Home Commodities Aussie hits 2020 levels as commodities, stocks plummet

Aussie hits 2020 levels as commodities, stocks plummet

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This led to the Australian sharemarket dropping to a three-month low of 6939.5 on Tuesday morning, before clawing back some of its losses to finish the session down 1 per cent at 7051.2. The index was weighed down by declines of more than 2 per cent for the energy and materials sectors.

Block plunged 8.5 per cent to $122.60, and Rio Tinto fell 3.6 per cent to $102.97. BHP Group dropped 2.6 per cent to $45.02.

Tesla halted output at its Shanghai plant due to supply issues, according to Reuters. The electric vehicle maker subsequently denied the reports, but admitted to experiencing some disruption to logistics amid the city’s lockdown.

The Australian dollar slumped 1.8 per cent to a low of US69.45¢, its weakest level against the greenback since July 2020. The US dollar index continues to rally on its safe haven appeal, hovering near a 20-year high.

“We recognise risks have risen. The commodities price shock is set to hit growth, especially in Europe and emerging markets that are commodities importers. The Fed rightly is fast normalising policy but could slam the brakes on the economy if it chooses to fight inflation,” said Jean Boivin, head of BlackRock’s investment institute, in new research.

“It’s tough to see a perfect outcome. Getting inflation down to pre-COVID levels likely means recession, as the Bank of England warned last week.”

The growth outlook for China “is quickly deteriorating amid widespread lockdowns in an attempt to halt the spread of COVID-19”.

Commodity sell-off

Mounting evidence of an economic slowdown in China has coincided with stricter lockdowns in the world’s second-largest economy, adding to investor trepidation about the sustainability of commodity prices.

Shanghai has ordered residents to return to their homes and banned food deliveries for the next week following orders from President Xi Jinping to double down on efforts to eliminate COVID-19, regardless of the economic and social costs.

The toll of the country’s zero-COVID-19 strategy was evident in customs data released on Monday, which showed that China’s export growth in April weakened to its slowest pace since June 2020.

New home sales were also weaker, despite policymakers promising to support the struggling property market.

“The weak data highlights stimulus efforts … have so far failed to reboot China’s property market and broader economy while continuing to battle the ongoing COVID-19 outbreak, raising market concerns around forward growth expectations,” said Baden Moore, head of commodities research at NAB.

The price of iron ore traded in the spot market dived 5.5 per cent to $US131.35 a tonne on the news on Monday, while the June contract traded on the Singapore exchange dropped to a three-month low of $US126.90 on Tuesday.

Base metals also extended their decline, with copper down 1.9 per cent to $US9238 per tonne – its lowest level since mid-December. Nickel dropped 6.9 per cent to $US28,000 per tonne and aluminium was down 3.2 per cent to $US2719 per tonne.

Oil prices also fell sharply due to a combination of weak demand from China and reports of a possible softening of European sanctions on Russian energy exports.

West Texas Intermediate futures fell below $US102 a barrel after sliding 5.5 per cent to $US103.28 a barrel overnight. Brent crude dropped 5.9 per cent to $US106.19 a barrel.

The European Union will scrap its proposed ban on EU-owned vessels transporting Russian crude following objections from members, including Greece.

The EU is still debating a sixth package of sanctions on Russia, with diplomats trying to overcome objections from Hungary to a proposed ban on Russian crude.

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