Selling slows as commodities warn

European and US shares traded under pressure for the second session in a row overnight as post Grexit increases were further trimmed. Bonds are the major beneficiary, rallying across the board, while US shares continued to retreat despite some upbeat company results and a positive surprise on existing home sales. Commodity markets are sounding a warning to share markets, with ongoing falls in energy and industrial metals pointing to a deteriorating demand outlook.

Currency markets may give the lead to today’s share market action. The RBNZ cut interest rates this morning, yet the NZD defied expectations and rose. The perception that commodity currencies may be near lows could attract regional investment in Australian shares today. Futures markets are pointing to a local fall of only two points at the open, in contrast to other Asia Pacific bourses.

Caution is a likely byword for trading today. Copper and oil remain under significant pressure, reflecting worries about the outlook for industrial demand as well as the potential for strength in the USD. The stronger USD is also expected to influence today’s trade data from Japan, with analysts looking for a 10% lift in exports in June. Today’s question for day traders is how much of the overnight weakness was anticipated by yesterday’s regional plunge?

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