Alan's Finance Blog

Crude Remains Under Pressure as Recovery Worries Linger

Crude oil trades below 70 in Asia Monday as Friday’s employment data fueled concerns on economic recovery. Weakness in stock market despite renewed decline in USD suggests investors are refraining from taking risks for the moment.

The MSCI Asia Pacific Index slides -0.4% today. In Japan, the Nikkei 225 Stock Average loses -0.1% to 9724. In Singapore, the Straits Times plunges -3% to 2583 while South Korea’s KOSPI drops -1.5% to 1620. Asian equities are catching up the decline Friday after US’ unemployment rose to 9.8% in September with the number of non-farm payrolls plummeting -263K units.

Economist Nouriel Roubini said last week that stock and commodity prices may fall in coming months as the pace of economic recovery does not justify strong rallies in recent months. Roubini said ‘markets have gone up too much, too soon, too fast. I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year’.

Gold price edges slightly higher after a strong rebound in NY session Friday. Currently trading at 1005, the yellow metal’s trading momentum has been helped by weakness in USD. The dollar dropped against major currencies after Boston Fed President Eric Rosengren said last week that the Fed funds rate should be kept at record low until economic recovery is proved to be sustainable. Several Fed presidents will be speaking this week with the NY Fed President William Dudley speaking at New York today and Kansas Fed President Thomas Hoeing speaking tomorrow.

The dollar plunges to 1.46 against the euro after rising to 1-month at 1.448 Friday. In contrary to the market’s expectation, leaders at the G-7 meeting did not criticize about dollar’s weakness.

Commitments of Traders

• Crude Oil: Net speculative long positions dropped one-third to 42142 contracts in the week ended September 29. After rising for 3 consecutive weeks, net long positions in crude should have peaked at 62216 contracts.
• Natural Gas: Net shorts dropped another week to 145 951 contracts as natural gas price rose during the week. Record high in gas storage should continue pressure on the cash market which in turn forces the futures market to move lower.
• Gold: Net speculative long positions declined slightly after soaring for the 5th consecutive week.
• Silver: Although net speculative long positions for silver rose 47 410 contract, the pace of increase has moderated as we expect net longs in silver to decline in the coming week
• Platinum: Net long positions dropped after surging to a record level of 18.2K. Decline in US auto sales in September fuel pessimism in the market again

Source: Oil n Gold Report

Weekly Fundamental Outlook for Energies and Metals – Commodities Consolidate as Economic Outlook is Mixed

Most of the commodities gyrated within their recent trading range last week as the broad market outlook remained mixed.

After a sharp fall to the lower end of the range in the previous week, WTI crude oil price rebounded although there was not much good news from the energy market. Although investors found better weekly fuel consumption as an excuse to boost price, it faltered below 71.5 amid weaker-than-expected job data.

Gold price continued to be directed by USD’s movement which reluctantly trended lower. Although we remain bearish on the dollar’s long term outlook, global central bankers’ unwillingness on dollar’s depreciation should prevent a sharp decline in USD in the near-term.

Crude Oil

Crude oil price plunged to as low as 68.32 Friday as the US Labor Department reported disappointing employment data for September. Investors worried the pace of economic recovery will be delayed and thus took profits from long positions in oil. Although buying interest emerged afterward, WTI crude oil settled -1.2% at 69.95 during the day. On weekly basis, the benchmark contract gained +6%.

After plummeting to the lower end of recent trading range of 65-75, oil price recovered in the middle of the week although the US Energy Department reported larger-than-expected crude builds in the week ended September 25. Investors used the surprising draw in gasoline stockpile, lower-than-expected rise in distillate stockpiles and rise in fuel demand as reasons to bid up prices.

However, we retain out views that crude oil price will continue move range-bounded in coming weeks and occasional rise in demand does not alter the fact that fuel consumptions remain in depressed levels.

Gasoline demand rose to 9.126M bpd last week, representing increases of +3.8% on weekly basis and +4.5% on annual basis. However, Exxon’s CEO said that gasoline demand has already peaked in 2007 and will decline into the futures. In the US, oil product demand was 20M bpd in 2007 and should fall to about 17M bpd by 2020.

