Commodity momentum slows but market remains on edge
The strong downward momentum in oil markets stalled on overnight markets. However, there was no news to support optimism and with spot iron ore continuing to drift lower, investors are likely to remain nervous about mining and energy stocks today.
The 5% rally in Qantas’s share price yesterday is a totemic reminder that weaker energy prices do have benefits. It’s true that a weaker for longer scenario in oil would put more pressure on Australia’s income via lower LNG prices and declining terms of trade. However, it may also hasten the rebalancing of the economy via downward pressure on the Aussie dollar and lower costs for many businesses and consumers. This thinking may play out in the stock market with investors looking for value in stocks and industry sectors that will benefit from low oil prices.
The impact of lower oil prices on inflation will also be a key consideration for investors. While central banks try to look through the direct impacts of lower prices on the CPI, it does have secondary impacts reducing the cost of other inputs and influencing inflation expectations. Lower commodity prices may slow the pace of Fed tightening next year and keep other central banks in easing mode. Today’s release of China’s inflation data will be seen in this context. Weaker than expected inflation data would raise concerns about the negative impacts of excess capacity in China’s economy and the strength of its currency. However, it would also pave the way for additional stimulus.
Frequently Asked Questions about this Article…
The slowdown in commodity momentum, particularly in oil and iron ore, can make investors nervous about mining and energy stocks. However, it also presents opportunities in sectors that benefit from lower energy prices, such as airlines and businesses with high energy consumption.
Lower oil prices can pressure Australia's income due to reduced LNG prices and declining terms of trade. However, they may also help rebalance the economy by putting downward pressure on the Aussie dollar and reducing costs for businesses and consumers.
Qantas's share price rallied by 5% as a reminder that weaker energy prices can benefit certain sectors. Airlines, like Qantas, benefit from lower fuel costs, which can improve their profitability.
Lower oil prices can reduce inflation by lowering the cost of inputs and influencing inflation expectations. This may slow the pace of interest rate hikes by the Fed and keep other central banks in easing mode, affecting monetary policy decisions.
China's inflation data is crucial as weaker than expected figures could indicate excess capacity in its economy and affect its currency strength. It also opens the possibility for additional economic stimulus, impacting global markets.
Investors can look for value in stocks and sectors that benefit from low oil prices, such as airlines and energy-intensive industries. These sectors may offer growth opportunities despite the overall slowdown in commodity momentum.
A weaker Australian dollar can make exports more competitive and reduce costs for businesses and consumers. This can create investment opportunities in export-oriented industries and sectors that benefit from lower import costs.
Lower commodity prices could slow the pace of interest rate hikes by the Federal Reserve and encourage other central banks to maintain or adopt easing policies. This can influence borrowing costs and investment strategies for everyday investors.
Call 1300 880 160
Start a chat
Schedule a call
