Crude oil price extends last Friday’s weakness and slides to 68.5 in Asia Monday as driven by decline stock markets and rebound in USD. Recent rallies in commodity and stock markets have probably outpaced recovery. Increase in signs of trade protectionism reduces risk appetite and capitals are seen flowing back into USD and Japanese yen. However, we believe oil price should hold at 65 level and 60 will be a floor in the medium term as large exporters such as Saudi Arabia and UAE will reduce supplies to Asia should price reach that level.
Stocks in Asia plunges with the MSCI Asia Pacific Index losing -1.6%. In Japan, Nikkei 225 Stock Average slides -2.3% to 10209 as appreciation in Japanese yen curbs exports. On the data front, New Zealand’s retail sales unexpectedly plunged -0.5% mom in July (consensus: +0.6%) while June’s reading was revised down to -0.1%.
Worries were added after Joseph Stiglitz, said that the financial sector has been facing bigger risks than they were a year ago. The Noble prize-winning economist said that banks in the US and many other countries have become even bigger after Lehman’s collapse and this should cause severe impact to the world should any of them fails.
Concerning global economy, Stigiltz said that it’s ‘far from being out of woods’ and ‘we are going into an extended period of weak economy, of economic malaise’.
The US government announced placing tariffs starting at 35% on tire imports from China in order to protect US producers from increasing imports from China. The Ministry of Commerce in China strongly opposed the decision and stated that the US has violated rules of the WTO and has breached the commitments made by the US at the G-20 summit.
2 days after the White House’s decision, the Chinese government announced ‘anti-dumping and anti subsidies investigations’ into some automobile and chicken products originally produced in the US as Chinese manufacturers alleged the above products entered the country’s market with an ‘unfair competitor manner’ which harms domestic industries.
Protectionism hurts world trade and slows down the pace of global economic recovery. The news triggers risk aversion and the dollar rebounds to 1.454 against the euro, after plummeting to 9-month low last Friday.
Gold price retreats to 1005 after rising for 2 consecutive days as USD recovers. We believe the yellow will move sideways in coming few days before recent rally resumes.
Commitments of Traders
- Crude Oil: Net speculative long positions surged again to 33.1 K as oil price rose above 70. CFCT’s restriction apparently did not have much impact on investments.
- Natural Gas: Net shorts declined further to 168.6K. However, gas price should remain weak in the coming future due to huge gas storage
- Gold: Net speculative long positions jumped to record high of 224.6K last week. Further rise is anticipated in the coming week as gold price remains strong
- Silver: Net speculative long positions for silver rallied above 40.9K contracts. Silver price has outperformed gold as global economic recovery boosts demand for industrial metals
- Platinum: Net long positions soared to record level of 15.1K as driven by broad-based rally in precious metal complex. Strong auto sales data in August also revived investors’ confidence on PGMs
