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.
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Frequently Asked Questions about this Article…
International stock markets can influence investor sentiment and market trends. A positive session in these markets often encourages investors to continue bargain hunting, as seen in recent trading days.
The commodity market's recent stability has relieved investors, but caution remains due to expected increases in supply, particularly in iron ore. This can limit the potential for a sustained rally, affecting investment strategies.
Iron ore prices are volatile due to the inventory accumulation cycle, which affects supply and demand dynamics. This volatility requires investors to be cautious and informed about market trends.
The forecast for the iron ore market suggests a capped rally due to anticipated increases in supply, such as the upcoming production from Gina Rinehart’s Roy Hill project.
The Roy Hill project is expected to significantly increase iron ore supply over the next two years, which could contribute to a surplus and potentially cap price rallies.
Building approvals provide insights into the construction sector's contribution to economic growth. They also indicate potential impacts on housing prices, especially with increased supply of higher density dwellings.
Increased building approvals, particularly for higher density dwellings, can lead to greater housing supply, which may eventually put downward pressure on housing prices.
For further insights and commentary from CMC Markets, you can contact them directly at 02 8221 2137.
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