Crude Oil Price Retreats In Asia Amid Decline In Stock Markets

Crude oil price drops to 72.3 in Asia Monday as driven by decline in stock markets. Strength in Japanese yen after DPJ’s election victory and worse-than-expected earnings results by Chinese companies trigger selloffs.

The Democratic Party of Japan got 308 of 480 lower-house seat, ending the single-party government by Liberal Democratic Party in almost half a century. The DPJ pledged to revive the nation’s economy through cutting tax, boosting consumer spending and limiting the power bureaucrats. The result is welcomed by the market. However, any positive reaction in the stock, FX or bond markets should be short-lived as the outcome has been widely anticipated.

Both Japanese yen and the Nikkei 225 stock average surged at early trading sessions but the latter faltered after rising to 10767. Japanese yen jumps to 92.62, the highest level in 7 weeks, against the dollar. Strength in the currency in fact hurts exports and is detrimental to the nation’s economy.

Shares in China tumbles with the Shanghai Composite Index sliding -5.4% to 2707. In august, the benchmark contract lost -21%, the biggest decline since -25% loss in October 2008. In the first half of the year, the Chinese government implemented massive stimulus measures and provided ample liquidity to boost economy. This boosted both business investments and market sentiment. However, most of the money in the stimulus plan has been spent and the government explicitly announced to curb excessive lending recently, investors began to worry that the growth momentum in the world’s fastest growing country would not sustain.

Gold price also edges lower to 957 as USD strengthens against major currencies other than Japanese yen. Silver, following the yellow’s suit, also retreats to 14.65.

While plunging -1% to 92.6 against the yen, the dollar rises against ‘high-yield’ currencies. Against the Australian dollar, the greenback slides to 0.84 after failing to break a new high last Friday. Possible slowdown in China’s economic growth also triggers worries on Australia’s economy and Australia is a huge exporter of base metals. RBA Governor Glenn Stevens mentioned several times that growth in China has important impact on Australia.

Commitments of Traders

• Crude Oil: Net speculative long positions surged to 39532 contracts after declining for 2 weeks. Sharp rally in crude oil price and expectations on better demand outlook boosted investments
• Natural Gas: Net shorts increased further, continued to move in opposite direction with gas price. The trend is still bearish as investors remained concerned about the huge gas storage. Although oil-to-gas ratio has reached record high level, the phenomenon will likely persist in the medium term
• Gold: Net speculative long positions rebounded to 183K after dropping for 2 straight weeks. Just like the price in gold price, net long positions in the yellow metal hovers around high level but with no breakthrough
• Silver: Net speculative long positions for silver rose to the highest in 10 weeks. Improvement in economic outlook should benefit silver more than gold as the former has been widely used in industrial applications
• Platinum: Net long positions made another record high at 14732 contracts last week. A pullback may be seen next week as the end of US’ ‘cash for clunker’ auto rebate program might have affected demand for the noble metal. Moreover, failure of Impala’s strike to boost price suggested that buying interest might have stalled