US optimism .v. commodity pessimism
US markets gave local traders a positive lead for this morning. The question for traders is whether this will make any impression on investors who have been selling bank stocks or overcome the nervous sentiment in commodity markets. The best that can be hoped for looks to be a minor rally leaving the ASX 200 index inside Friday’s large trading range and the overall market tone nervous.
Saudi’s comments that it will only freeze its oil output if Iran and other producers do so as well confirms the doubts that many have had about these freeze negotiations from the outset. The main beneficiaries of any freeze or production cuts would be the smaller producers like Venezuela. It’s not in either the financial or political interests of large, low cost producers like Saudi to cut production at this stage. The Saudi stance on these negotiations makes the oil price vulnerable to more downside correction given the size of the rally since February.
US economic data on Friday reflects a steady-as-it-goes scenario with something to suit most market outlooks. Solid jobs growth and a pleasing pick up in the manufacturing PMI will help the growth outlook. However, despite beating expectations, wage growth data remains in the low 2% range and is not yet supporting the stronger inflation scenario needed to force an earlier than expected Fed rate hike.
The trend in Australian building approvals has been moderating in recent months. This suggests that dwelling construction may become a headwind for GDP growth. This trend would be confirmed if there is another weak read in today’s number on the back of recent softness in apartment prices, especially in Melbourne.
Frequently Asked Questions about this Article…
US markets have provided a positive lead for Australian traders, but it's uncertain if this will impact investors who are currently selling bank stocks or if it will overcome the nervous sentiment in commodity markets.
The sentiment in the commodity markets is currently nervous, particularly due to uncertainties surrounding oil production negotiations and the potential for further downside corrections in oil prices.
Saudi Arabia's decision to freeze oil output only if Iran and other producers do so highlights the complexities of production negotiations. This stance makes oil prices vulnerable to corrections, impacting global markets.
Recent US economic data shows solid jobs growth and an improvement in the manufacturing PMI, which supports a positive growth outlook. However, wage growth remains low, affecting inflation expectations and potential Fed rate hikes.
The trend in Australian building approvals has been moderating, suggesting that dwelling construction may become a headwind for GDP growth, especially if there is continued weakness in apartment prices.
A freeze or production cuts would primarily benefit smaller producers like Venezuela, as it could stabilize or increase oil prices, improving their financial positions.
The nervous market tone in Australia is influenced by the selling of bank stocks, uncertainties in commodity markets, and moderating trends in building approvals.
Low wage growth in the US, despite solid jobs growth, suggests that inflation is not rising as expected, which may delay any anticipated Fed rate hikes.
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