Commodities bounce to extend gains

Strong rallies in commodity indices, led by energy markets, should see local investors shrug off tepid US stock market leads to power shares higher today. Positive momentum in AUD could bring international support, particularly relevant in light of a Bank of Japan monetary target statement today.

Oil markets are firming up as incremental supply side responses pile up. US shale rigs counts are down, and over the weekend Russia issued conciliatory and co-operative statements. Add in a hurricane in the gulf of Mexico as a reminder of the potential for supply disruption, and the 5% overnight rally is easily explained. Bidder Woodside and target Oilsearch could be among the major beneficiaries of this shift in energy market sentiment.

The bank of Japan’s statement on monetary policy is not expected to shift the target for monetary support today, but may lay the ground work for an increase in money supply at its next monetary policy meeting on October 30. Any hints in this direction point to a weaker yen, which may spur buying of international shares as mobile Japanese investors look for returns in more attractive currencies.