Investors take BHP write down in their stride
Another positive day for markets – this might get habit forming.
The stock market looks like racking up its second positive day for 2016. In what has been the norm for trading so far this year, there was no particular macro catalyst for this morning’s stronger opening.
Markets are vulnerable to a rally now. Major world stock indices are at chart support levels and this month’s sell-off has made valuations much more attractive. Given low interest rates, the potential opportunity cost of being out of equities and in cash or bond is climbing. GFC round three is a possibility but there is no particular reason to suggest it’s any more imminent than it was a month ago. Investors may need further evidence of deteriorating growth or increased risk to be convinced of the wisdom of selling stocks much below current levels.
The market is unconcerned about BHP writing down the value of its onshore US assets. While many may regret the timing and pricing of this investment, its reduced value has already been reflected in BHP’s lower share price. News that BHP will further reduce its rig count is evidence that management remains focussed on cost and risk reduction in response to lower prices.
Lower oil prices have been a sentiment leader for the recent market sell-off and will again be in focus with Iranian sanctions expected to be lifted next week. How fast Iran can put oil back on the market will now be a key issue for oil markets with many sceptical that it will be able to do this nearly as fast as it has forecast.
Frequently Asked Questions about this Article…
The stock market is seeing positive days because major world stock indices are at chart support levels, making valuations more attractive. Additionally, low interest rates increase the opportunity cost of staying out of equities, encouraging investors to remain in the market.
BHP's write-down of its onshore US assets indicates that the company is adjusting to lower asset values, which has already been reflected in its share price. Investors seem unconcerned as BHP's management is focused on cost and risk reduction.
Lower oil prices have been a significant factor in the recent market sell-off. They continue to influence market sentiment, especially with the potential increase in oil supply from Iran as sanctions are lifted.
The lifting of Iranian sanctions could lead to an increase in oil supply, which is a key issue for oil markets. However, there is skepticism about how quickly Iran can bring oil back to the market, which could affect oil prices and market dynamics.
While a third round of the Global Financial Crisis is a possibility, there is no immediate indication that it is more imminent now than it was a month ago. Investors may need more evidence of deteriorating growth or increased risk before considering significant stock sell-offs.
With low interest rates, the opportunity cost of holding cash or bonds instead of equities is increasing. This makes equities more attractive to investors seeking better returns, contributing to the positive market sentiment.
BHP's decision to reduce its rig count is part of its strategy to focus on cost and risk reduction in response to lower oil prices. This move is seen as a proactive measure to manage the company's resources more efficiently.
Markets are vulnerable to a rally due to attractive valuations at chart support levels and the increasing opportunity cost of not investing in equities. These factors, combined with low interest rates, are encouraging investors to stay in the market.
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