The ASX Today

The ASX is hanging on a mixed bag of leads from overseas, but better metals prices look a high chance to provide a boost to the local index this morning.

ASX SPI 200 Futures traders left the index six points lower on Friday night, but there's been developments in global markets since that could make for a higher or lower start, depending on the lead the local market decides to take. 

There's been positive news on the base metals front, which the ASX is overwhelmingly exposed to, although issues resurfacing in the US could put doubt in the minds of bullish traders.

Copper and aluminium recorded more than 1 per cent gains in trade on Friday night, while the spot price of iron ore added 2.9 per cent to $US70 a tonne. The latter in particular is good news for big Australian producers.

Meanwhile, energy companies appear on an upward trajectory. After pausing for direction just before OPEC's meeting on Thursday night local time, they now look set to resume their rallies. Brent and WTI oil prices haven't yet hit recent highs, but they are moving higher. Brent crude is at $US63.46 a barrel this morning, while WTI oil is at $US58.36 a barrel.

KEY POINTS

• Materials and energy swings could move the ASX to a higher open, but market could yet be derailed by overseas politics
• Major Australian economic data released starting tomorrow
• MI inflation gauge for October released today
• ANZ job ads for October published following that
• Q3 business indicators come out today — company profits, inventories contribution to GDP — ahead of full-picture Q3 real GDP tomorrow 

Australia is looking at a big week ahead for economic data but the flurry starts tomorrow with the RBA and Q3 GDP. 

In the US, tax cut legislation was passed in the Senate at the weekend by 51 ‘yes' voters against 49 ‘no' voters. 

This tax news came after news broke on Friday that former NSA advisor to President Trump, Michael Flynn, had pleaded guilty to Russia links. Stocks swooned but then recovered to finish marginally lower, and then over the weekend Trump seemed to somewhat admit he knew Flynn lied to the FBI. US equities are tonight's concern though.

Back to the local market, and it seems like materials and energy will be the focus of our trade today considering they've been the biggest movers in spot metals markets in recent days.

In addition to copper and aluminium flying on the London Metals Exchange, lead, nickel and zinc made decent gains of their own. And on the Dalian futures market in China, iron ore, coking coal and steel closed up 5.5 per cent, 0.7 per cent and 2.6 per cent respectively. 

On this morning's commodities beat, considering the price swings recently, here's some historical insight into how metals fare when equities fall. This is from the Macquarie Wealth team:

“Thursday's fall in the Chinese stock market is a reminder that global equity prices - currently at record highs - can go down as well as up. Our historical analysis shows that metal prices almost always fall when equities do, with nickel, copper and palladium most affected. Gold stands out as the only one to reliably buck the trend.”

They used a table to show that, in the worst weeks for equities, metals tend to fall in price too. Copper fell the most often, followed by nickel, while zinc proved the best performer (with the exception of gold) in a bad equities week. 

“Summing up, it's quite clear that metals have not been a good place to be when equity markets are falling (except gold). But does this mean the risk of an equity sell-off is a separate risk factor for metal prices? After all in many cases it was a third factor, normally a recession, that took both down. In 2015/2016 arguably the relationship was reversed, with weak metal (or at least wider commodity) prices hitting equities. Nevertheless we doubt metals would come out unscathed even if equities were to fall simply because equity investors decided they were overvalued - after all that is what happened post the dot-com bubble and they still got hit badly.”