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Commodities bull run

It’s a good day to be a commodities bull with strong gains in overnight markets. Following China’s CPI year-on-year print landing at 5.5%, the commodities markets came alive with solid gains -  nickle higher by 2% and copper higher by 3%.

Mining
Source: Bloomberg

News that the US energy agency suggesting US oil production will rise by 300,000 barrels per day into 2018 brought some pressure onto the overnight oil price, and which may flow through to the oilers in Australia today.

The growing expectation has now firmed -  China and the US will lead the world to inflation and economic growth in the next five years. Furthermore, the US small business index rose 7.4 points, the most since 1980, to stand at 105.8.

With the countdown to Trump’s inauguration, these types of numbers would provide a very compelling case for strong US growth in the first term. US corporate reporting season is only days away and the markets will be focused not only on companies revenue, but forward commentary and expectations in a rising interest rate and inflationary environment. Typically, markets remain subdued during the first term of a new president, but 2017 may be the exception to the rule.

If there is one thing holding the DOW back from crossing 20,000 points, this earnings season will provide the catalyst to make a run to 21,000 or see a decline back to test the technical breakout at 19,000.

Currencies are entering trading ranges with the USD/JPY moving below the 116 handle. This will provide some weakness to the Nikkei 225 in today’s session. The AUD expected to range trade between 0.7150 and 0.7400 in its current longer-term primary downtrend from 2011 highs. Not unexpected, the USD index remains strong above the key 100 level at 102.2.

For Australia today, it’s about overnight gains in iron ore. BHP’s ADR suggests an open 3.1% higher while FMG ADR shows a 2.1% move to $6.05.

This chart shows US iron ore producer Cliffs Natural Resources gained a whopping 11% in the session last night. With the four banks testing individual price resistance levels, the spotlight will be back on resources today.

Our futures contract shows a stronger open by 25 points at 5785 points for the Aussie 200 index.

Cliffs
Click to enlarge

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