European equities rally, US flat, US core CPI as expected, iron ore drops, ASX futures down 24 points

The Australian stock market rose 114 points (+2.29%) yesterday, likely getting a little overcooked before a flat close in the US caused futures prices to fall back into line, finishing 24 points lower. As we speculated yesterday, the oil rally from the previous session was short-lived and WTI/Brent crude prices are back at US$40.79/US$43.71 respectively. So while parts of the market unrelated to commodities will likely be little changed this morning, we can expect some of yesterday's gains in energy stocks to be reversed - that sector rose 3.7% as a whole yesterday, so we might see the likes of Woodside (WPL), Origin (ORG), Oil Search (OSH) and Santos (STO) get a trim on the open. The benchmark iron ore price dropped US$2.16 or 4.52% last night, which is going to be a hit for Fortescue (FGX), Mount Gibson (MGX), Grange Resources (GRR) and will also put a bit of a drag on the resource sector as a whole. This may or may not be baked into the overnight futures move, we'll need to wait for the open to see that.

US stocks were handed a great lead by Europe last night and the S&P 500 rallied by 15 points or so early in the session, but that move was reversed after October industrial production numbers scored the same -0.2% change as the September numbers, whereas the market was expecting a +0.1% figure. The inflation figures released in the US turned out to be fairly benign - the core inflation figure (excluding food and energy) was flat at 1.9%, whereas the headline measure (includes food and energy) rose a touch to 0.2% year on year from 0% in September. The falls in energy prices remain to be an inconvenient factor for the US Federal Reserve, which would like to be able to raise interest rates but is lacking the data to justify a move. This may not stop them; however, this morning's CPI figure certainly didn't hand the committee any excuses to hike.

The slightly higher than expected US headline inflation figure helped buoy the US dollar, and the strength of the US dollar has held up very well since the upward trend began in anticipation of the final 'tapering' move that the Fed made in October last year. While the US Federal Reserve might conveniently ignore the low inflation environment, its members should be keeping a close eye on US dollar strength to ensure its actions don't have the effect of damaging all of the good that a weaker US dollar previously did for its export and manufacturing industries. At 6am tomorrow morning (Sydney time) the Fed will release minutes from its 27-28 October meeting - given that the US dollar is sitting just below its 2015 highs, this could be a sensitive time for traders in currency markets.

Today I've copied in the entire Rivkin Global Markets Matrix so you can see the rolling 5 & 30 day changes in commodity prices, partly driven by supply/demand dynamics, partly driven by the strength of the US dollar. Remember that members can see this every day by visiting https://members.rivkin.com.au/advice/local/economic-calendar.aspx. 


Source: Rivkin, Bloomberg

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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