US dollar weakness and commodity price uncertainty plagued the market overnight. The US dollar weakened against major pairs off the back of comments from the highly anticipated Federal Reserve Chair Yellen’s speech in the early hours of the morning. Yellen cited central banker caution in approaching normalizing monetary policy as warranted, given current global risks. Yellen’s concern regarding global economic activity is however justified. As China continues its transition to a consumption based economy, there is much uncertainty as to the fluidity of this transition and the policy framework that will cope with the financial disruptions that may occur.
Yellen also raised concerns over current commodity prices, in particular oil. She believes that the reaction of financial markets to the recent oil price decline signals that the market in some capacity believe the price of oil was “nearing a tipping point for some countries and energy firms”. For those countries heavily reliant on Oil exports, further oil price declines could trigger financial hardship and a spillover effect into the global economy.
Some analysts believe the recent rally in oil and copper is premature and lacks significant support by fundamentals. WTI and Crude have both retraced form their monthly highs of $42.47/bbl and $42 .52/bbl to now trading at $38.65/bbl and $40.16/bbl respectively. Although API data released last night missed inventory estimates, oil prices continue to weaken. With major oil producing nations set to meet in Doha on April 17th there is little evidence to suggest a wide-spread agreement on capping production. As inventories continue to build and major producers such as Saudi Arabia are losing market share, these negotiations are unlikely to offer support to prices. Similar to Oil, copper has experienced significant strength since the start of the year. This rebound can be in part attributed to improvements in market sentiment regarding China’s growth and consumption of commodities. The question remains as to whether stability in China will remain and continue to support commodity prices at these levels.
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