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.