Crude oil rebounds to 73.2 in European morning in tandem with the equity market as strong manufacturing PMI readings in European countries boosted sentiment and buying interest in the Euro. The White House’s spending plan which will increase the country’s deficit to $1.6 trillion made investors worry about USD. Moreover, cancellation in ceasefire in Nigeria raised concerns about supply disruption in the region. However, we believe these triggers will only have short-term impact.
Major European countries reported better-than-expected PMI for January. In Switzerland, the SVME-PMI improved to 56 in January (consensus: 55.4) from 53.7 a month ago. In the Eurozone, the PMI is revised up to 52.4 in January from flashing reading of 52. Both the euro and the Swiss franc rebound against USD after tumbling last week. Unfortunately, the pound’s slump continue despite an unexpected improvement in PMI to 56.7. The market had anticipated a retreat to 53.9 from 54.6 in December. Sterling dives to a 1-month low of 1.585 against the dollar as the market forecasts the BOE will announce to pause the asset purchase program even the UK economy remains fragile.
Today, the US will release the budget plan which likely shows the nation’s budget deficit will reach a record of $1.6 trillion in the fiscal year ending September 30 before reducing to $1.3 trillion in fiscal year 2011. In order to stimulus economic growth and create job opportunities, the government will be spending $3.8 trillion.
In 2009, USD was under heavy selling pressure because the country printed money as a means to stimulate growth. Investors even speculated the euro or a basket of currencies would be replacing the dollar as the dominant reserve currency. However, such speculation diminished recently, especially the Greek fiscal problem caused dumping in the euro.
Last week, MEND, the main militant group in Niger River delta declared to end ceasefire and resume attack in the region’s oil facilities as the government failed consider the group’s demand for ‘the control of its resources and land’. The Niger delta has been facing militant attacks since 2006. Between 2006 and 2009, the country’s oil production has been reduced -25%.
Gold price changes little in European morning although USD halts its rally. Within the precious metal complex, gold has probably lost its appeal to platinum and palladium. For gold price to rally strongly, we may need to see more news about central banks buying the yellow metal and rising inflationary pressure.
Platinum and palladium hold above last week’s lows and rebound. While platinum edges +0.7% to 1519, palladium soars +1.2% to 420.
Source: Oil n Gold