BHP, Rio Tinto battered by China uncertainty, rate hike fears

By Ambar Warrick

Investing.com -- Australian shares of major miners BHP Group (NYSE:BHP) and Rio Tinto (NYSE:RIO) slumped to multi-month lows on Monday as anticipation of key Chinese economic readings saw traders trim positions in China-exposed stocks, while fears of rising U.S. interest rates battered commodity markets.

Both stocks were also reeling from weak earnings reports released last week, as a slowdown in China, their biggest market, battered margins.

BHP Group Ltd (ASX:BHP), the bigger of the two, sank 2.4% to A$44.830 a share, its lowest level in nearly three months, while Rio Tinto Ltd (ASX:RIO) fell 2.6% to a near two-month low of A$115.865 a share.

Chinese purchasing managers’ index data due on Wednesday is expected to show a mixed recovery in the world’s largest commodity consumer. The country’s manufacturing sector in particular is expected to remain in contraction territory amid continued COVID-related disruptions and slowing overseas demand for Chinese exports.

While the country relaxed most anti-COVID restrictions, it saw a massive spike in infections, which is expected to weigh on economic growth in the near-term. This could delay a recovery in the country’s commodity demand, keeping BHP and Rio Tinto’s margins under pressure.

The two stocks were also hit by a slump in metal prices after stronger-than-expected U.S. inflation data on Friday. The personal consumption expenditures index - the Federal Reserve’s preferred inflation gauge - read higher than expected for January, which likely gives the central bank more economic headroom to raise interest rates.

Copper and iron ore prices plummeted after the reading, as markets feared that higher interest rates will dent economic growth and hurt commodity demand later this year.

The dollar spiked on the inflation reading, also weighing on commodities priced in the greenback. Weaker commodity prices point to lower margins for miners.

Still, the two miners forecast that a recovery in China will help commodity markets this year. But given that recent economic readings have painted a mixed picture of China, the timing of such a recovery remains uncertain.

BHP and Rio Tinto were the biggest weights on Australia’s ASX 200 index, which sank over 1% on Monday.