Crude oil’s decline accelerated Thursday as weaker-than-expected home sales in the US spurred worries on recovery. Although buying interest emerged above 65, benchmark contract for WTI crude oil dropped -4.5% to settle at 65.89, the lowest in 2 months. On weekly basis, crude oil may drop around -8% after rising for 2 weeks. If that’s the case, the decline would be the deepest since July. RBOB gasoline and heating oil also lost -4% to 1.64 and -4.4% to 1.68, respectively.
Existing home sales fell to 5.1M units in August from 5.24M units in the previous month. The market had anticipated an increase to 5.35M units. Geographically, sales dropped in the Northeast, Mid-west and South while gained in the West. Despite the disappointing headline, US housing market is not actually too bad. At 5.1M units, the volume represented a -2.7% pullback from the +7.2% increase made in July as well as 4 consecutive monthly surges. Since the trough in January, the gauge has in fact risen +1.4%. With improved sentiment, stabilized employment condition and first-time homebuyer tax credit, we believe the reading will pick up again in coming months.
To be released in US session today, new homes sales in August probably rose +1.6% to 440K units after a +9.6% jump in July. Growth in durable goods orders probably moderated to +0.1% in August after soaring +5.1% in the prior month as aircraft orders reduced.
Equity markets retreated amid the apparently disappointing economic data, as well as speculations that G-20 leaders would collaborate to tighten rules on investment. Dow Jones Industrial Average slid -0.4% to 9707 while S&P 500 Index lost almost -1% to 1051.
USD also pared the 2-week decline and rebounded strongly against major currencies (except for Japanese yen). News that the FED, ECB, SNB and BOE will reduce provisions of USD liquidity in banking systems as economy recovers is positive for dollar.
Commodity currencies plunged across the board with Canadian dollar, Australian dollar and New Zealand dollar losing -1.3%, -0.5% and -0.4% respectively. British pound plunged -1.8% against the dollar as BOE Governor Mervyn King stated that weaker GBP should help rebalance the UK economy. There were renewed speculations that the central bank will meet next week to discuss about reducing remuneration for bank reserves.
Precious metal complex lost ground as the dollar rebounded. As the weakest performer, silver sank -3.6% to 16.3 while both of gold and platinum lost -1.5% to 9978.9 and 1308.5 corresponding. Should USD’s recovery and crude oil’s fall continue, precious metals will be pushed lower. In the near-term, there’s not much support for gold price as capitals flowing into ETF investment has slowed down while the extremely high new long futures position should trigger further short-selling.
Source: Oil n Gold