Crude oil price slides further and approaches 70 in European morning with USD’s rebound and stock market’s weakness the main drivers. Prices on heating oil and gasoline also plunge to 1.793 and 1.8 respectively.
In Europe, UK’s FTSE 100 Index falls -0.7% to 5129, the first decline in 7 days, as Goldman Sachs and Citigroup downgraded several companies listed there. Goldman downgraded Vedanta, a mining company, to neutral from buy while Citigroup downgraded Tallow Oil to hold from buy. The stocks fall -1.5% and -2.7% respectively. Moreover, news said that Royal Bank of Scotland Group may raise 3B to 5B pounds through share sales. While not confirmed yet, the news triggers selloff of shares by more than -2%.
G-20 leaders will meet on September 24-25 in Pittsburg to discuss about plans for curb leverage in financial institutions. While the plan aims at preventing a repeat of the financial crisis, it may threaten profits and stock prices of banks. Germany’s DAX and France’s CAC 40 indices plunge -1.4% and -0.9% respectively.
Earlier in Asian session, the MSCI Asia Pacific Index excluding Japan dropped -0.5% while Australia’s S&P/ASX 200 Index slid -0.3%.
The dollar rises for the second consecutive day against the euro. Currently trading at 1.4655, the greenback may continue to rebound further in the near-term. Focus of the week is the FOMC meeting after which the Fed may give more guidelines about withdrawal of economic stimulus measures.
Concerning commodity currencies, all of Australian dollar, New Zealand dollar and Canadian dollar retreat after surging for several weeks. USD rebounds to 0.86 against AUD after plummeting to 13-month high at 0.877 last week. Recent releases of retail sales and employment data cast a shadow on the robust economic outlook in Australia. In sympathy with Aussie’s movement, CAD and NZD also weaken against the dollar in the near-term.
The precious metal complex falls in reaction to USD’s recovery. The benchmark contract for gold drops briefly below 1000 before bouncing back to 1002. Silver and platinum also pare gains last week with -2% and -1.6% losses respectively.
According to Market News International, China may buy some of the 403.3 metric tons of gold sold by the IMF so as to diversify its reserves from USD. We do not feel surprised if the Chinese government really considers buying gold from IMF as the country has increased its gold reserve by +76% to 1054 metric tons since 2003. Moreover, as China has shown its lack of confidence on USD as the dominant reserve currency, it’s normal for China to continue increasing its gold reserves. Apart from China, gold reserves have also been trending higher in many countries, as shown in the chart below.