Oil Holding Around Multi-Year Highs

US stocks had a weak session overnight with both the S&P 500 and Dow Jones closing near the lows of the session. Some of the weakness may have come as a result of a tumble in Chinese stocks yesterday; the Shanghai Composite index was down 0.77%. With the Chinese National Congress now over, the Chinese share market is free to do what it wants after the government took measures to prevent serious market volatility during the once in five-year event.

The decline in stocks was consistent with a general 'risk-off' sentiment overnight that caused bond yields to fall and gold to rise. Bond yields have also been pressured by the expectation that president Trump will name Jerome Powell as the next Fed chair this Friday. Powell is considered ultra-dovish and therefore is expected to be much more cautious in raising rates than the other main contender, John Taylor, might have been.  

Oil prices are at a critical point, currently holding just above US$54 per barrel, with the price not having broken above this level since early 2015. The fear of oversupply could easily turn to a fear of undersupply if inventories keep declining like they have been and demand continues to grow. US shale output is currently expected to keep a cap on prices, however, as a sustained increase in price would cause an increase in output as producers would increase drilling activity to take advantage of the high prices.

Today, the Bank of Japan makes its interest rate decision although rates are expected to be left on hold at -0.1% and the ten year bond rate target should be left at 0%.   

Data Releases:

–    Japan Interest Rate Decision 12:00pm AEDT

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This article was written by William O'Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.