The commodity optimism of earlier this year looks to be in the process of being completely unwound, with Australia’s major mining stocks heading back towards the price support levels of late last year. Last night’s sharp drop in the oil price and further weakness in metals prices will deliver another negative start for the materials sector today.

Disappointment that OPEC’s production cuts have not done more to reduce the oversupply situation in the oil market is at the core of the current oil sell-off. This saw the oil price break clearly below support levels last night.

 It’s very early days in the summer inventory draw down season for oil and it’s likely that we will see inventory levels decline significantly over coming months. However, the problem for markets is that inventories are starting from a much higher base. This year’s US inventory peak was 5% above last year’s levels and 17% above the levels of 2 years ago.

Investors are likely to be well satisfied with Macquarie Group’s solid profit result this morning. A sound capital position has allowed Macquarie to increase its dividend to by 17.5% on an increased payout ratio of 72%. Today’s result is suggested that the sell-off over the past couple of days was unwarranted.

While the Fed has clearly shown it is prepared to look through short term fluctuations in the US Non-Farm Payrolls, markets are looking for last month’s weather related weakness to be reversed. Disappointment may raise doubts about a June rate hike and help fuel strength in the EUR/USD which is already showing strength ahead of Macron’s expected victory in the French election.