Positive international leads but commodity rally seen as limited

Buyers were given no reason for added caution by overnight markets. Another positive session for commodities and international stock markets should allow those who see value in current stock prices to continue the bargain hunting that’s characterised the last three trading days.

While investors have been relieved to see commodity prices stop falling, optimism is likely to be tempered. Traders are becoming accustomed to volatility in the spot iron ore price being driven by the inventory accumulation cycle. The consensus view is that the current rally in spot iron ore is likely to be capped by the reality of forecast increases in the supply surplus. Production from Gina Rinehart’s Roy Hill project, for example is due to begin later this year and then to ramp up significantly over the next two years. 

This morning’s building approvals data will provide insight into not only the construction sector’s contribution to economic growth but also into the question of if and when increased supply, particularly of higher density dwellings, is likely to start bearing down on housing prices.

For further comment from CMC Markets please call 02 8221 2137.