The so-called "sell in May" seasonal trend is extending to June with our market expected to open on the back foot as iron ore recorded its second day of losses and US and European equities took a tumble overnight.
The futures market is pointing to a 0.4% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) this morning and the benchmark is already 4.8% in the red since the start of the month.
There are more headwinds ahead for our iron ore miners with the latest Chinese balance of trade numbers showing a slowing of consumption of the steel making ingredient as two brokers warned of more pain ahead.
The 0.2% fall in the commodity to $US64.34 a tonne on Monday is minor but may only be the start of a big correction with BMO tipping that the $US65 a tonne price level would mark a ceiling for iron ore and Goldman Sachs saying that the recent rally in the ore price is on borrowed time.
Against the bleak outlook, Fortescue Metals Group Limited (ASX: FMG) is reported to be in negotiations to sell stakes in its mines to China's Baosteel and Japanese steel mills. Fortescue recently denied it needed a capital injection to prop up its balance sheet.
Rio Tinto Limited (ASX: RIO) is also expected to take a belting today after Societe Generale and Exane downgraded the stock to a "hold" equivalent from a "buy" equivalent following the poor Chinese economic data.
I still believe there is longer-term value in the major lowest-cost miners but this isn't the time to buy them. I believe would-be investors should hold off till August or September ahead of a probable fourth-quarter rally.
However, gold miners could find support today as the price of the precious metal advanced 0.5% to $US1,174 an ounce on fears of a Greek default, although Newcrest Mining Limited (ASX: NCM) will also be in the spotlight after The Australian reported that it is ditching its plans to sell its Telfer mine due to poor interest.
Elsewhere, media company Nine Entertainment Co Holdings Ltd (ASX: NEC) will face selling pressure after it downgraded its earnings forecast for the current financial year, which prompted Morgan Stanley to cut its recommendation on the stock to "underweight" from "overweight" and Goldman Sachs to lower its call on the stock to "neutral" from "buy".
Other stocks that will weigh on the index today because they are trading without their dividend entitlements include building materials supplier James Hardie Industries plc (ASX: JHX), electric utility AusNet Services (ASX: AST) and testing services group ALS Ltd (ASX: ALQ).
Finally, conglomerate Wesfarmers Ltd (ASX: WES) is looking at buying the distribution arm of Carter Holt Harvey Building Supplies, according to The Australian.