Distillate demand climbed to 3.409M bpd after slipping for 3 consecutive weeks. However, current consumption level remained -12.3% below the same period in 2008. 4 week average of 3.387M bpd last week was still down -11.1% from a year ago. The incentive for refiners to switch production from gasoline to distillate is low as heating oil inventory stayed at sky-high level and refinery margins were low.

On the supply side, OPEC members should adhere more strictly to quotas although they seemed to be content with current oil price. According to a survey by Bloomberg, OPEC, the organization controlling 40% of the world’s oil exports, produced 28.395M bpd in September, representing a -0.05M bpd drop from August. The 11 member countries bearing quotas produced 26.045M bpd in total during the month, representing a -0.01M bpd decline from August. However, the output was still +1.2M bpd about the assigned target.

Rex Tillerson, Exxon’s CEO, commented that the OPEC should be more disciplined in their productions. He said that the cartel had been ‘extraordinarily good’ at sticking to the quotas and the compliance level had reached ’82% which is very good for OPEC’. However, ‘the compliance has reduced to 65% now. When the price of oil got back above 70, some people cannot help themselves’.

For non-OPEC countries, Russia’s total production increased +1.7% yoy to 10.01M bpd in September. This has brought the nation’s production to a post-Soviet high and at +25% above Saudi Arabia’s production.

Although the IMF upgraded their economic forecasts, hard data suggested that recovery came in weaker than expected. Non-farm payrolls in the US declined -263K in September, compared with consensus of -187K, following a -201K decline in the previous month. Unemployment rate rose to 9.8% as expected. The government also revised downward their preliminary estimate of benchmark payrolls by -0.6% (70K per month) in the 12 months through March.

Natural Gas

Nymex gas for November delivery rebounded +5.65 to settle at 4.72 after plunging 7.7% Thursday amid record high storage in the US. Downward pressure at cash market and stock market weighed on front-month contracts.

The Energy Department reported that gas stockpile rose +64 bcf to 3589 in the week ended September 25. According to the government, at current price level, ‘working gas in storage set a new record high for natural gas inventories. Current inventories exceed the previous 15-year-high reported on the Weekly Natural Gas Storage Report (WNGSR) of 3545 bcf, and the all-time high of 3565 bcf reported in the October 2007 Natural Gas Monthly. New record levels were established in the West and Producing regions, exceeding the previous records of 482 bcf and 1126 bcf in the WNGSR, respectively. Meanwhile, the East region is only 86 bcf below its previous 15-year high level of 2041 bcf established on November 14 2008′.

We are bearish on gas price in the near-term as rising gas storage will drag down prices in the cash markets which in turns pressure on futures prices.

Precious Metals

The complex continued to trade on currency factors, with the more volatile metals (silver, platinum and palladium) being more affected by strength in the dollar.

On Friday, gold price sank to as low as 987 as the dollar strengthened to 3-week high against the euro and crude oil and base metal prices got hit. The benchmark contract managed to rebound and close above 1000. On weekly basis, the yellow metal added +1.3% following a -1.9% decline in the previous week.

Next week, gold price will probably remain bounded below the record high level of 1033.9. In fact, we expect the yellow metal to continue to struggling around the 1000 level in the near-term. While we will have a light calendar in the US next week, meetings in RBA, ECB and BOE will have strong impact on currency movement.

In the long-term, we stay bullish on gold price as we are bearish on USD given the huge deficit and monetary easing policy in the country. According to IMF, USD’s share in global currency reserves fell to 62.8% in 2Q09 from 65% in the previous quarter. Euro’s share, on the other hand, rose to 27.5% from 25.9%. This is evidence showing USD’s status as the dominant reserve currency is threatened. Gold will be a beneficiary should central bankers continue to diversify away from the dollar. In fact, decline in European central banks’ gold sales and increase in emerging market’s reserve diversification suggest that central banks will switch from net gold seller to buying in coming years.

Net speculative long position in Comex gold future declined from the peak level to 454.6K contracts last week which that for silver continued to edge higher, despite at a much slower pace. Silver price added +1.1% to 16.23 last week, underperforming gold.

Base Metals

Most base metals headed lower in the past week amid demand concerns. While doubts over a potential recovery in OECD demand persist, a seemingly pause in Chinese stockpiling was the major cause of surge in inventory. More importantly, national day holidays in China will last until October 8 and investors prefer to stay on the sideline during the period.

