Oil reversal smashes data
Multi-year high readings on US industrial production and capacity utilisation initially spurred markets higher in overnight trading. The unambiguous strength in the US economy may give the Fed plenty to talk about at its meeting tonight, but a reversal in energy markets from gains to further dramatic losses soured the session and dragged equities to lows. This turn around, combined with falls in metals prices, will see Australian shares under pressure again at today’s opening.
The falls in industrial commodities and share markets come in spite of improving data from Japan, China and the US. This suggests the main driver is concerns about the effect of withdrawal of the historic monetary stimulus from the Fed. In anticipation of a draining of the global bathtub, investors are locking in share gains and withdrawing from commodity markets. During the height of stimulus, bad news was good news, as investors anticipated further funds injection. Now, good economic news is bad news, as markets bring forward the withdrawal timetable.
Unusually for this time of year, volatility is on the rise. Locally, this is the last full week of liquidity as futures and options expire, potentially exacerbating selling pressure. A full calendar of data releases and a US Fed FOMC meeting tonight mean the holiday season may be cancelled for traders this year.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
The multi-year high readings on US industrial production and capacity utilisation indicated strong economic performance, which initially spurred markets higher as investors saw it as a positive sign for the economy.
The reversal in energy markets from gains to dramatic losses soured the trading session, dragging equities to lows. This shift was a key factor in the downturn of share markets despite strong economic data.
Australian shares are expected to be under pressure at the opening due to the falls in industrial commodities and share markets, influenced by concerns over the withdrawal of monetary stimulus by the Fed.
The main driver behind the current market volatility is the anticipation of the withdrawal of historic monetary stimulus from the Fed, leading investors to lock in share gains and withdraw from commodity markets.
Good economic news is perceived as bad news because it brings forward the timetable for the withdrawal of monetary stimulus, which investors fear could negatively impact market liquidity and growth.
Unusually for this time of year, market volatility is on the rise, partly due to the expiration of futures and options, which may exacerbate selling pressure.
The US Fed FOMC meeting could impact the markets by providing further insights into the Fed's plans for monetary policy, potentially influencing investor sentiment and market movements.
The holiday season might be cancelled for traders due to a full calendar of data releases and the US Fed FOMC meeting, which could keep market participants engaged and active despite the usual seasonal slowdown.
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