Softer commodity prices overnight have set the tone for a nervous opening session on the Australian stock market.
The commodity rally is showing signs of running out of steam. There have been some significant rallies based on limited evidence in recent weeks. Brent oil for example is up 42% from mid its mid-January low while copper is up 13%. Recent selling in commodities suggests markets are becoming nervous about the sustainability of current prices in the absence of further news on production cuts.
The energy and materials sector are weaker in early trade but more general selling suggests some profit taking on the overall Australian market. This is based on nervousness over last night’s downward drift on commodities and the Aussie Dollar.
It’s unlikely that there will be much to change the market’s outlook in the RBA minutes. There have been some significant developments since the last meeting. The minutes will need to be assessed in the light of stronger than expected GDP growth, the improved tone in world equity markets and substantial gains in both commodity prices and the Aussie Dollar.
Traders are not expecting any changes from the Bank of Japan meeting today but are approaching the event cautiously given the Bank’s history of surprising the market. Of all the central bank meetings this week, the Fed might be the one to have the biggest impact. The Fed meeting could firm up expectations for more rate hikes this year. The US domestic economy continues to perform well enough to support further tightening while improved global equity markets and a surprisingly weak $US are making the Fed’s task a little easier.