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Commodity slump trumps stock rally

Futures traders are expecting another slump in Asia Pacific share markets today despite a positive finish to US trading. Accelerating negative momentum in industrial commodities appears to contradict the growth and inflation trigger for the current slump, but will likely weigh heavily on today’s session. Trading volumes may be subdued by key inflation reads from the US, UK and Germany later this week.

A late session rally saw US indices finish firmly in the green on Friday night but still down more than 5% for the week. However the burst of sunshine did not reach commodity markets. Crude oil tumbled more than 3% and the West Texas Intermediate crude broke back down through $60 a barrel. Industrial metals fell, in most cases between 1% and 2%. The current risk off environment could be driving investors from these key growth exposures.

Investors may see secondary effects in individual stocks as corporate reporting comes to a close in Japan and the US, and begins in Australia. In Japan more than 90% of top companies have reported and the numbers are good. Sales growth of 7% fed earnings growth of 20%. The US picture is similarly rosy with around two thirds of reports in. The Australian reporting season gets under way this week. Highlights include Domino Pizza, ASX, CSL and Telstra.

At the heart of the current turmoil is rising inflation, a product of accelerating growth. CPI readings from major economies this week could slow or halt the current rout if they are significantly below forecasts.

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