ASX: YBR) is reported by the Australian Financial Review to be in merger talks with Homeloans Limited (ASX: HOM), while mineral sands miner Iluka Resources Limited (ASX: ILU) is taking a second stab at acquiring UK-listed Kenmare Resources.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, iiNet Ltd., and M2 Group Ltd. Follow me on Twitter - https://twitter.com/brenlau
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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