It doesn't get any worse with a lower forecast for most commodity metals (except gold and nickel).
When most stocks got crushed despite a recovery in the market (well, indices!), one stock however that stood out was FMG which, can you believe it, gained 47% since 5 Aug (when the inverted yield curve happened) - I don't follow this stock and am sure there may be positive development that helps with its fundamentals, but a 47% rise denotes to me that speculative money has gone there. Does 47% gain commensurate with a lacklustre outlook for iron ore prices going forwards? Or is this another aberration in stock valuation similar to James Hardie as posted earlier.
Well maybe the market thought of the worst of the worst for iron ore stocks when the yield curve inverted. The market got it wrong then at that point and now it is possibly getting it wrong at the other end. Welcome to the new world of bipolar stock market investing where it is difficult to keep pace understanding what the market is thinking !
Due to prevailing uncertainties on which way the global economy will head to, moving forwards, we have seen a relatively inefficient market in relation to valuation with opportunities for long and short positions - and this is where the fundies can seize on arbitrage opportunities, buying in when the market gets it wrong selling to unjustifiably lower valuations and selling out when the market pushed it to unjustifiably higher valuations, then using their influence and calls to dictate the market directions for these stocks in accordance to their allocations. The first mover advantage that they have is generally not one we retailers do and most times we only join the fray after sp has moved considerably higher. There has to be winners and losers in this market- for every winner there is a loser (not 1:1 ratio but you are more likely to have a few large winners and many losers) and you guess it, the large winners are more likely to be those fund managers. We are simply doing the bidding and when they start to unload, we too will somehow join them for fear of the unknown. Fitch mostly sees lower metal prices in 2020
Timothy Moore
With two exceptions - nickel and gold, Fitch Solutions is forecasting weaker prices for metals through 2020, paced by drops in iron ore, lead and aluminium.
“We forecast most metal prices to average lower in 2020 relative to 2019 as macroeconomic headwinds continue to negatively impact sentiment for commodities, while subdued demand growth, primarily in China, loosens fundamentals.
“Escalating tensions between the US and China have aggravated concerns about global economic growth in 2019 and 2020, causing sentiment for metals to plummet over the past months.”
Fitch said despite some optimism regarding a partial truce, it sees “a serious downside risk” to the trade talks.
“At the same time, while US and global recession risks have eased in recent months, they have not gone away altogether, and lingering fears of the global economy falling into recession over the coming months will continue to house poor sentiment.
Base metals, used in key industrial segments that depend on economic growth expectations such as autos, consumer electronics, appliances and manufacturing have been particularly badly hit and have all, with the exception of nickel, lost value so far this year, it added.
The key to metals is of course China’s overall economic outlook.
Fitch said it sees clouds ahead.
“Our Country Risk team recently revised downwards China's 2019 real GDP growth forecast to 6.1 per cent, from 6.3 per cent previously and the 2020 forecast to 5.9 per cent, from 6.1 per cent previously.”
Fitch’s upward forecasts: nickel rising to $US15,000 a tonne; gold rising to $US1450 an ounce.
On the other side: Fitch sees lead at $US1850 a tonne, aluminium at $US1700 a tonne. Copper will slip to $US5700 a tonne.
