Originally published by Rivkin Securities
Another day, another record close for the Dow Jones. Despite a flat close in the S&P 500, the Dow closed up 0.28% at 21,891. This continues the uptrend that started around the time of the US presidential election in November last year and marks an over 22% increase in the index since that time. The S&P/ASX 200 recovered some of Friday’s losses yesterday but is set for a flat open today based on futures pricing.
Overnight, iron ore prices surged, reaching US$74 per tonne, a level last seen back in March of this year. Iron ore has rallied sharply since reaching a six-month low in early June as supply concerns resurface due to the Chinese government’s ramping up of environmental inspections on mines, processing plants, and mills. The rally is no doubt a boon for Australian iron ore miners such as Fortescue Metals Group Ltd (AX:FMG) and BHP Billiton Ltd (AX:BHP) and we therefore expect these stocks to rally today.
Oil continued to rally with WTI oil breaking back above US$50 per barrel for the first time in two months. It was only a few weeks ago that oil market watchers were calling for oil to drop below US$40 per barrel as oversupply continued to plague the market. Fast forward a couple of weeks and a series of large inventory draw-downs has caused traders to rethink their outlook. Part of last night’s rally came on the expectation that the US government will impose sanctions on Venezuela’s oil industry as President Nicolas Madura moves closer to forming a dictatorship although at this stage sanctions are limited only to the president himself. Venezuela produces around 2 million barrels of oil per day although the sector is crumbling due to mismanagement and under-investment.
The Australian dollar also continues to rally, breaking through US$0.80, a level that I expect will cause the Reserve Bank of Australia some concern. Traders will be parsing the RBA statement to be released at 2:30pm today for indications on its expectations for rates. Although traders now expect the next rate change to be up, the strong Australian dollar may dampen the RBA’s bias towards higher rates.
Data Releases:
- Australia Rate Decision 2:30pm AEST
- England Manufacturing PMI 6:30pm AEST
- Euro Prelim Flash GDP 7:00pm AEST