Oil holds market hostage


Published in the Herald Sun, July 2008 by Anthony Keane

Falling overseas markets and weaker commodity prices have set the scene for a tough start to the week for Australian shares.

While the US market was closed on Friday for the Independence Day holiday, share indices in Britain, Germany, France and Italy all lost more than 1 per cent, with banks among the hardest hit amid fresh fears for the sector.

Oil prices fell more than US$1 a barrel on Friday after hitting a record US$145 a barrel on Thursday.

On the London Metals Exchange, prices for copper, aluminium, lead, nickel and zinc also dropped on Friday.

Futures trading suggested a slight fall in Australian shares today, and analysts and economists warn there may be more heavy falls ahead.

"While shares are very oversold and due for at least a short term bounce they are now hostage to the oil price and it's anyone's guess as to where it will go in the short term," AMP Capital Investors chief economist Shane Oliver said.

"If the oil price continues to surge then shares will remain under pressure, if it falls back then shares will have a great rebound.

"It remains a time for investor caution and this is likely to be the case for the next three or four months."

Dr Oliver still expects a sharp share market rally in the December quarter "as the oil price falls back to a level more in line with supply and demand fundamentals".

Wealth Within chief analyst Dale Gillham said he believed the All Ordinaries index of 500 listed companies would fall to about 4800 points in the coming weeks.

"As we have now entered the time period for the yearly low, I believe this low will occur any time now up to around mid August," Mr Gillham said.

"Once again, I urge investors to be patient because when the market turns bullish there will be some great opportunities to be had."

The local market ended well over 1 per cent stronger on Friday after bargain hunters rejoined the banks and resources sectors.

The benchmark S&P/ASX200 index gained 83.8 points, or 1.68 per cent, to 5082.1 while the broader All Ordinaries added 76 points, or 1.49 per cent, to 5170.

The September share price index futures contract fell 17 points to 5057 on a total volume of 917 contracts.

CommSec chief economist Craig James predicted there would be bargain hunting in the sharemarket.

"A lot of volatility in the market last week didn't make a lot of sense," he said.

"There was a correction in coal prices, financials recovered and falls in the mining sector were unjustified.

"But I don't think demand has changed, buyers will be looking at that and we will start to see some bargain hunting".

The Dow Jones industrial average closed 73.03 points higher, or 0.65 per cent, to 11,288.54.

The Standard & Poor's 500 Index eked out a gain of 1.38 points, or 0.11 per cent, to 1,262.90.

The Nasdaq Composite Index fell 6.08 points, or 0.27 per cent, to 2,245.38.

Mr James said the market would be shaped by key economic data released during the week, including SEEK Employment Index for June, Australian Bureau of Statistics housing finance data for May and labour force data for June, and the Westpac/Melbourne Institute index of consumer sentiment.


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