Huge build in inventory level has made copper the most worrisome in the complex. Copper stockpiles in LME warehouses rose for the 12th consecutive week and have expanded +34% since the week ended July 10. This probably explained why the LME copper for 3 months’ delivery has declined for 5 straight weeks after making a 2009-peak at 6535 on September 8.

In the near-term, metal prices will remain under pressure as investors need to see solid evidence of demand recovery. Moreover, weak Chinese imports will continue to weigh on prices.

Source: Oil n Gold

Commodity Prices Retreat As Disappointing Eco Data Sent USD Higher

Although crude oil added +0.3% to settle at 70.82 Thursday, trading momentum was weakened as the US reported a series of disappointing data. Investors worried that economic recovery might not come as expected and thus drove capital away from risky assets.

US initial jobless claims increased to 551K in the week ended September 26 from 534K in the prior week. The market had anticipated a much more modest rise to 535K. After making a peak in March, initial jobless claims have dropped -18% in 26 weeks. However, the decline was rather gradual compared with previous recessions in 1970s and 1980s. The sluggishness in the falls in claims signals recovery in the job market is slow.

ISM manufacturing index slid to 52.6 in September from 52.9 in the previous month. The market forecast an improvement to 54. Although the index suggested manufacturing activities remained in expansion, decline in some components, such as new orders (Sep: 60.8; Aug: 64.9) and productions (Sep: 55.7, Aug: 61.9), indicated the sector remained vulnerable.

Stock market plunged as investors concern about the employment and growth outlook in the economy. The Dow Jones Industrial Average sank -2.1% to 9509 while S&P 500 Index lost -2.6% to 1030. Today in Asia, the MSCI Asia Pacific Index slips -2%. Japan’s Nikkei 225 Stock Average loses -2.7% to 9715 although the nation’s unemployment rate surprisingly fell to 5.5%, compared with consensus of an increase to 5.8%, in August from 5.7% a month ago. Japan’s household spending also unexpectedly gained +2.6% yoy in August after plummeting -2% in July.

The market’s focus is on US’ employment report today. Payrolls should have dropped -187K in September (-216K in August), sending the unemployment rate to 9.8% from 9.7% in August.

Gold price pulled back and closed below 1000 Thursday as USD rallied. Apart from uncertain economic outlook, the dollar advanced +0.65 against the euro because ECB President Trichet said that euro’s recent appreciation has been too much and disorderly movement in the currency market will have adverse impact on economy. The worst performers were commodity currencies in which Australian dollar, New Zealand dollar and Canadian dollar plunged -1.6%, -1.2% and -1.4% respectively.

Recent strength in gold price hurt physical demand. Besides India, Turkey reported that imports were down -86% mom to 1.7 metric tons in September. In the first months, total imports in the country were 32.9 metric tons, compared with 164.6 metric tons in the same period last year.

Commodities Strengthen as IMF Upgrades Credit Market Outlook

Crude oil price rebounds above 67 in European morning as USD retreats. IMF’s improved outlook on global credits, strong China PMI and Japan industrial output data also revive market expectations on economic recovery. In China, oil stocks plunge after the Chinese government reduced the ex-factory fuel prices.

In its semi-annual report, IMF cut its estimates for loan and investment write-downs by -15% to $3.4 trillion, suggesting improvement in global credit market and world economy. As stated in the report, ‘systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy’. However, ‘credit channels are still impaired and the economic recovery is likely to be slow’. Banks’ losses on bad assets will probably increase by $470B, $420B and $140B from July 09 through next year in the Eurozone, the US and the UK respectively.

According to a survey done by HSBC, China’s manufacturing PMI slid 0.1 point to 55 in September from 55.1 in August. Despite the fall, a reading above 50 represented expansion and it’s the 6th consecutive month that the country’s manufacturing sector is in expansionary phrase. The official PMI, to be released tomorrow, is expected to have risen to 55 during the month from 54 in August.

In Japan, industrial production index rose +1.8% mom in August following an upwardly revised +2.1% increase in the prior month. On annual basis, the contraction of -18.7% was much lower than -22.7% recorded in July. Looking into the details, the shipment index for capital goods turned positive, gaining +1.9% qoq in July-August from -17% in April-June, for the first time in 2 years. This might be signaling that capex has almost bottomed as the shipment index for capital goods is usually a leading indicator for capex.

