Oil Prices Rally on Substantial Drawdown in Inventories

Stock Markets

US:The Dow Jones rose 1.0% overnight, bringing the index to a high for the week as markets move past the recent US/China headlines. The broader S&P 500 also rose but didn't perform as well as the Dow, climbing 0.65%. Technology stocks underperformed the broader market with the Nasdaq 100 gaining just 0.29%. The market rose despite a fall in bond yields indicating that the bond market is still sceptical about future economic growth.

ASX:Yesterday the ASX 200 rose to a new week high as earnings season continued. Both Telstra (TLS) and Coles (COL) went ex-dividend yesterday, causing their share prices to drop. Telstra's dividend has been cut virtually in half from levels two years ago as the telecommunications sector suffers from headwinds related to the NBN. TLS paid an $0.08 fully franked dividend while COL paid $0.355. Today Australia releases its private capital expenditure data which can be an early indication of future economic activity.

Commodities & Currencies:

The gold price consolidated around its current (high) levels after a strong rally over the past 30 days. Gold has benefitted from the uncertainty around the US/China trade negotiations recently as well as the expectation that the federal reserve is going to cut interest rates. According to the CME Fedwatch tool, market pricing suggests a 98% chance of a rate cut at the federal reserve's September meeting. This would be the second rate cut in the US this year.

WTI oil prices have rallied on the back of a drawdown in inventories reported by the Energy Information Agency last night. Crude inventories are now at their lowest since October 2018 which is providing substantial support to the price although increased production in the US is offsetting this. Tensions with Iran are also helping support crude prices.

The spot price of gold is currently up 0.1% at US$1,539 per ounce. 

The AUD is currently down 0.22% at US$0.674.

This article was written by William O'Loughlin – Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.