Monday was very quiet for data releases ahead of this week’s two key risk events, being both the Bank of Japan & the Federal Open Market Committee’s monetary policy decisions. Given the importance of these two meetings, which we have previously discussed, it is highly likely that most investors have already positioned themselves ahead of this or are waiting on the sidelines until the meetings conclude. While we may see some final positioning on Tuesday ahead of these meetings there is also fairly limited data out today or tonight to guide markets.
In the U.S. equity markets finished fairly flat with the S&P 500 on light volume, down just -0.04 points or unchanged in percentage terms while the Nasdaq 100 closed -0.46% weaker as technology underperformed. Trading in the S&P500 was evenly mixed with no clear theme for the day with Utilities & Financials outperforming up +0.99% & +0.58% while Telecommunications and Healthcare underperformed -0.73% & -0.41% respectively. At the same time the U.S. dollar index weakened by -0.25% as bond yields rose marginally, the yield on two year government debt up 0.4 basis points to 0.7784% and the yield on ten year government debt up 0.5 basis points to 1.7066%.
Despite the lack of data in Europe key equity benchmarks were broadly higher, led by gains in the Euro Stoxx 600 & DAX up +1.02% & +0.95% respectively while the EUR/USD gained +0.18% against the U.S. dollar. In the U.K. the FTSE100 finished +1.54% higher as basic materials led gains (+3.11%) as commodity prices were boosted by the weaker dollar while the FTSE 100 gained +0.21% as did the GBP/USD up +0.27%.
The weaker dollar generally helped boost commodity prices and precious metals, Crude Oil prices initially gained as much as +2.5% as Venezuelan President Nicholas Maduro said that OPEC members are close to reaching an agreement over output along with non-OPEC countries following discussions with representatives from Iran and Ecuador. Oil prices however pared most of these gains shown on the chart below with both WTI & Brent crude oil finished +0.37% & +0.28% higher respectively after oil tankers arrived in Libya to resume oil exports from its Ras Lanuf terminal following internal conflicts.
So far while we have seen positive comments and signs of a willingness for an agreement among oil producing nations it is hard to get overly optimistic before we seen any real commitment, especially when we have seen similar rhetoric before that has led to no agreement. Any agreement at the upcoming informal meeting in Algeria that concludes on the 28th of September could see prices make gains back towards $50 in the short-term, even if the agreement is to cap oil production at what are currently high levels as it is a positive step in the right direction.
Longer-term though I’m less confident about prices above $50-$60 per barrel over the medium term given this is a price where higher cost producers are expected to come back online, especially while Iran also ramps up production back to pre-sanction levels, both Nigeria & Libya are estimated to be bringing back around 840,000 barrels per day in production and the International Energy Agency seeing the current glut lasting into mid-2017.
Copper prices declined -0.21%, as did natural gas -0.47%, the Thomson Reuters CRB index gained +0.48% while both precious metals spot gold & Silver closed +0.24% & +1.97% higher respectively.
Locally trading was delayed as the ASX opened trading around 11:30am Sydney time due to technical issues before once again halting trading at 2:06pm before announcing trading would not be resumed on Monday. Normal trading is expected to resume this morning. While we may see a bit of a pickup in volumes today as traders catch up from Monday ahead of the BOJ & FOMC decisions I don’t expected any excessive moves in the index. The only notable data for Australia today is the release of the RBA’s September meeting minutes along with some house price data for the second quarter. The market looks set to open relatively flat with ASX SPI200 futures down 5 points in overnight trading.
Data releases:
- RBA September Meeting Minutes 11:30am AEST
- Australian House Price Index (QoQ Q2) 11:30am AEST
- U.S. Housing Starts & Building Permits (MoM Aug) 10:30pm AEST
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd.
