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.