Commodities Crunch
After a stronger European trading session, a resurgent USD sparked selling in commodities overnight, culminating in a rout and weighing on share market sentiment. Commodity currencies were also slapped. Given the weakness in energy stocks yesterday, today’s session may surprise if investors turn their attention to potential profit stimulus from lower energy prices.
Oil prices tumbled to six year lows. Market focus at the moment is the potential deflationary effects of lower oil prices, and the signalling that aggregate demand is weak. At some stage however, there may be a collective awakening to the immediate impact lower input prices have on profits. The slide in oil prices is a “good” fall in that it reflects increasing supply rather than falling demand, and this is not yet reflected in share prices.
Readings on business and consumer conditions and confidence may influence local trading, but the regional news is the release of China trade data. These are the numbers that smacked the market in August, and any further weakening could bring panic.
Frequently Asked Questions about this Article…
Commodity prices dropped recently due to a stronger USD, which sparked selling in commodities. This led to a rout that affected share market sentiment and commodity currencies.
Lower oil prices, which have tumbled to six-year lows, are currently seen as a potential deflationary force, signaling weak aggregate demand. However, they also present a profit stimulus opportunity for companies due to reduced input costs.
Lower energy prices have initially led to weakness in energy stocks. However, there is potential for a surprise in market sessions if investors focus on the profit stimulus from these reduced prices.
The fall in oil prices is considered a 'good' fall because it reflects an increase in supply rather than a decrease in demand. This positive aspect is not yet fully reflected in share prices.
A stronger USD can lead to selling in commodities, as seen in the recent market activity. This can result in a rout that affects both commodity prices and share market sentiment.
China trade data is crucial as it previously impacted the market in August. Any further weakening in these numbers could lead to panic among investors.
Local trading conditions may be influenced by readings on business and consumer conditions and confidence, alongside regional news such as China trade data.
Investors are concerned about deflationary effects because lower oil prices could signal weak aggregate demand, which might impact economic growth and market stability.
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