Despite weakness in Asian session, crude oil price rebounded later in the day as Iran’s missile tests might have escalated geopolitical tensions. Moreover, strength in stock markets also boosted commodities. WTI crude oil gained +1.2% to close at 66.84 while Brent crude edged +0.7% higher to65.54. Fuel price also recovered in sympathy with RBOB gasoline gaining +1.1% to 1.64 and heating adding +0.8% to 1.69.
Last week, Iran’s announcement that it has been building a second plant for enriching uranium drew attention of the UN and the world. The US, UK and France said that the deed is in violation of the nuclear non-proliferation treaty. A meeting has been scheduled on October 1 between Iran, and the US and European officials regarding the issue. However, the Iranian government carried out missile test yesterday and test-tired a Shahab-3 missile. The act must have worsened the relationship between Iran and the UN and more sanctions are anticipated.
Stock markets strengthened in the US amid the M&A theme. Dow Jones Industrial Average rose +1.3% to 9789 while S&P 500 Index gained +1.8% to 1063. Xerox agreed to buy Affiliated Computer Services for $6.4B while Abbott Lab planned to buy Solvay’s pharmaceutical units. Financial stocks also surged +3.4% while insurers gained +5%. In Europe, Germany’s DAXC rallied +2.8% on election result.
Today in Asia, stocks also climb higher as driven by oil and tech stocks. The MSCI Asia Pacific Index adds +0.4% and Japan’s Nikkei 225 Stock Average rises +0.6% to 10072.
The precious metal complex ended the day slightly higher despite USD’s rebound. Robert Zeollick, World Bank President, commented that there are other options for the world’s reserve currency and USD should not take the status for granted. Although USD ‘is and will remain a major currency, the greenback’s fortunes will depend heavily on US’ choices on inflation, the budget deficit and financial oversight’. The speech posed threat to the dollar and helped gold.
USD rebounded against major currencies after falling sharply in the previous week. Against the yen, USD initially plummeted to as low as 88.25 but then pared most of the losses after Japan’s finance minister said that he did not favor a stronger yen and would not rule out intervention. Against the euro, the greenback closed +0.6% higher as ECB president Trichet said that a strong dollar is ‘extremely important to global economy.