Support for mining stocks offset by caution ahead of the reporting season and US jobs data
The share market looks set for a cautious start this morning. Ongoing support for mining stocks may be offset by general investor caution ahead of tonight’s US job data and the upcoming profit reporting season.
US dollar weakness was the catalyst for yesterday’s stock market rally and the impressive gains in commodities. Economic data last night did nothing to dispel concerns that US economic growth is moderating. This led to another weak session for the Greenback as markets wind back expectations for Fed rate increases.
US initial jobless claims rose last week. They are still below levels that are likely to cause real concern but the trend has been creeping higher in recent weeks. These signs of slight deterioration in the labour market are consistent with other indicators of softening US economic growth like the Markit Services PMI. Whether this shows up in weaker job growth either tonight or over the next couple of month will be crucial to the Fed’s next move and the US dollar.
With the exception of oil, ongoing US dollar weakness led to further overnight gains in major commodities, especially gold. The new downtrend in the US dollar changes the short term outlook for gold. It also appears to be benefitting from safe haven buying relating to the Chinese economy. Gold stocks are likely to be a bright spot for the stock market today.
While buying in mining stocks looks set to continue in early trade, the quick loss of momentum in the oil rally may weigh on market sentiment. Initial short covering in oil based on US dollar weakness has faltered in the face of ongoing supply surplus and continued build in already massive inventory levels. While many are beginning to look toward a more balanced oil market over the next year, the question for traders is whether a forward looking rally can build from here. Supply pressure is likely to be intense in overcoming months and considerable downside price risk remains. Whether or not price can get past near term resistance around $35 in the US oil price looms as a key test for market sentiment.
Frequently Asked Questions about this Article…
Mining stocks are receiving ongoing support due to the weakness in the US dollar, which has led to impressive gains in commodities, particularly gold. This trend is expected to continue as investors seek safe havens amid economic uncertainties.
US dollar weakness can positively impact the stock market by boosting commodity prices, such as gold, which in turn supports mining stocks. However, it can also create caution among investors as it reflects concerns about US economic growth and potential changes in Federal Reserve policies.
US job data significantly influences investor sentiment as it provides insights into the health of the US economy. Rising initial jobless claims and signs of a softening labor market can lead to caution among investors, affecting market dynamics and expectations for Federal Reserve actions.
Gold stocks are seen as a bright spot due to the ongoing weakness in the US dollar and safe haven buying related to concerns about the Chinese economy. These factors have contributed to a favorable short-term outlook for gold, boosting investor interest in gold stocks.
Despite US dollar weakness, the oil market faces challenges such as a supply surplus and continued inventory build-up. These factors have caused the initial rally in oil prices to lose momentum, creating downside price risks and testing market sentiment.
The upcoming profit reporting season can lead to cautious investor behavior as market participants await company earnings reports to gauge economic performance and adjust their investment strategies accordingly.
The Federal Reserve plays a crucial role in influencing market trends through its monetary policy decisions. Expectations of rate changes based on economic data, such as job growth and inflation, can significantly impact investor sentiment and market movements.
The US oil price resistance level, particularly around $35, is important for market sentiment as it serves as a key test for whether a forward-looking rally can build. Overcoming this resistance could signal a more balanced oil market outlook, influencing investor confidence.
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