The share market bears have no answer to this… | Bonds & Fixed Income

Here are three issues I’m fascinated with immediately…

1) I’m placing collectively my month-to-month report. It’s late April. Tariffs are roiling markets. Something strikes me as odd.

It’s the iron ore price.

Huh?

You see…

Most issues I’m taking a look at – US stocks, bitcoin, US bonds, Aussie shares, oil – are going down.

Yet iron ore is doing…nothing. It began the 12 months about US$95-US$100 a tonne.

And in April it was nonetheless at that degree…regardless of Trump happening arduous on China.

It left me with no different conclusion. The Chinese financial system was doing higher than presupposed.

That gave me consolation making the advice in that report.

That brings us to immediately.

That share price is working for me up to now – up 28% on the finish of yesterday. It hasn’t even been a month but.

Here’s why I point out it.

I got here throughout a useful bit of data from Wilson Asset Management yesterday.

Wilson says that there’s robust demand for Chinese belongings regardless of the latest volatility and trade tensions.

Why will we care?

The People’s Bank of China has two fixed complications.

One is supporting the Chinese home financial system. Another is supporting the yuan – the Chinese currency.

Wilson conclude:

“There is scope and funding for Chinese policy makers to stimulate their economy, without fearing the constraints of capital outflows.”

This confirmed up final week with coverage makers reducing reserve necessities for the banking system.

A robust China is sweet for markets – particularly useful resource markets.

OK. I get it.

There is a barney about whether or not this stimulus will go into companies, items or infrastructure, and due to this fact how a lot commodity demand will carry.

I don’t know. But the price of copper is holding up proper now as properly.

Neither copper or iron ore will not be signalling bearishness presently.

(I really useful a copper developer in my January challenge: it’s up 48% up to now. It did get crunched within the April dump, I ought to say, too).

We tabled power stocks yesterday. Oil was up within the US session in a single day. But…

2) What about iron ore stocks?

I practically really useful an iron ore stock in April. I didn’t. It was critically tempting.

Iron ore stocks have been offered down arduous on the trade struggle fears. As above, iron ore itself didn’t promote down.

I LOVE when this occurs. Why?

You can buy the shares less expensive, understanding that, odds on, they are going to revert to their earlier ranges because the worry subsides. The money flows are there to assist it.

And if the price of iron ore DID finally go down?

Well…not excellent…however the market has already priced that consequence in – that’s why the share costs are down bear in mind… and also you’re much less doubtless to get slammed.

See this in motion through Champion Iron ($CIA)…

It peaked round mid-February, and began sliding properly earlier than “Liberation Day”.

By April 9 it was below $4 per share and off 45% from the October 2024 high.

There was a lot of unhealthy news battered into by then. You might moderately go the opposite approach.

And what will we see?

A 20% bounce up to now.

But I neither purchased CIA or really useful it.

In the top, I made a decision that, whereas iron ore was holding up, it wasn’t clear to me that it might carry strongly, so CIA (and $FMG, $FEX and so forth) may simply go sideways for ages.

There have been more compelling concepts over the long run. We’ll discover out if I used to be proper in 12 months.

But do keep watching from right here nonetheless…

3)…Because Rio has a grade drawback

Rio Tinto ($RIO) is now telling clients to anticipate a decrease grade from its benchmark mix.

Iron ore is a bit like oil, within the sense there’s variance within the grade, high quality and price for various blends.

Fortescue, famously, cops a low cost most of the time for its decrease high quality ore.

Rio is now dealing with a structural dip in its market pricing energy. Not large, for the second, however there.

In reality, all of Australia’s iron ore industry is wanting weaker on this entrance than is preferable.

One purpose is that the metal industry is extremely polluting and liable for a large chunk of emissions.

Steelmakers need to use increased grades to offset this.

The much less impurities they need to extract, the much less energy and coal they need to burn. That places high grade iron ore producers within the candy spot.

Most of these are in Canada and Brazil, plus Russia and Ukraine.

It additionally makes me surprise about iron ore price assumptions. Everyone tends to discuss tonnes transport out, however it’s really iron ore models that matter to steelmakers.

Structurally decrease grades from an important provider like Australia might assist iron ore pricing over the medium to long run.

I can’t be sure, of course, however take advantage of of it whereas it lasts.

Ongoing high iron ore costs assist Australia exports, the greenback and the federal government price range.

The outlook for Australia and the ASX appears to be like not less than stable whereas iron ore pricing energy continues.

Best needs,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

PS. Don’t overlook to try my latest report with 4 new buy suggestions. You can see it right here.

We are close to the second of fact for this rally.

It has been a wild few months within the markets. I’m beginning to really feel a bit of whiplash as news causes markets to fly in some way.

But my technical model nonetheless factors out areas the place you must stay cautious even when issues are transferring at lightning pace.

After a severe nosedive final month markets have practically recovered all of the losses. It is tempting to flip bullish and chase the rally increased.

But for now I need to respect the truth that the sharp rally has taken costs proper up to the highest of the promote zone of the rally that occurred between late 2023 and early 2025.

We haven’t acquired a promote signal but, so something is feasible.

Remember, each prediction is predicated on possibilities relatively than certainty.

But if we do see a promote signal develop round these ranges I shall be more assured that one other wave of promoting could possibly be coming. Then I’d have a goal back to the midpoint of the vary which sits at 7,663. That is 7.5% under present ranges.

The principal factor to get throughout prior to a promote signal being confirmed is that purchasing stocks proper now carries heightened dangers.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps