Oil glut tempers market optimism

Burgeoning US oil inventories will create a nervous tone for this morning’s stock market open. Sentiment on the oil market has been a key macro driver for stock market sentiment recently. Concerns about the potential for credit market problems in the event of a lower for longer oil scenario are near the top of a fairly long list of macro factors worrying investors at the moment.

Growing inventories highlight that freezing production levels at current levels as suggested at the Doha meeting will not be enough. These record oil inventories will eventually have to be run down and are going to be a dampener on the potential for higher oil prices for some time to come.

Gold’s 1.8% overnight rally points to the likelihood of a nervous tone on the share market this morning.  The big rally in gold has been a significant feature of the “risk off” sentiment that has characterised markets for much of this year. Despite recent volatility in the gold price, ETF gold holdings are growing indicating ongoing investor interest. Gold stocks could well be a bright spot in today’s market.

Risk off sentiment is also weighing on the Aussie Dollar which has so far been unable to build on Wednesday’s strength. Yesterday’s weaker than expected employment data was also a negative for the Aussie. While trend growth remains solid, 2 months of softer jobs growth creates an element of doubt about momentum in the domestic economy.