Soft commodity prices dent market confidence
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.
Frequently Asked Questions about this Article…
Softer commodity prices are impacting the Australian stock market because they create nervousness among investors. The recent rallies in commodities like Brent oil and copper have shown signs of losing momentum, leading to concerns about the sustainability of current prices without further production cuts.
Brent oil has increased by 42% from its mid-January low, while copper has risen by 13%. However, recent selling in these commodities suggests that the market is nervous about the sustainability of these price increases.
The energy and materials sectors are currently weaker in early trade on the Australian stock market. This weakness is part of a broader trend of general selling, likely due to profit-taking and nervousness over recent commodity price declines.
The RBA minutes are unlikely to significantly change the market outlook. However, they will be assessed in light of recent developments such as stronger than expected GDP growth, improved global equity markets, and substantial gains in both commodity prices and the Aussie Dollar.
Traders are cautious about the Bank of Japan meeting because the Bank has a history of surprising the market. Although no changes are expected, traders are approaching the event with caution.
The Federal Reserve (Fed) meeting is expected to have the biggest impact this week. It could firm up expectations for more rate hikes this year, supported by a strong US domestic economy and improved global equity markets.
The US domestic economy is performing well enough to support further tightening by the Federal Reserve. This, along with improved global equity markets and a weak US Dollar, is making the Fed's task of considering rate hikes a bit easier.
Market nervousness is being driven by the recent downward drift in commodity prices and the Aussie Dollar, despite recent gains. This nervousness is leading to profit-taking and a cautious approach among investors.
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