Commodities rally in European morning as RBA’s surprising rate hike suggested global economic recovery is on the way. WTI crude oil price surges to 71.15 while gold price rallies to as high as 1029, only $5 below the 1033.9 high made on March 2008.
At the October meeting, the RBA announced to raise its policy rate by 25 bps to 3.25% as global economy is resuming growth. According to the accompanying statement, ‘the recovery will likely continue during 2010 and forecasts are being revised higher. The expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis. Prospects for Australia’s Asian trading partners appear to be noticeably better. Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. For Australia’s trading partner group, growth in 2010 is likely to be close to trend’.
Stock markets also strengthen across the board. In Asia, the MSCI Asia Pacific Index gained +1.4% after falling for 3 days. Japan’s Nikkei 225 Stock Average added +0.2% while Hong Kong’s Hang Seng Index rose +1.9%. Rise in Australia’s S&P/500 200 Index shrank as rate hike will increase the borrowing costs of corporations.
In European morning, UK’s FTSE 100 Index and France’s CAC 40 surge +1.5% to 5099 and 3729 respectively while Germany’s DAX Index adds +1.64% to 5599. Good signs from Australia shadowed weak economic data in the region. UK’s industrial production declined -2.5% mom in August after rising +0.5% in the previous month. In Switzerland, CPI stayed flat in September, following modest gain of +0.1% a month ago.
Saudi Arabia’s central bank denied the news that it has been discussing with China and other countries regarding trading oil using a basket of currencies. Governor Muhammad al-Jasser said that the news is ‘absolutely incorrect and there’s ‘absolutely nothing’ regarding the issue was being discussed.
3 straight days of rally has not only sent the Comex gold futures +2.6% higher, but also helped it made a fresh 18-month high today. As commodities have gathered strong trading momentum these 2 days, it’s likely for the yellow metal to break the record high level of 1033.9 soon.
Investment demand in gold stays robust. Bullion holdings in SPDR Gold Trust have risen for 3 consecutive days to 35.3M oz. This represented an increase of +1.9% from a month ago and +47.5% from a year ago.
