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Iron ore is the elephant in the room

Firm US stock markets last night are evidence that equity investors have decided to ignore escalating rhetoric on North Korea.

President Trump’s aggressive speech on North Korea did at least cause the gold market to pause after 2 days of concerted selling but is unlikely to have any major impact on the local stock market

What is not so certain is whether investors will show similar disregard for the ongoing decline in the iron ore price.

While a pull back from recent highs has long been expected, iron ore is a volatile market and the onset of a downtrend like the current one, inevitably creates nervousness about just how far it has to go. Markets may remain a little circumspect ahead of next month’s Chinese Peoples’ Congress. This may represent an opportunity for China’s leadership to tilt policy a little further towards reform and away from stimulus and infrastructure spending.

Forex markets remain uncertain about what, if anything, the FOMC meeting and the Governors Dot Plots will signal about the timing of future Fed rate increases. The key EURUSD forex pair has settled into a trading range so far this month as traders await developments. Given the uncertainties created by recent inflation data and the short term economic impact of the US hurricanes, the Committee may choose to wait until December before providing any clear direction on whether or not there will be another rate hike this year.  Failure to strike a dovish tone could disappoint $US bears.

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