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.