Equity markets quiet Friday night, big moves in precious metals, bigger moves in oil, ASX futures down 44 points

Commodities are continuing to drive the news in capital markets at present, with equity markets ignored while commodity markets keep churning away under the surface. Oil markets again were clobbered on Friday on the back of OPEC's decision not to cut production; in today's first chart you can see the near-40% falls since June, and right now the biggest question confronting the world of petro-energy consumers is, "Is this temporary?" Not long ago (see the 2011-June 2014 range in today's second chart), the world had finally gotten used to US$100-per-barrel oil and was getting on with life at that level. For WTI crude to come crashing back to US$66 is a game-changer. Not only will sustained low energy prices--coinciding with softer metals prices--remove the previous threat of out-of-control inflation following this unprecedented period of post-GFC accommodative monetary policy, but the opposing force (deflation) will begin to concern policy makers who, in the US, had only just bullishly removed their bond-buying regime in a move that told markets it was time to get ready for higher rates.

It is difficult to look at the level of the S&P 500 (today's third chart) and get bullish on US equities, but I'm going to clarify that a low-inflation, low interest rate and low energy price environment is a winner for the US 'listed economy.' The caveat here is that if the US entered into a period of deflation, then that would encourage consumer saving (due to the gradual increase in currency purchasing power that deflation has, versus inflation's decreasing effect on purchasing power), but let's not harp on about deflation until it comes knocking on the door. So putting this aside, I suspect corporate America is going to be able to continue benefiting from the environment that has sent the S&P 500 so high up until now, and this doesn't seem to me to be a period of great risk for long US equity traders. Let's remember that while the US produces a lot of oil these days, it doesn't export much - so the falling oil price is great for US terms of trade, given its manufacturing sector has been brought back to life with the US-dollar-weakening effect of quantitative easing.

In gold news, the Swiss referendum that proposed an increase in its gold reserves was voted down yesterday. No surprises there for Rivkin readers, the nay-sayers counted for 77% of the vote. Gold closed just below US$1,168 on Friday, likely in anticipation of this outcome due to worsening poll data. What was surprising to me, however, was the result of an accompanying proposal attached to this referendum, which was to ban foreigners from being able to live in Switzerland without working there, just to take advantage of the tax rate. Only 59% of voters were against this - that might make a few wealthy ex-pats nervous.

The opening vibe for Australia's ASX 200 is looking dim - a 44 point drop on ASX futures on Friday night. Falls in oil and gold clearly played a part in this, and the fall in the AUDUSD currency pair no doubt is highlighting a lack of foreign interest in Australian assets at present. The AUDUSD pair is trading at US$0.8469. Once again I'll reiterate that weak commodity demand and a small manufacturing sector are hindering Australia's ability to benefit economically from a falling currency. There are those also who will speculate that Victoria's election outcome is augury with regard to a changing national political landscape in Australia, with the marketing and implementation of the 2014 Federal Budget having been a complete flop. I'm not too sure whether this is weighing on investors' minds, but a 44 point drop on Friday night after an 87.92 point fall during the day is telling us that investors aren't happy about something.

Lastly I'll leave you with this (data taken from the latest periodical reports by NRMA):

  • On 16 June 2014, before oil prices began falling, the average price for regular unleaded petrol in Sydney was A$1.438 per litre, while Brent crude oil was at US$112.88 per barrel
  • On 24 November 2014 the average price for regular unleaded petrol in Sydney was A$1.450 per litre, while Brent crude oil was at US$79.40 per barrel
  • Caltex Australia (CTX), a business involved in refining and marketing petrol, rose from A$22.07 to A$31.08 from the same period, a rise of 41.2%
  • Expect petrol prices to begin falling rapidly or the Australian Competition and Consumer Commission to take action - one or the other! 

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: AU AiG manufacturing performance at 9:30am, Chinese PMI at 12pm, UK PMI at 8:30pm, US ISM manufacturing survey at 2am, all Sydney time.

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