Crude oil price surged in tandem with gold and equity markets. The benchmark contract gained +4.5% Tuesday to close at 71. While the OPEC will keep production unchanged in September, the Ministerial Monitoring Committee for the cartel stressed higher compliance on quota. Others in the energy complex also rose with heating oil jumping +3.6% and RBOB gasoline adding +3%. Natural gas also rebounded, settling +3% higher at 2.807, but still remained at record low level below 3 due to storage concerns.
China, the second largest consumer of oil, has further plans to increase oil stockpiles. According to China National Petroleum Corp (CNPC), the largest state-owned oil producer, said that the Government approved a plan to build 169mmb of oil stocks for emergency use. Construction of stockpile bases will start this year. The news boosted oil price.
Stock markets advanced as world economy will get full support from the governments worldwide. Dow Jones Industrial Average gained +0.6% to 9497 while S&P 500 climbed +0.9% to 1025. However, analysts on the street anticipate increasing risk of a deep correction of -20% as ‘investor buying peaked last week’.
The dollar index dropped to 77.34, the lowest level in a year. Against the euro and Swiss Franc, the greenback also plunged to 1-year lows by -1% and -1.3% to 1.449 and 1.049 respectively. Weakness in USD helped push gold price to as high as 1009.7 before retreating and settling at 999.8. Gold’s surge above 1000 was rather brief as the rally reduced jewelry demand as price looked expensive. At the same time, scrap supplies increased as sellers tried to take profit from the rise.
In Asia today, commodity prices continue to move steadily within a narrow range. However, stocks retreat with the MSCI Asia Pacific Index losing almost -1%. Japan’s Nikkei 225 Stock Average slides -1.25% to 10263 after JP Morgan downgraded the nation’s banking sector. In Australia, stocks also fall after the nation’s retail sales surprisingly contracted -1% mom in July, compared with market expectation of a gain to +0.6%, after dropping -0.8% in the previous month.
At RBNZ’s September meeting, policymakers will very likely keep the OCR unchanged at 2.5% and maintain the easing monetary bias. At the Monetary Policy Statement, we believe the central bank will remain dovish and suggest interest rates will remain low for a long period of time.