The S&P/ASX 200 Index (ASX: XJO) is on course to solidify two consecutive days of positive moves following a painful run last week. While the consumer staples sector is doing much of the heavy lifting, ASX iron ore shares are considerably contributing to the benchmark's robustness today.
Galloping toward the closing bell, shares in Fortescue Metals Group Ltd (ASX: FMG), Rio Tinto Ltd (ASX: RIO), and BHP Group Ltd (ASX: BHP) are 2.8%, 2.4%, and 2% higher. The broader materials sector is up a more modest 1.3% today.
Hanging in the balance for ASX iron ore shares
The past couple of weeks have been dominated by concerns surrounding economic weakness in China. Namely, Country Garden (China's largest private property developer) skipping its payments to bondholders, creating worries about further property turmoil in the People's Republic.
Furthermore, the country is now facing deflation. This is the opposite of what much of the world has been experiencing these past couple of years. In short, unlike inflation, deflation is where prices begin to decline.
Falling prices for goods and services might sound great at face value. However, entrenched deflation leads to less spending. In turn, companies begin to cut back on staff, further eroding disposable income, which can result in a downward economic spiral.
Iron ore, an essential steelmaking commodity, is closely tied to the growth of China's economy. Hence, the performance of ASX iron ore shares has been subdued during the last month while investors became increasingly nervous.
Yet, the price for iron ore lifted overnight to US$106.50 per tonne. According to S&P Global, seaborne prices exceeded US$110 per dry metric tonne two days ago, reaching a three-week high.
The resilience coincides with China reducing its interest rates, possibly indicating the government's willingness to support the economy. Nonetheless, reports are circulating about the detrimental consequences of a slowing Chinese economy on Australia.
Still, ASX iron ore shares are basking in a more optimistic day.
