The stock market has opened on a cautious note as traders become concerned that a correction in commodity prices is getting underway. This is likely to weigh on sentiment for resource and energy stocks today.

Oil and base metals markets are in a healthier place than they were at the start of the year. However, a correction and period of price softness now looks possible. Recent concerns over Europe and a steady as it goes outlook for China are crimping the prospects of an upgrade in the outlook for demand. In the case of oil, the relatively modest pace of inventory draw down means that high inventory levels will be a headwind for some time. Recent strength in the US Dollar is also weighing on industrial commodity prices.

The markets’ outlook on the next RBA move is now heavily dependent on the Australian inflation data due on 27 July. However, Core Logic’s report that annual rent prices in Australia are down 0.6% over the past over the past year provides some insight into the weak underlying inflation data  for the first quarter. It also suggests some downside risk for the 2nd quarter inflation.

Tonight’s US inflation data carries the risk of market volatility and may keep traders cautious as the week draws to an end. It seems likely that US job growth will rebound given recent solid reads on consumer spending and the Non-Manufacturing PMI. However, another weak number would begin to cast real doubt on the underlying strength of the US labour market.