The Chinese government announced to reduce ex-factory prices of gasoline and diesel by RMB 190 a metric ton. Sinopec (0386.HK) and Petrochina (0857.HK) fell -1.4% to HK$ 6.59 and -1.6% to HK$ 8.76 respectively, underperforming -0.3% decline of the benchmark Hang Seng Index, as the cuts will hurt profit margins of refiners.

USD retreats against major currencies amid batter economic outlook as investors seek higher risks. Leading gains against the dollar were Australian dollar and New Zealand dollar. In Australia, retail sales rose +0.9% mom in August after falling -0.9% a month ago. The gain was higher than consensus of +0.5%. In New Zealand, NBNZ business confidence improved strongly to 49.1 in September from 34.2 in the prior month. Against the euro, the greenback weakens to 1.466 after rebounding to 1.453 Tuesday. The currency pair will likely record a decline of -4.7% in the third quarter, after gaining more than +5% in the second quarter.

Gold price climbs above 1000 again as the dollar plummets. No matter whether the yellow metal will close above 1000 today, it will likely record the biggest quarterly gain since 1Q2008. High gold price did exert pressure on jewelry demand. Imports by India, the world’s largest buyer, probably dropped for the 5th month in September, according to Bombay Bullion Association Ltd.

Source: Oil n Gold

Commodity Prices Remain Soft in Asia Monday

Although still trading above 65, crude oil’s near-term outlook remains weak as investors worry about energy consumption. Decline in stock prices in Asia market and rebound in USD exert additional pressure on commodities. Others in the energy complex extend further to the downside with RBOB gasoline and distillate trading at 1.61 and 1.67 respectively.

Stock markets in Asia drop Monday in response to the worse-than-expected US durable goods orders reported last week. Moreover, strength in Japanese yen against the dollar also weighs on Japanese stocks. The Nikkei 225 Stock Average slips -2.7% to 9985 as exports will be seriously affected by a stronger yen. Japanese yen rises to 88.5 against the dollar, the highest level in 8 months amid speculations that the Japanese government will not intervene appreciation on yen. Last week, Finance Minister Hirohisa Fujii said that he did not support a weak yen. Australia’s S&P/ASX 200 Index loses more than -1% while S. Korea’s KOSPI Index fell -0.8%.The MSCI Asia Pacific Index slides -1.7%.

Gold and other precious metals move sideways in Asia session. Although USD plunges against Japanese yen, it rebounds against other currencies. The greenback rises to 2-week high at 1.457 against euro and 0.86 against Australian dollar. Against British pound, the dollar surges to 1.579, a level not seen since May.

We have a light calendar today. Germany’s CPI probably contracted -0.2% mom in September after rising +0.2% a month ago. Subdued inflationary pressure may weigh on gold. Both ECB President Trichet and BOC Governor Carney will speak later today. We expect both of them will acknowledge recent positive development in the economy. However, recovery at current pace is not sufficient to call for an exit of easing monetary policies.

Commitments of Traders

• Crude Oil: Net speculative long positions jumped to 62216 contracts, the highest level since the first week of January 2009. After 3 consecutive weekly increases, we expect to see pullback in net long next week amid long liquidations as well as sharp fall in crude oil price
• Natural Gas: Net shorts dropped to 163.8K contracts as natural gas price rose during the week. Although gas price has risen strongly in contrast with others in the energy complex, we believe the strength is premature as inventory is approaching the record high level and there’s no concrete evidence in demand recovery
• Gold: Net speculative long positions rose for the 5th consecutive week and made a new record high at 236.7K last week. However, we saw the pace of increase has moderated and the stretched position has made gold price vulnerable for correction
• Silver: Similar to gold, net speculative long positions for silver rallied above 47K contracts. Our view that ‘silver’s outperformance among precious metals may cause a more serious price correction’ began to materialize as silver price has fallen more severely than gold in the current reversal
• Platinum: Net long positions soared to a new record level of 18.2K. Strong auto sales data in August also revived investors’ confidence on PGMs. However, renewed pessimism that September auto sales will get hammered after the ‘cash for clunkers’ program should weigh on the white metal

Source: Oil n Gold Report

Technical Rebounds on Commodities May Not End Reversal

Crude oil price recovers Friday after 2 days’ selloff of -8%. Currently trading at 66.35, WTI crude may have the risk of breaking 65 and testing 60 if there’s no supportive news/data in the sector. Oil products also rebound but these are more of technical rebounds. On the contrary, natural gas continues to rise higher after the +10.6% gain over the past 3 days.

