Rio's solid production report franks a good lead from US markets

After a confidence boost from US markets last night, local investors will be encouraged to push share prices higher this morning.

Last night’s economic releases reversed the recent run of softer US economic data. Jobless claims fell, indicating that although jobs growth may have fallen recently, employers are hanging onto existing staff as the economy continues to expand.

US CPI data released last night will do nothing to dissuade the Fed from lifting rates in December. After stripping out the volatile food and energy components, the CPI increased 1.9% over the past 12 months and has averaged the same rate over the past six months. While the CPI is not the main measure of inflation monitored by the Fed, it provides encouragement that underlying inflation in the US is at least stable around current levels.

Yesterday’s lower spot iron ore price will be a source of nervousness for mining stocks today as iron ore moves into a period of seasonal weakness. However, the market will be encouraged by a solid production report from RIO. This follows on from Fortescue’s strong report yesterday. The fact that RIO was able to significantly increase its iron ore shipping rate running down its inventory without leading to a significant increase in China’s inventory is encouraging. It suggests that increased production from Australia is now being at least partly offset by production cuts from Chinese mines.

If the ASX200 index rallies today, it will move back within sight of key resistance at around 5300. Traders will be on alert for a break above this level over the next couple of weeks indicating a return of investor confidence and the potential for a strong finish to the year.