Weak start expected after minimal gains from US equities

09.41 AEST, Thursday 20 September 2012

Weak start expected following minimal gains from US equities

By Miguel Audencial (Sales Trader, CMC Markets)

Minimal gains from the US equities market overnight indicate that a weak start is expected from the Australian counterpart. The Energy sector is likely to underperform the market throughout the trading day with oil trading significantly weaker.

The DOW only managed to gain about 0.1% even after news that the Bank of Japan (BOJ) would extend its asset purchase program and US housing data beat expectations. The potential for higher gains in the US market was hindered by the weaker oil price.

Asian and European markets gained at least 0.5% after the BOJ’s statement. However, expect the lower oil price to weigh down on these markets as well when they open later today.

Reported crude oil inventories show that there is an unexpected increase in stockpiles. Saudi Arabian officials also announced they have the ability to produce more if there is demand for it. Due to these events, I am not surprised the price of oil dropped as much as it did and I can see it would struggle to trade back to the $100 mark within the month.

I anticipate a lot of traders are looking at gold as a hedge for inflation after the confirmation of QE3 last week and the BOJ’s asset purchase program extension. Significant amounts of money are to be injected into the economy and the market will closely monitor inflation in the coming months.

The HSBC Flash Manufacturing PMI is due later today and a good figure is needed for the Australian market to finish in the green today.
ends

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