Oil takes over as the worry of the day

As fears about a rapid Yuan devaluation ease markets now turn to fret over potentially deflationary pressures as oil plunged to new six year lows overnight. Stronger than forecast US data did little to lift spirits, and US markets finished flat despite significant European rallies. Rallies in copper and iron ore may provide a silver lining for local trading.

As fears about a rapid Yuan devaluation ease markets now turn to fret over potentially deflationary pressures as oil plunged to new six year lows overnight. Stronger than forecast US data did little to lift spirits, and US markets finished flat despite significant European rallies. Rallies in copper and iron ore may provide a silver lining for local trading.

Statements from the PBoC that talk of a potential 10% devaluation of the Renminbi is “ridiculous” have calmed talk of “currency wars”. However, pressure on oil prices may not only turn around yesterday’s market leading performance by energy shares but also spark concerns about deflationary effects where growth prospects are also in question. While gains are possible across the Asia Pacific region, trading is likely to at least start in cautionary mode.

The first full week of results in Australia is painting a modestly positive picture, enhanced by improved trading updates from James Hardie and Automotive Holdings this morning. Traders will no doubt keep a wary eye on this morning’s Yuan rate fix, but attention will likely turn to a speech from RBA assistant governor Kent as he discusses recent changes in employment conditions. Investors will seek the RBA’s understanding of the surge in participation and its implication for interest rates.

For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.