While Asian stocks declined in sympathy with US equity markets, stocks in Europe rebound with UK’s FTSE 100 Index climbing +0.56%, Germany’s DAX adding +0.17% and France’s CAC 40 gaining +0.16%. Earlier in Asia, the MSCI Asia Pacific Index dropped -0.7%. In Japan, the Nikkei 225 Stock Average slid -2.6% as Nomura, the biggest securities firm in the country, announced a record $5.6B share offering.

Natural gas storage rose 67 bcf to 3525 bcf in the week ended September 18. The increase was inline with market expectation. However, should supplies rise in similar amount next week, this would bring total storage to a fresh high after a record of 3545 bcf in November 2007.

However, natural gas price has been soaring in the past few days as investors speculate demand will increase as winter approaches. At the same time, the market also concern that the number of rig counts will not be sufficient to meet demand in coming cold weather. We actually do not believe this would be case. Although the number of rigs has fallen more than +50% from a peak of 1606 in September 2008, utilization rate of the remaining rigs has risen. Moreover, weather forecasts show that winter this year will not be as cold as that in previous years.

Gold price rebounds after plummeting to as low as 991.3 Thursday. However, price remains pressured below 1000. Silver extends weakness and is at risk of testing 16 in the near-term. Currently trading at 16.5, the benchmark contract for silver will probably record the first weekly decline after 4 consecutive weekly rises.

Platinum price dropped briefly below 1300 earlier today but then bounced back. Worries about weak auto data in September, together with liquidation of long futures positions, may put price under pressure. Auto consultancy forecast that US sales might have declined to 9.2M units on annualized rate, the level not seen since February 2009, in September after the ‘cash for clunkers’ program. In august, sales jumped +25% mom and +3.9% yoy to 14.09M units as the government’s rebate program spurred demand.

Source: Oil n Gold

Commodities Change Little Ahead of FOMC Statement

Crude oil hovers around 71 in European morning. Recently, energy prices have been stuck within a range and its ups and downs have been determined by economic indicators and stock markets. Without much meaningful data released today, energy prices trade with a soft tone.

The BOE’s minutes for the September meeting was a non-event votes for leaving both the policy rate to 0.5% and the asset buying program at 175B pounds were unanimous. There was nothing mentioned about reducing remuneration rate on bank reserves. Perhaps this signaled that the economic outlook in the UK has improved.

Today, the Confederation of British Industry raised its forecast for UK’s GDP growth to +0.3% in 3Q09 and +0.4% in 4Q09, and anticipated that BOE will stop buying assets after the current scheme is finished. The British pound surges higher against USD and euro after the report. Currently trading at 1.6422, GBP has risen for the second day against the greenback and 1.615/1.62 has been acted as a support level. Against the euro, GBP has risen for the third consecutive day with the rally accelerating.

In the 16-nation Eurozone, PMI improved but was less than market expectation. Flash reading on manufacturing PMI rose to 49, compared with consensus of 49.8, in September from 48.2 in July. For service PMI, the reading rose to 50.6, the first time in expansionary territory since May 2008.

Stock markets advanced for the second day. In Asia, the MSCI Asia Pacific Index excluding Japan gained +0.3%. In Europe, UK’s FTSE 100 Index rises +0.3% to 5158. Germany’s DAX and France’s CAC 40 also edge +0.2% higher.

Gold meets selling pressure at 1020 and plunges to 1015. Silver falls to 17 while platinum drops to 1328. The latest trade report in China revealed the country’s lure for PGMs. Platinum imports surged +78% yoy to a record high of 205K oz while palladium soared +63% yoy to 80K oz, the highest level since February. We believe the strong demand was driven by recovery in auto sector. Auto sales advanced +81% yoy and the volume was above 1M units for the 6th consecutive month.

Market’s focus is on the Fed’s announcement after the 2-day FOMC meeting. Although leaving the Fed funds rate unchanged at 0-0.25%, the Fed should have turned more upbeat on the assessment of the economic growth. At the same time, policymakers probably decided to slow down the pace of the purchase of agency MBS and agency debt. The program will likely be extended to first half of 2010 from December 2009.

Source: Oil n Gold

Correction Seen in Commodities as Strength in USD Curbs Hedging Demands

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.

