Crude oil price plunged -3.8% to settle at 69.96 Monday amid worries that credit tightening in China would dampen demand outlook. Stock markets also declined with Dow Jones Industrial Average and S&P 500 Index losing -0.5% and -0.8% to 9496 and 1021 respectively. Fuel prices also dropped with RBOB gasoline sliding -3.7% to 1.99 and heating oil dropping -4.4% to 1.78.
In Asian session on Tuesday, both crude oil price and stock markets rebound after the Chinese Government reported that the manufacturing sector has expanded for another week. The official PMI surged to 54 in August from 53.3 in the previous month. This indicated that the nation’s economic growth would still be able to meet the 8% target set by the government.
Stocks rebound with the Shanghai Composite Index adding +0.45%. However, analysts believe that the correction has not finished yet. Morgan Stanley forecasts the index may fall another -25% as recovery in China is not sustainable. The MSCI Asia Pacific also recovers +0.35 today.
The market is waiting for confirmation that the manufacturing sector continued to expand in the UK and the US. UK’s manufacturing PMI probably increased to 51.5 in August from 50.8 in the prior month. The US ISM manufacturing index is expected to have improved to 50.1 in August, the first above-50 reading since January 2008, from 48.9 a month ago.
The October contract for natural gas plummeted -1.8% to 2.98 amid supply surplus. Gas futures dropped -19% in August, the biggest monthly decline since January, and -47% in 2009.
Gold price dropped in tandem with crude oil as well as strength in USD. The yellow metal lost -0.6% to 953.5 but continued to hover within recent range. In India, imports from January to July 2009 have declined -56% yoy to 71.6 metric tons due to high gold price and global economic recession. We are now worrying that poor harvest due to bad weather may further dampen demand for gold. Reports said that monsoon rains in India are -30% lower than average since the rainy season which began in June. This threatens harvest, increases food prices, reduces farm income and eventually hurts demand for gold.
Platinum price sank to as low as 1237.2 earlier but then pared some losses as strike in South Africa boosted buying interest. The benchmark contract ended the day at 1244, -0.2%. The labor union and Impala Platinum, the world’s second largest platinum producer, will resume talks regarding pay rise today. While labors requested a +14% increase, the company only offered a +10% rise. We will see how the situation evolves.