Commodity prices stay strong in European session as USD retreats against major currencies. The benchmark contract for gold climbs to 1113 and is likely to record a third day of increases. On weekly basis, the yellow metal is anticipated to gain for the first time in 5 weeks.
Base metals stay strong after rallying for 2 weeks. While the LME is still closed, copper futures in Comex and Shanghai Futures Exchange (SFE) advance. Strong industrial production in Japan and labor action in copper mine suggest supply/demand condition to tighten further.
Copper price April delivery on the SFE surged to a 16-month high at RMB 59180 (+2.3%) after Japan's IP report, the contract closed at RMB 5830, up +1.1%, for the day. In Chile, workers at Codelco's Chuquicamata mine decided to go on strike next month as they are discontent with the company's wage offer. The company offered a +3.8% wage increase and benefits worth 14.5 peso to sign a new 3-year contract but this has been rejected by the workers already.
Metals, both base and precious, are the strongest performers in 2009. For base metals, the rise has been accompanied by huge, and still-growing, inventory levels. This phenomenon has resulted in wider contangos in the futures market. This makes us worry about the outlook for base metal prices. Stronger momentum for growth in real demand is a must to keep prices going higher.
Rally in crude oil price moderates as it approaches the cluster of 80-82. Although price has rebounded +15%, we are yet to confirm that the rally from 33.2 (January 09) has resumed. There's possibility the black gold to be capped below 82.
Year-to-date, crude oil price has risen almost +70%. We believed only a small part of the rally has been driven by improved fundamentals while the major part was due to speculations on future demand growth. The same phenomenon was also seen in S&P 500 Index, as well as other equity indices. Correlation between crude oil price and S&P 500, as well as crude oil price and USD, has surged significantly in 2009. This also implies crude oil price has faced more impact from investment flows than before.
Base metals stay strong after rallying for 2 weeks. While the LME is still closed, copper futures in Comex and Shanghai Futures Exchange (SFE) advance. Strong industrial production in Japan and labor action in copper mine suggest supply/demand condition to tighten further.
Copper price April delivery on the SFE surged to a 16-month high at RMB 59180 (+2.3%) after Japan's IP report, the contract closed at RMB 5830, up +1.1%, for the day. In Chile, workers at Codelco's Chuquicamata mine decided to go on strike next month as they are discontent with the company's wage offer. The company offered a +3.8% wage increase and benefits worth 14.5 peso to sign a new 3-year contract but this has been rejected by the workers already.
Metals, both base and precious, are the strongest performers in 2009. For base metals, the rise has been accompanied by huge, and still-growing, inventory levels. This phenomenon has resulted in wider contangos in the futures market. This makes us worry about the outlook for base metal prices. Stronger momentum for growth in real demand is a must to keep prices going higher.
Rally in crude oil price moderates as it approaches the cluster of 80-82. Although price has rebounded +15%, we are yet to confirm that the rally from 33.2 (January 09) has resumed. There's possibility the black gold to be capped below 82.
Year-to-date, crude oil price has risen almost +70%. We believed only a small part of the rally has been driven by improved fundamentals while the major part was due to speculations on future demand growth. The same phenomenon was also seen in S&P 500 Index, as well as other equity indices. Correlation between crude oil price and S&P 500, as well as crude oil price and USD, has surged significantly in 2009. This also implies crude oil price has faced more impact from investment flows than before.
Commodities Advance as Strong Data Signals Economic Recovery
Crude oil rises for the 4th day to as high as 78.68 as the market view Thursday's US data as signs of economic recovery. The benchmark contract gained +11.7% in the last 2 weeks. However, the black gold needs to stay firmly above 80 to confirm an upside break of recent broad trading range.
Initial jobless claims declined to 452K units (consensus: 470K units) in the week ended December 19 from 480K in the previous week. Despite the volatility of the data, the better-than-expected results spurred speculations of another strong payroll report. Durable goods orders climbed +0.2% mom in November but the reading excluding transportation surged +2%, suggesting business investments picked up and companies are more confident about the economic outlook.
As expected, gold price slid for the 4th consecutive week in the week ended December 24. The February contract lost -0.6% to settle at 1104.8. After plunging to as low as 1075.2, the yellow metal has found a temporary bottom and rebounded. Currently trading at 1113.3, the benchmark contract climbs as USD pares previous gains. However, there's substantial risk for the dollar to strengthen again as signs of US growth ignite optimism for an early Fed rate hike. This would be negative for gold's outlook.
Platinum bounced strongly and gained +3% last week amid strong auto sales data. Sales in the US increased +4.5% mom and 4.9% yoy to 10.93M units. The 'Cash for Clunker' program lifted auto sales to as high as 14.1M units in August. However, the figure plunged to 9.22 in September as the program expired. Although November's reading remained well-below those in July and August, as well as during the pre-crisis period, it represented a second consecutive improvement.
Today in Asia, platinum surges to 1499, the highest in 3 weeks as Japanese auto production rose for the first time in 3 months. According to Japan Automobile Manufacturers Association, auto production rose +0.5% yoy to 859.7K units in November as driven by tax cuts and subsidies by the government. The association also forecast demand will increase by +0.9M units in 2010.
Industrial production in Japan also beat market expectation in November. Output jumped +2.6% mom (consensus: +2.5%) following a modest gain of +0.5% in the prior month. This also narrowed the annual decline to -3.9% from -15.1% in October. Growth was particularly strong in general machinery production which soared +6.4% for the 7th consecutive monthly gain.
The better-than-expected production data in Japan boosted stock markets in the Asia pacific region. The MSCI Asia Pacific Index rose +1% and Japan's Nikkei 225 Stock Average gains +1.4% to 10645.
