Stocks Decouple from Oil
For the first time in 2016 share markets and oil prices moved independently in overnight trading. Weaker manufacturing data in China and the US further undermined confidence in the growth outlook, leading oil traders to dump longs. Despite these negatives, and strong rallies on Friday, US markets recovered early losses to finish flat to slightly higher.
An important factor in the late gains was stronger reporting into the close. Sysco, insurer Aetna and coffee roaster Kuerig Green Mountain all reported strongly during the session, and after-market the iconic Alphabet (nee Google) delivered 7% above expectations. As US reporting approaches the half way mark the overall fall in earnings growth is around 4%, running around 3% better than forecast. Many analysts expected weaker growth on the back of a resurgent USD, and any concerns about broader economic impacts are offset by the ongoing strength in job creation.
Australian company reporting gets going this week, with Downer EDI, Tabcorp, NewsCorp, REA Group and Whitehaven Coal all communicating with investors on Thursday and Friday. Futures markets are indicating an opening down a single index point. However, the 6% plus falls in oil overnight may contain any investor enthusiasm, and the response to the divergence from oil prices combined with the corporate news to come may see investors sitting on their hands today.
Frequently Asked Questions about this Article…
Stocks and oil prices moved independently due to weaker manufacturing data from China and the US, which undermined confidence in growth outlooks. This led oil traders to sell off their positions, while US markets managed to recover early losses thanks to stronger corporate earnings reports.
Despite negative economic data, US markets finished flat to slightly higher. This was largely due to stronger corporate earnings reports from companies like Sysco, Aetna, and Kuerig Green Mountain, as well as Alphabet's better-than-expected performance.
Alphabet's earnings report, which exceeded expectations by 7%, contributed to the late gains in US markets, helping them recover from early losses despite broader economic concerns.
US earnings growth is currently experiencing an overall fall of around 4%, which is about 3% better than forecasted. This is despite expectations of weaker growth due to a stronger US dollar.
In Australia, companies like Downer EDI, Tabcorp, NewsCorp, REA Group, and Whitehaven Coal are scheduled to report to investors on Thursday and Friday.
The recent 6% fall in oil prices may dampen investor enthusiasm, potentially leading to a cautious approach as investors await further corporate news and assess the divergence from oil prices.
Ongoing strength in job creation is helping to offset concerns about broader economic impacts in the US, despite a resurgent US dollar and weaker growth expectations.
Futures markets are indicating a slight opening down by a single index point for Australian stocks, reflecting cautious investor sentiment amid recent oil price declines and upcoming corporate reports.
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