Unwinding material anticipation
A shift in investor sentiment from positive European trading to falls in the US will have local investors on the back foot today. A stronger USD further battered commodities prices, which may compound the expected weakness given the anticipatory buying in resource stocks yesterday.
US crude oil inventories leapt by eight million barrels this week, double the consensus forecast. This surge in supply came despite increased refinery activity and a further fall in active US drilling rigs. Oil prices fell for the fourth session in a row. This is doubly bad news for locally listed energy stocks.
Traders were active in resource stocks yesterday. Gold stocks were the first to find support, lifting despite a three day tumble in gold prices. It appeared traders were anticipating an overnight turn around in the yellow metal. This enthusiasm then fanned out across sectors, and materials and energy stocks let the comeback rally as the best performers. This could mean additional selling today as the anticipated rallies failed to materialise.
Frequently Asked Questions about this Article…
A stronger USD typically leads to lower commodity prices because commodities are often priced in USD. When the dollar strengthens, it makes commodities more expensive for foreign buyers, which can reduce demand and push prices down.
US crude oil inventories increased by eight million barrels, which was double the consensus forecast. This surge occurred despite increased refinery activity and a decrease in active US drilling rigs, indicating a significant rise in supply.
A fall in oil prices is generally bad news for energy stocks, as it can lead to reduced revenues and profits for companies in the energy sector. This is particularly concerning for locally listed energy stocks, which may see a decline in their market value.
Gold stocks found support as traders anticipated an overnight turnaround in gold prices. Despite a three-day tumble in gold prices, traders were optimistic about a potential rebound, which led to increased activity in gold stocks.
The recent activity in resource stocks was driven by anticipatory buying, as traders expected a turnaround in commodity prices. This enthusiasm spread across sectors, with materials and energy stocks leading a comeback rally.
If anticipated rallies in resource stocks don't materialize, it could lead to additional selling. Traders who bought in anticipation of a price increase may decide to sell if the expected rallies fail to occur, potentially driving prices down further.
Changes in US crude oil inventories can significantly impact global oil prices. A large increase in inventories, like the recent eight million barrel rise, suggests an oversupply, which can lead to lower global oil prices as supply outpaces demand.
Anticipatory buying can temporarily boost stock prices as traders purchase stocks in expectation of future price increases. However, if the anticipated events do not occur, it can lead to a sell-off, as traders may quickly exit their positions, causing prices to fall.
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