European stocks surge while commodity prices tumble

There was little movement in major US indices overnight with the Dow down six points to 20,951 points and the NASDAQ gaining three points to close at 6075 points. However, there was much more activity, particularly in commodities, than the indices would suggest with the oil price plunging 4.8% to US$45.52 per barrel and gold continuing its downward trajectory losing another US$20 per ounce to close at US$1228 per ounce.

Given this backdrop it wasn’t surprising to see shares in leading manufacturer and distributor of equipment to the mining and energy sectors, Caterpillar Inc. fall substantially. Other companies with direct exposure to the oil industry that experienced significant falls were Chevron Corporation and ExxonMobil Corporation.

Offsetting these downturns and allowing the Dow to only incur a modest decline were robust performances across non-discretionary consumer spending stocks such as Coca-Cola Co., Wal-Mart Stores Inc. and McDonald’s Corp.

The news was much more upbeat in Europe with the Paris CAC 40 leading the way as it surged 1.4% to close at 5372 points in expectation of business sector favourite, Emmanuel Macron winning the presidential election, having performed well in a television debate.

Positive economic data along with robust earnings results from blue-chips such as HSBC Holdings plc and Royal Dutch Shell plc also helped to provide market momentum.

This bullish sentiment rubbed off on German markets with the DAX gaining 1% or 120 points to close at an all-time record of 12,647 points.

Poor performances in the commodities space extended to iron ore and base metals with the former now hovering in the vicinity of US$65 per tonne.

Nickel was the main casualty in the base metals space, shedding approximately 2.5% to close at US$4.06 per pound, a level it hasn’t traded at since mid-2016.

While copper didn’t fall as sharply, it broke below the US$2.50 per pound mark which seemed to be a level of support.

The downward trend that has emerged over the last two months is looking reminiscent of a similar decline that started in the first quarter of 2015, eventually culminating in copper bottoming in the vicinity of US$2.00 per pound.

Zinc was relatively flat, closing at US$1.16 per pound, while lead only came off moderately to close just below US$1.00 per pound.

The Australian dollar is fetching US$0.74 with further weakness across the resources space having the potential to drive it lower.

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