Sentiment Swung

Holidays in Japan, Spain, Canada and the US meant overnight trading was thin and choppy, and largely restricted to small ranges. The exception is oil, which plummeted from resistance after a 14% gain over just six sessions. However, support for other commodity prices points to a further fracturing of sentiment, as investors divide more sharply into two camps.

Gains in iron ore and copper, alongside the previous rise in oil and gas prices, suggest overall industrial sentiment has pulled back from the China collapse pricing seen in August. This support may continue into the important growth and activity statistics that are released in China on Monday. Underpinning this view is a weaker USD (on delayed rate rises) scenario, which is positive for emerging markets and commodity prices, and ultimately shares.

The conflicting view is in evidence in gold trading. Up more than 5% in six sessions, the safe haven status and currency proxy characteristics have those expecting the GFC mark III piling in. While higher gold prices are pushing gold miners up, a continuation of this drive for safety may ultimately spell bad news for share markets.

The conflicting views make predicting today’s trading difficult. Futures markets are pointing to modest falls at the open, but the general support for commodities could see a bottom up rally emerge over the course of the day.