Commodity rout?

Risk appetite is going out of the window today, with the media pin-pointing Glencore as the trigger for the risk selling. Commodity weakness was driving market sentiments today.

Mining trains

The nosedive in Glencore share prices (-29%) in London was carried over to the Hong Kong markets (-29%). But more importantly, the slumping price appeared to have a knock-on effect in Asia, and it’s not just mining counters that were bludgeoned.

There was an outsized selling in Japanese equities, where the Nikkei plummeted below key 17,000 to end 4.1% lower. Topix also tumbled 4.4%. ASX 200 convincingly pierced below psychological 5000 level, eyeing another test of the 25 August lows. China closed lower, alongside a 3% drop on the Hang Seng, after resuming trade after a long weekend. The STI was aggressively sold to as low as 2740 before staging a recovery above 2750.

The commodity complex was clearly affected by the Glencore’s feedback loop, and were smashed lower. The Bloomberg Commodity Index slipped towards the 16-year lows near 85. It is, however, interesting to note that crude oil prices remained quite resilient. This could be due to expectations of further decline in the US stockpiles with the API report due later tonight, ahead of Wednesday’s EIA report.

Commodity currencies stayed under pressure. AUD/USD remained capped below 0.70, while Kiwi trimmed early losses. A flight to safe-haven assets saw the Japanese yen breaking below 120 once again, touching as low as 119.25 before bouncing to 120 in late Asia.

Some calm appeared to have returned to the financial markets as European equities traded slightly higher, but it is too early to say if the commodity-related stock selloff is going to short-lived. It is perhaps wise to bear in mind that the commodity outlook has been gloomy for a while now.

We have not seen any substantial developments which would alter that prospect, be it an improvement or a deterioration. Therefore, it is likely that the reaction surrounding Glencore and mining related stocks may have over-extended.


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