Commodity relief supports a solid opening
Market relief at the ongoing rally in commodity prices will underscore a positive start for the stock market this morning. The recent bounce in major commodities means that profit results for mining and resource stocks this half look like being significantly better than many may have feared only a few weeks ago. This takes the immediate pressure off concerns about credit problems emerging in the commodity sector.
Commodity prices were helped by $US weakness on Friday. Markets chose to focus on weaker than expected wage growth rather than the robust growth in job creation. The focus on wages reflects the fact that inflation is now the key variable for the pace of Fed rate increases. Last month’s drop in US wages is a setback for trend growth at this stage. However, the overall strength of the US domestic economy was on display this week with gains in the core pce measure of inflation and a surprise improvement in the manufacturing PMI as well as strong trend growth in jobs. June now looms as a real prospect for the next Fed rate hike.
Friday’s rally in the Aussie Dollar represented a break above chart resistance around .7385. Aussie Dollar strength will partly offset Friday’s good news on commodity prices.
The People’s Congress of China has not delivered any surprises for markets. Ongoing negative pressure from oversupply and credit problems in some sectors of China’s economy is a medium term issue that will weigh on growth prospects for some time. This is reflected in China’s new lower growth target for 2016.
Frequently Asked Questions about this Article…
The ongoing rally in commodity prices is providing market relief and supporting a positive start for the stock market. This is because higher commodity prices are expected to lead to better profit results for mining and resource stocks.
The recent increase in commodity prices has been helped by the weakness of the US dollar. Markets have focused on weaker than expected wage growth, which has overshadowed robust job creation, influencing commodity prices.
US wage growth is important because it reflects inflation trends, which are key for determining the pace of Federal Reserve rate increases. A drop in wages can impact commodity prices by influencing market expectations about economic growth and inflation.
The recent rally in the Aussie Dollar, breaking above chart resistance, partly offsets the positive impact of rising commodity prices. A stronger Aussie Dollar can affect the competitiveness of Australian exports, including commodities.
The strength of the US domestic economy, shown by gains in inflation measures and job growth, can influence global markets by affecting expectations for US interest rate hikes, which in turn impact global financial conditions and commodity prices.
China's new lower growth target reflects ongoing negative pressures from oversupply and credit problems in some sectors. This is a medium-term issue that could weigh on growth prospects and affect global commodity demand.
The People's Congress of China can influence market expectations by setting economic policies and growth targets. However, the recent session did not deliver any surprises, maintaining the focus on existing economic challenges.
June is now seen as a real prospect for the next Federal Reserve rate hike, given the overall strength of the US domestic economy and recent economic indicators.
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