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Morning Call: Softer dollar boosts commodities, stocks

Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.

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Article / 26 July 2017 at 7:00 GMT

Morning Markets: Commodities rally drives Asia-Pac equities higher

John G Acher

Consulting editor / TradingFloor

Norway

MM TABLE

Watchlist

Australia: Q2 consumer price index (published)
France: Consumer confidence survey (0645 GMT)
UK: Q2 GDP preliminary estimate (0830 GMT)
US: New home sales (1400 GMT)
US: EIA Weekly petroleum status report, incl. crude oil stocks (1430 GMT)
US: Federal Open Market Committee statement (1800 GMT)

A broad rally in commodities prices from oil to copper helped drive Asia-Pacific equities higher on Wednesday after major US indices ended at fresh record highs overnight.

Crude oil prices extended gains on Wednesday after a 3% jump on Tuesday, with Brent crude climbing above $50/barrel and looking at $51 while WTI gained above $48/barrel on renewed hopes that producers' resolve to tighten the market will succeed.

Oil prices have leapt this week on news at the start of the week that Saudi Arabia, the world's biggest producer, will go beyond production cuts and reduce its exports as well in a new bid to bolster the market.

The commodities rally lifted shares of Asia-Pacific raw materials producers on Wednesday. The gains on the region's bourses were stoked by record-high closings for the Nasdaq and S&P500 overnight, while the Dow ended just slightly short of a new record.

The Aussie dollar slipped after Australia's second-quarter inflation missed expectations, and the Reserve Bank of Australia governor Philip Lowe also dampened any rate-rise speculation.

Financial markets keenly await the outcome on Wednesday of the Federal Open Market Committee's two-day meeting, with the FOMC statement slated for release after markets close in Europe, at 1800 GMT. No policy change is expected from the Fed, but markets will watch closely for any new signals about the timing of the Fed's balance-sheet unwinding.

Market signals

Asian session

Gains on Wall St and firmer commodity prices lifted Asian equity markets
Japan's Nikkei 225 rose after Mitsubishi Motors beat expectations.
Australia's Q2 inflation rate came in at just 0.2%, well below expectations
RBA governor Philip Lowe dampened any rate-rise speculation in a speech today
Lowe added the bank would also be reluctant to cut rates
NZ's trade balance came in at $NZ242 million; $NZ150 million was expected
Copper prices surged to a two-year high as confidence in China builds
Commodity gains boosted miners, and drove the S&P/ASX200 sharply higher
Oil extended its gains after jumping more than 3% overnight

Forex ahead

AUD lost ground after low inflation lowered RBA interest rate rise expectations
US dollar index firmed after falling to a 13-month low overnight
Against the yen, the USD was steady at 111.92 yen in late Asian trade

In opinion

1..2..3
British GDP growth may pick up slightly from the weak gain seen in Q1, but Brexit uncertainty means any bullish revision to sluggish growth forecasts is unlikely, says James Picerno.

Crude concerns
The oil price surge may not last, given that rising supplies from the US, Libya and Nigeria could offset output cuts made by Opec and its allies, writes Saxo Capital Markets Australia.

Equity risks
The biggest risk to current trends and to wider financial market sentiment is the performance of the equity markets, in particular in the US, writes Neil Staines.

Shoppers in Melbourne, Australia. Subdued Q2 CPI data has made Australian rate hikes look less likely and curbed the rise of the Aussie dollar. Photo: Shutterstock

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