Metals mammoth Rio Tinto (LSE: RIO) punched further terrific share price gains in October as ‘safe-haven’ flows into the commodities sector persisted. The earth mover rose 8% last month, meaning Rio Tinto has gained well over a third in value since June’s EU referendum.
The business was lifted by an incredible uptick in iron ore values in October — Rio Tinto sources 60% of total earnings from this one market. The steelmaking ingredient hit its highest since April towards the end of the month and has continued to climb as we enter November, iron ore recently trading around $65 per tonne.
However, the scale of iron ore’s stunning rise in 2016 has led many to question that speculative buying rather than robust, fundamental trading is at play.
Sure, factory data from China has been more encouraging, the Caixin PMI manufacturing gauge leaping to 51.2 in October, the highest level since summer 2014. But export data from the country signals that underlying global demand for China’s goods could be taking a turn for the worse — outbound shipments sank by an alarming 10% in September in dollar terms.
It’s difficult to rule out further near-term share price rises at Rio Tinto given that iron ore values continue to stride skywards.
But with major suppliers embarking on ambitious supply expansion plans, and demand indicators far from reassuring, I believe Rio Tinto remains a scary pick for long-term investors.
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The earnings prospects of Barclays (LSE: BARC) could also be described as rather sticky, in my opinion, despite last month’s splendid 13% share price ascent.
Indeed, the FTSE 100 bank’s latest set of quarterlies that were released last month underlined the variety of problems facing it in the near term and beyond.
Barclays was forced to stash away an extra £600m during July-September for the ongoing PPI-mis-selling scandal. The London-based business has now set aside an astonishing £8.4bn to cover claims, the latest provision reflecting the FCA’s decision to extend a proposed submission deadline to 2019.
But this isn’t Barclays’ only problem, the company facing the possibility of a sharp deceleration in the British economy as it adjusts to June’s EU referendum. Added to the prospect of a sharp rise in bad loans, falling consumer spending power and cooling business activity, Barclays is likely to also face the Bank of England keeping interest rates locked around record lows to stop the economy from flatlining.
The shedding of non-core assets like Barclays Africa Group provides the financial colossus with less insulation from the troubles facing its home markets. And Barclays’ profitability could also take a hefty whack should EU passporting obstacles happen during the government’s Brexit negotiations.
The vast array of problems facing Barclays makes it an unsuitable pick for cautious investors, in my opinion, a situation that could lead to a heavy share price reversal in the months ahead.
