Iron ore price spike positive but possibly short-lived

Commodities: 

The price of iron ore slipped further from Monday's spike up to $US63.74. Overnight the price of iron ore fell to $US57.92 per tonne. 

Copper was also weaker and the price of oil fell following speculation that a meeting of oil producing nations, who were set to meet later this month to discuss a production freeze, may not go ahead. Gold edged a touch higher to $US1268 per ounce.

Share Markets:

European markets were weaker with energy companies leading the way down. A drop in oil prices outweighed stimulus measures announced by the European Central Bank (ECB).

The FTSE100 fell 1.8% and the German Dax was down 2.3%. In the US, weaker oil prices also weighed on sentiment but the ECB policy manoeuvres were seen in a more positive light with the Dow retracing some of the loses seen earlier in its session.  The Dow was down 0.2% and the S&P500 was down 0.1%.

Interest Rates:

The ECB sent out mixed signals last night. It delivered a larger-than-expected stimulus plan, but also signalled that it is less likely to further cut interest rates.

There were four main elements to the ECB's announcement: a 10 basis point cut in the deposit rate from -0.3% to -0.4%, a EUR20bn increase in the monthly pace of asset purchases, four new targeted longer term refinancing operations, and an expansion of the pool of eligible assets to include investment grade non-bank corporate bonds.

It also cut its lending rate from 0.05% to zero. US government bond yields edged higher as did similar yields in the UK and Germany.

Foreign Exchange:

The euro initially fell on the ECB stimulus package but later rallied on the expectation that the ECB would not make further cuts to its interest rate structure.

The US dollar index was weaker overnight but the AUD slipped against the USD on weaker iron ore and energy prices. The AUD also weakened against the NZD overnight.

Australia:  

The Westpac-Melbourne Institute inflation expectations edged down from an annual rate of 3.6% in February to 3.4% in March, suggesting inflation expectations remain well-anchored.

Looking ahead, next week sees data on new motor vehicle sales on Tuesday and the latest unemployment and jobs growth numbers on Thursday.

China:

Inflation picked up in February to an annual pace of 2.3% from 1.8% previously. The lift was above expectations, but has been driven by the one-off impact of higher food prices at this time of a year.

Producer prices remain in contraction at -4.9% in the year to February, and continue to signal that spare capacity remains in the economy.

United Kingdom:

No major data released.

United States:

No major data released. Next week the US FOMC will make its latest call on the Fed funds rate.



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