The Resources End Game
A lift in European and US share markets and a surprise surge in oil prices should lift the Australian share market today, perhaps tempered by the news that iron ore miner and steel producer Arrium entered voluntary administration this morning. Subdued trading volumes could continue as global investors remain cautious ahead of the US quarterly reporting season.
Energy shares may reverse from yesterday’s feather duster to today’s rooster following a 5% jump in oil prices. Traders learned overnight that US crude oil inventories dropped from record levels by five million barrels, defying expectations of a further increase. The ASX 200 Energy index is around 10% higher than its 2016 low, compared to WTI crude’s 40% rally. This may add valuation support to positive price momentum, and short sellers are nervous ahead of the opening.
The US reporting season starts in earnest next week. Consensus estimates are a fall of 8% in earnings across the S&P 500 index. The driver of weakness in the previous quarter was a stronger USD, and the falls in February and March may mean there is potential for positive surprise. The index is around 3% below key technical resistance. Should estimates prove too conservative, a rally through this point may start a global scramble for shares.
Frequently Asked Questions about this Article…
The recent surge in oil prices, driven by a significant drop in US crude oil inventories, could positively impact the Australian share market. Energy shares, in particular, may see a boost, reversing previous declines and adding valuation support to positive price momentum.
The ASX 200 Energy index is currently around 10% higher than its 2016 low. This increase is in contrast to WTI crude's 40% rally, suggesting that energy shares may have room for further growth, especially with the recent jump in oil prices.
Arrium, an iron ore miner and steel producer, entered voluntary administration due to financial difficulties. This development could temper gains in the Australian share market, as investors may be cautious about the stability of similar companies in the resources sector.
Investors should be prepared for a potential 8% fall in earnings across the S&P 500 index, as consensus estimates suggest. However, there is also the possibility of positive surprises if previous estimates prove too conservative, which could lead to a rally in global share markets.
A stronger USD can negatively impact US company earnings by making exports more expensive and reducing overseas revenue when converted back to USD. This was a key driver of weakness in the previous quarter's earnings.
Subdued trading volumes suggest that global investors are cautious, possibly due to upcoming events like the US quarterly reporting season. This caution can lead to less market volatility in the short term but may also indicate uncertainty about future market movements.
The S&P 500 index is currently around 3% below a key technical resistance level. If earnings estimates prove too conservative and a rally occurs, breaking through this resistance could trigger a global scramble for shares.
Short sellers are nervous because the recent 5% jump in oil prices could lead to a rise in energy shares, which may result in losses for those betting against these stocks. The positive momentum in the energy sector could challenge their positions.
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