Lower iron ore prices are likely to scotch thoughts of the ASX 200 staging a strong finish to the week. Indeed a soft finish looks the greater risk. That possibility could be cemented if Chinese iron ore and steel futures fall again this afternoon, putting more pressure on major mining stocks.
Traders appear trigger happy with international stock markets at elevated levels. Last night saw a brief bout of nervousness with gold rallying and Apple shares falling on reports of lower orders for its iPhone 8. However, US markets recovered and in the event it was a largely neutral session with weakness in the Info Tech sector being offset by other sectors like Utilities.
Yesterday’s employment data was healthy news for the Australian stock market. Strong employment growth this year will help underpin spending and corporate profits. However, any increase in interest rates looks some time off. High levels of underutilisation in the labour market persist. A lot of people with part time jobs would like more work. This should keep a lid on wage growth and interest rates for a while yet, creating a “Goldilocks” not too hot, not too cold scenario for the stock market.
The coincidence of a solid employment report and the surprise installation of a Labour led government in New Zealand has produced a stellar rally in the Aussie/Kiwi exchange rate. Markets have been wrong footed by the formation of the New Zealand government. The sharp drop in the Kiwi Dollar primarily reflects two concerns. The first is the negative impact on economic growth of proposed cuts to immigration. The second is the uncertainty created by a three party coalition flanked by the left leaning Greens on one side and the Conservative New Zealand First Party on the other.