Australian Stock Market Report – Midday September 22, 2014

Asian stock market — Pedestrians look at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo June 25, 2014. Asian shares were on the back foot early on Wednesday, taking their cue from Wall Street as the deepening crisis in Iraq and a report that the U.S. could be loosening restrictions on crude exports triggered a rally in oil prices. REUTERS/Yuya Shino (JAPAN - Tags: BUSINESS)

A new week, but old themes

 A 2 day break at the weekend has done little to dent the ambition of local sellers. Having lost almost 1.8 per cent last week, the ASX 200 opened flat although within the first half of the session the index had fallen by 20 points. Thereafter the Index plumbed new lows to be down by about 30 points at the worst levels of the morning.

 The themes informing the weakness remained familiar ones. One of the main considerations continues to be the strength of the US dollar and the extent to which it will continue to rise in the face of rising US interest rates (US treasury yields). As a result commodities prices finished mostly lower as the US dollar strengthened which eroded the purchasing power of non US-consumers. Precious metal prices also fell, with silver falling to a four-year low, reflecting the reduced appeal of precious metals as an alternative asset.

 Iron ore miners saw continued weakness in Monday morning trade with Iron ore prices remaining at 5 year lows of USD81.70 per tonne. Junior miners are being marked down heavily in the face of recent declines. Australia's Iron Ore Holdings (IOH) has said it will delay its first shipments of iron ore from its Iron Valley operations to 4Q14 because of low iron ore prices and a weak AUD. The mine is expected to initially produce 2Mtpa of iron ore before ramping up to 4-6Mtpa in two years. IOH shares were down 3 cents or 3 per cent to 93 cents.

 Elsewhere in the resource related sector, Laboratory services business ALS Limited (ALQ) warned that first half profit could fall by around 36 per cent the due continued headwinds faced by the mining sector. ALQ said that it expects to post an underlying profit of around $64 million for the six months to the end of September, down from $100.7 million a year ago. The group said that "whilst activity levels improved for a number of our operations during the quarter, it remains difficult to predict trends in the demand for ALS services and pricing pressure is being experienced by all our business division".The group said revenue from its minerals division would be down around 25 per cent for the half due to the slide in mining exploration work across the globe. ALQ shares were down by 12 per cent or 85 cents at $6.11.

 Sentiment towards the $AUD has soothed by expectations of further easing measures from the People's Bank of China to stimulate the Chinese economy, which is Australia's largest export market. The AUD/USD continues to consolidate with bearish bias after hitting six-and-a-half month low 0.8918 Friday. At lunchtime on the east coast the local unit was trading at 89.30 US cents.

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