I am about to have a week off and as usual it looks like it will be a period of importance in all markets.
Hopes of finally being able to resolve some of the problems with trade and government funding brought buyers back to Wall Street overnight with indices all heading back to recent highs and in some cases scoring new peaks for the rally that has been in place since the Christmas Eve low. I have mentioned previously that we could still have a final melt-up but I continue to give this a very low probability – but I never say never particularly in the current environment where we have seen two very savage falls in US markets in the past year and with an equally sharp rally this year.
US dollar rolled over as expected and this took the pressure back off commodities. Grains were particularly in favour as buyers anticipated that the trade talks would finally prove worthwhile. Crude was better. Really important that crude continues to find buyers as I do worry about the longer-term outlook if this potential bottom pattern fails.
But moving on to iron ore – prices rallied sharply after the Brazilian disaster but as mentioned yesterday, I felt that the market was suggesting that other miners would be able to make up any shortfall in production. This seems to be certainly what the market is suggesting today with sharp falls in the price of iron ore overnight. Don ‘t like these types of temporary price rises because for every force-majeure there is an opportunity for another producer.
And now back to my other big worry – steaming coal – thermal as some people prefer to call it. Down again and quite sharply. There have been a couple of lows in this area over the past few years that should be of some assistance but I do not like this chart and I am concerned about what a further fall could mean for the Australian economy. If I was giving advice to the government - which obviously I am not - I would have an election tomorrow if possible because time is likely to prove costly if the economy starts to show further signs of weakness.
Our own market struggled yesterday but managed to finish slightly better. Still a good deal of scepticism revolving around banks as they try to regain some investor support. MQG having no difficulty and back up under its recent high. BHP and RIO have recently been again carrying a large weight in the market, but are likely to be affected by the overnight retreat in iron more prices. Our gold index (XGD) is back up under the recent high and with a firmer price overnight we should see continued support. I have a rather bullish little pattern evolving on the yuan chart of gold. As I have mentioned before, I think investors are under-appreciating the effect of the yuan across a wide range of investment vehicles at the moment.
So - a lot of markets are, shall we say, “delicately poised” as I head off to the wilds of Queensland.
(20min delay)
