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Commodity sell down, dollar to drag ahead of data

10 am AEST Monday, 28 May 2018

Commodity sell down, dollar to drag ahead of data

By Michael McCarthy (chief market strategist, CMC Markets and Stockbroking)

Slumping commodities and a stronger US dollar could mean a weak start to Asia Pacific trading ahead of holidays in the UK and US tonight. Early morning futures trading today is positive, potentially easing market pressures. Important inflation and activity data later in the week may see investors reluctant to jump in today.

Oil, iron ore and copper all slipped on Friday night. A failure at chart based resistance for both Brent and WTI crude saw them tumble, as US inventories rose and OPEC reportedly prepared to increase production quotas. The concerns about the near term industrial outlook come ahead of key China PMI reads on Thursday, and are exacerbated by a strengthening US dollar.

European and US inflation reads could take focus. The ECB continues the narrative of reduced accommodation by year end despite lifeless prices. The EC wide, French German and Italian data this week is crucial to the markets’ suspension of disbelief. A confirmation of ongoing weak inflation may see German bonds continue their recent rally and support asset prices generally. The US PCE numbers and non-farm payroll may also shape market thinking.

The Australia 200 index is hovering just above support at 6,000. Further pressure on finance stocks and falling metals and energy prices may push through the level and flag further falls to come.

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