Stock market risk adjustment complete
The equity market’s adjustment to remove the uncertainty risk premium built into prices after the weekend attacks in Paris has been quick. Investors are again returning focus to the underlying macro themes confronting markets for the remainder of the year.
Whether or not yesterday’s rally in stock markets can get under way again over coming days may rest on a couple of issues. The first will be whether yesterday’s buying momentum in major non-mining stocks resumes despite the fact that upward momentum in US markets stalled last night.
Another weak session in commodity markets is also likely to weigh on Australian markets today. Buying support for energy stocks in the US was reversed last night and we may see the same here today as traders take a safety first approach prior to release of this week’s oil production and inventory data in the US.
US inflation data left the chances of a December rate hike by the Fed intact. It’s encouraging to see signs of improvement in services sector inflation as the US labour market improving. Markets appear confident that the underlying domestic economy is now strong enough to tolerate the early stages of a monetary tightening cycle.
Frequently Asked Questions about this Article…
The stock market has quickly adjusted to remove the uncertainty risk premium that was built into prices following the weekend attacks in Paris. Investors are now refocusing on the underlying macroeconomic themes affecting the markets for the rest of the year.
The continuation of the recent rally in stock markets may depend on whether the buying momentum in major non-mining stocks resumes, despite the stalled upward momentum in US markets last night.
Another weak session in commodity markets is likely to weigh on Australian markets. Buying support for energy stocks in the US was reversed last night, and we may see a similar trend in Australia as traders adopt a cautious approach ahead of the US oil production and inventory data release.
The US inflation data has left the chances of a December rate hike by the Fed intact. The data shows encouraging signs of improvement in services sector inflation, supported by an improving US labor market.
Investors are confident that the underlying domestic economy in the US is strong enough to handle the early stages of a monetary tightening cycle, as indicated by improvements in the labor market and services sector inflation.
The buying momentum in non-mining stocks is influenced by the overall market sentiment and macroeconomic themes, as well as the performance of US markets, which recently experienced a stall in upward momentum.
Traders are taking a safety-first approach ahead of the release of this week's US oil production and inventory data, which is affecting buying support for energy stocks both in the US and potentially in Australia.
Investors are focusing on macro themes such as the strength of the US domestic economy, potential interest rate hikes by the Fed, and the performance of commodity markets, which are all influencing market dynamics for the remainder of the year.
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