Recovery in USD Pressures Commodity Prices in European Morning

Commodity prices drop in European morning as the dollar recovers after plunging for several days. In particular, the pound sinks against the dollar and euro after Lloyds Banking Group was barred from exiting the Government’s debt insurance program. Crude oil slides below 72 and is currently trading at 71.8. Heating oil and RBOB gasoline also retreat while natural gas rebounds to 3.55, paring the -8% loss made Thursday.

According a stress test done by the Financial Services Authority, Lloyds Banking Groups would have to to take part in the Government Asset Protection Scheme (GAPS). In March, the Group has agreed to puit 260N pounds of toxic loans into the scheme. However, the latest data showed that it would not be allowed to exit from the program unless it raises new capitals. The news triggers concerns about the banking system, not only in the UK but also across the board.

USD rises against major currencies, partly because investors seek safe haven and partly due to consolidation after severe decline. Against the pound and euro, USD rises +0.7% to 1.6354 and +0.3% o 1.465 respectively.

Gold price initially plummeted to 1009.2 but buying interest was then seen above 1000. Currently trading at 1015, the benchmark contract for the yellow metal will likely rise for the 5th consecutive week. However, resistance below 1033.9, record high made in March 2008, is strong and thus gold should gyrate within a range of 1000 and 1033.9 in the near term. Silver price plummets for the second consecutive day after making a fresh 2009 high at 17.69 Thursday. Over the week, silver will probably record gain of +4%, outperforming the gold’s rally of less than +1%.

Copper price extends weakness to 6280 in European morning as inventory at the LME warehouse has risen to 327.7K metric tons, the highest since May. Others in the base metal complex also fall. Lead decline more than -4% to 2175 while both zinc and nickel also slide almost -2%.

Rebounds in Equity Markets Boosted Commodity Prices

Despite weakness in Asian session, crude oil price recovered in NY session amid rebound in stock market and renewed selling in USD. The October contract slid -0.6% to 68.86. Concerning others in the energy complex, heating oil stayed flat at 1.74 while RBOB gasoline lost -1% to 1.74. Natural gas rebound +11% to 3.297 after falling -9% last Friday. Gas price should continue to trade with high volatility.

US stock markets opened lower following a weak Asian session Monday. However, buying interest emerged again and S&P 500 climbed +0.6% to settle at 1049.34, the highest level in almost a year. Dow Jones Industrial Average also gained +0.2% to 9627. Worries about US-China trade protectionism mitigated after US President Obama said ‘we are not going to see a trade war’.

Today in Asia, equity markets have little change with the MSCI Asia Pacific Index staying flat while Japan’s Nikkei 225 Stock Average adding +0.1%. Crude oil price trades narrowly around 68.5.

USD initially rebounded but was then under pressure again. The greenback lost -0.6% and set another 9-month low against the euro after the EU’s comment European’s economy is coming out of recession:’ The improved economic outlook reflects external conditions being increasingly favourable. Recent data for trade and industrial production, as well as business and consumer confidence, are generally encouraging. The resilient private and public consumption and advancements in the inventory cycle will also support growth in Europe’. The Commission anticipated the region will return to growth in the third quarter with GDP of +0.2% and +0.1% in 3Q09 and 4Q09 respectively.

It’s hard to tell with a day’s data whether risk appetite has returned. In fact, both AUD and CAD dropped against the dollar yesterday amid decline in metal prices.

Gold rebounded after falling to as low as 994.4 yesterday. The yellow metal managed to close above 1000 for a second day. However the US-China trade dispute evolve will have impact on gold’s outlook. If the tension between the 2 large trading nations is escalates and the issue is translated into a full-blown trade war, demand for safe investments will drive capitals to USD and hence is negative for gold. However, we believe the possibility for this is low. First, China’s tire export to the US is only around 0.08% of its total exports, it does not have real impact to the nation’s economy after imposition of tariffs. The Chinese government will not want to lose US as its big market.

Platinum price has been trading soft since beginning of the week after strong rally last week. However, momentum remains strong and recent rise should resume after consolidation. Labor actions in South Africa have been resolved for now as the National Union of Mineworkers had agreed to a 1 year wage deal with Anglo Platinum. We are impressed as platinum stayed firm even after the issue has been settled. This was probably due to improved confidence in global auto market.