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. 

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.