What’s spiking my interest
Gold is at a five-year low and since the five-tonne dump on Monday a week ago, the question of when we will see US$1000 an ounce is only getting louder. The fundamental and technical analysis suggests it will happen in the next six weeks.
WTI has just logged its sixth consecutive weekly loss and is now below US$50 a barrel. The expectation of a glut on the back of the Iran nuclear deal, coupled with the fact US rig numbers rebounded by 21 - the highest weekly increase in 16 months - will not settle the nerves of oil traders. Expectations are for ‘lower for longer’ conditions as production ramps up in the back half of 2015 and new tier-1 projects come online in the US, Australia and Asia.
Fed chatter has had an interesting weekend. The Fed research team ‘released’ its own research into its expectations around the Fed funds rate (there’s speculation it was leaked). The report showed they see one hike in 2015 and that the Fed funds rate will average 35 basis points by year end. This, along with data out of China, caused some serious gyrations in the currency markets and the AUD entered the 72 cent handle for a brief period.
The market is still refusing to price in Fed hikes. 85% of economists surveyed see Fed lift off in September. The market is only pricing in a 10-basis-point move in September at 45% - the disconnect here is a concern for market stability as catch up will be violent.
However, the Fed policy statement release on Thursday morning may actually halt the USD bulls. Expectations are low for any major divergence from current language or action. In fact, the FOMC may even be a little more cautious about the current market and economic conditions. This would see a quick unwind in oversold markets. Oil and industrial metals would likely rise and a likely drop in the USD would transpire.
Ahead of the Australian open
The lead from Friday night is not one of optimism: the Dow and the S&P capped off a terrible week with a terrible close. This fed through to futures trading and the close on Saturday morning was not an overly optimistic one for this morning’s trade.
However, commodities futures paint a different story. Iron ore futures are up over 1.5% and gold futures are pointing higher by roughly the same amount. There may be a divergence in what is expected today and what actually transpires in the trading session.
Asia’s earning season ramps up this week as well. Japan sees most of its major electronics providers reporting this week. Australia sees several gold miners and healthcare operator ResMed report, and is kicking off today with education provider Navitas.
Ahead of the open, the ASX will follow the leads from Wall Street, pointing down 41 points to 5525. This will see the market re-entering the April-to-June downtrend. The futures market, however, may take the edge off a massive fall.