US stocks finally take a breather as oil prices fall, US dollar advances, ASX futures down 34 points

Stock in the US finished moderately lower last night (S&P 500 -0.64%, NASDAQ -1.09%), with crude oil markets (3%-4% lower) being the most likely catalyst for selling. Don't take my word for it, just look at today's first chart - it shows the S&P 500 in pink, and WTI crude oil in blue. The correlation between these two markets couldn't be clearer and given the straight-line performance of these two since February lows, it's not surprising to see a pull-back. Crude oil inventories in the US have remained consistently high throughout a period where expectations were that falling production would have seen declining inventories - so the data have been out of whack with expectations, and considering this US crude oil prices have performed very well.

I suspect the bulls are still in charge of the oil markets for the moment - just look at the rally from a low of US$26.03 on 11 February to a high of US$41.86 on Tuesday this week. That's a 61% move, so last night's 3%-4% sell-off was pretty mild. Just as the Chinese didn't like speculators pushing around their currency market, OPEC producers won't be keen to let speculators get in the way of them putting US producers out of business by keeping prices low. But we'll only find out where that price comfort zone is after new oil volatility arrives, where the most likely catalyst would be increased supply from outside of the US.

Today's second chart shows the US dollar index enjoying a five-day rally from its mid-March low, and this will not only inflict a bit of pain on commodity markets, but it'll also hurt emerging markets and commodity currencies - so I'll be watching this index closely. Having said that, the AUDUSD is holding up remarkably well and this has the potential to help buoy our market.

Last night copper fell 2.21%, iron ore fell 0.84% and gold was down 2.2%. We'll likely see some broad but shallow selling across ASX sectors today, with the potential for a poor close if traders choose to remove risk ahead of the Easter holiday Friday and Monday, which are both non-settlement days for the ASX, which will be closed.

For those considering adjusting positions ahead of the long weekend, US markets will be closed on Friday but open on Monday. There is a US durable goods orders release tonight at 11:30pm Sydney time, and Japanese CPI tomorrow at 10:30am. On Monday, US advance goods trade balance and personal consumption expenditure are out, so it could be an interesting opening on Tuesday in Australia depending on how all of that goes.


Source: Rivkin, Saxo Bank

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

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