Gains expected on local market following Bernanke comments

10.18 AEST, Thursday 11 July 2013

Gains expected on local market following Bernanke comments overnight

By Miguel Audencial (Sales Trader, CMC Markets)

The SPI indicates that the Australian share market will post subdued gains at the opening bell. However, significant gains are a possibility with the investor’s confidence likely boosted following Bernanke’s comments overnight that he is in no hurry to increase interest rates even if the unemployment target is reached. The energy sector is likely to outperform the market after crude oil posted substantial gains overnight.

The release of the FOMC provided a momentary boost to the American share market with a number of members expressing that next year would be an appropriate time to start stepping on the breaks of the current bond buying program. However, reading further into the minutes, what the market saw was uncertainty, with the committee appearing divided. The market was looking for a specific time frame on when asset purchase will slow down, and unfortunately the minutes did not provide this assurance with the initial support provided by the minutes eventually evaporated as a result. The better than expected non-farm payroll figures were not yet incorporated into the minutes so there is a good chance that the market is doubtful about the relevance of the minutes to the Fed’s current sentiment in light of that employment data.

Bernanke’s statements following the release of the minutes provided confidence after he reassured that the Fed won’t automatically increase interest rates after the unemployment target rate is reached. The reaction of the market was positive with the US stock futures rising after hours. I would expect this boost to flow through the Australian and other Asian markets today as well.

Crude Oil performed strong overnight trading above the $106 a barrel level. Both supply and demand currently appear to be in oil’s favour. A larger than expected decrease in inventory figures was a major factor for its performance and the continued conflict in Egypt is another reason for supply side issues. OPEC is predicting that global oil demand will pick up pace next year by 1 million barrels a day. The weaker US dollar also made the commodity more attractive to investors. With the momentum clearly in crude oil’s side, there are some investors looking at the $110 mark as a possible target.

Australian employment figures are due to be released later today and increased volatility is possible in the local share market after the release. The figure will be a significant factor in the RBA’s decision on whether to cut interest rates or not in their next meeting.

ends

© Scoop Media