Commodity price strength augurs well for stocks into year-end, JP Morgan says

Alexander Bueso Sharecast | 11 Sep, 2017 14:53 - Updated: 14:53 | | |

Copper

The rebound in commodity prices will support company pricing and profits, while helping to put in place a base for inflation readings and leading to higher bond yields, providing a key catalyst for stocks to gain into year-end, although North Korea remained a 'wild card', analysts at JP Morgan told clients.

In their view, commodity prices would remain "firm" in the backhalf of 2017, thanks to a "healthy" global demand-supply balance.

With the typical two to three month lag, that should see inflation prints "stabilise", they said, with weakness in the US dollar helping in that respect.

Linked to the above, they noted how "significant gaps" had opened up between commodity prices and global factory purchasing managers' indices, on the one hand, and 10-year inflation break-evens and 10-year Treasury yields in the States.

Both were expected to close and higher government debt yields were supportive of Banks and Cyclicals, JP Morgan said.

The investment bank also noted how most sectors had a positive correlation to producer prices.

However, by regions, emerging markets were likely to again be the key beneficiary of rising commodity prices, with the historical correlation between the two remaining "strong".

"The historical positive correlation between the relative performance of EM equities and commodities remains strong. In addition, the move up in commodities supports our last week's upgrade of Capital Goods. Our sector analysts believe that mining capex will improve more than what consensus expects."

More news

20 Sep US close: Dow, S & P 500 close at session highs as Fed starts QE taper

The Dow Industrials and S & P 500 ended slightly higher even as the US Federal Reserve announced the historic end to its balance sheet expansion, although the Nasdaq was held back by losses in shares of Apple.

20 Sep Results round-up

Kingfisher posted better profits than were expected for the first half of the year but the do-it-yourself retailer remained cautious on the second half backdrop in the UK and France.

20 Sep Broker tips: Nostrum Oil & Gas, Stagecoach, BAE Systems

RBC Capital Markets upgraded Nostrum Oil & Gas to 'outperform' from 'sector perform' saying recent weakness is an opportunity and its discount to peers it set to unwind as it delivers operational milestones.

20 Sep Fortum and E.ON in 'advanced talks' for sale of Uniper stake

Finnish firm Fortum announced on Wednesday that it was in advanced talks with E.ON over the potential €3.76bn purchase of German energy company Uniper.

20 Sep Federal Reserve to start taper in October, nudges rate forecast lower

America's central bank has stuck to script - or almost - announcing it will begin to taper the size of its balance sheet next month while keeping the target for its main policy interest rate unchanged at between 1.0% and 1.25%.

20 Sep Europe close: Spanish stocks underperform

European stocks ended the session little changed amid moderate selling pressure on Spanish stocks on the back of the latest news around the attempted independence referendum in Catalonia and ahead of the US Federal Reserve's policy decision later in the session.

20 Sep Apple discovers issues in new smartwatch 48 hours before shipping

Tech juggernaut Apple announced on Wednesday that its new Series 3 smartwatches had been experiencing significant connectivity issues just days before they were due to be shipped.

20 Sep London close: Strength in Sterling puts a lid on stocks

London stocks traded fairly flat on Wednesday as the pound popped higher on the back of stronger than expected retail sales data, even as traders waited on the US Federal Reserve's policy announcement later in the day.

20 Sep Thursday preview: Capita guidance and UK public sector debt under spotlight

Thursday in Europe will initially see any fallout from the US policy adjustments overnight, while in the UK Capita and Mitchells & Butlers investors have results to pore over, with an update on the public deficit later in the morning.

20 Sep Bed Bath and Beyond fails to meet expectations again

Bed Bath and Beyond (BBBY) shares suffered after the New Jersey-based home goods retailer fell short of market expectations yet again.