USA vs Europe

A speech from Fed Chair Yellen pushed investor concerns towards the impact of rate hikes, overshadowing the potential for the ECB to pull the trigger on further stimulus tonight. With analysts pointing to potential for both rate cuts and significant asset purchases, last night’s sell-off may not see full transmission to Asia Pacific trading. However, weaker commodity prices will likely weigh on Australian resource shares.

Yellen appeared to shift to rate hike messaging 2.0 in a speech last night, suggesting further lifts after an initial move in December will depend on actual rather than trend improvements in inflation. Despite this dovish hue the USD strengthened, possibly reflecting a tinge of ECB expectation. USD strength sparked the commodity market stumble, ahead of a key meeting of OPEC countries on Friday.

Oil prices traded close to the six year low hit in August. A stronger USD and a view that Saudi Arabian oil producers won’t back away from their commitment to increased production prompted weak prices. While a believable decrease in production is not likely, a shift in language could move energy prices. Any bounce may not help Santos shareholders, which this morning announced the clearance of the retail share placement overhang at $4.10, a 20% discount to the share price at the time of the issue announcement.