Commodities diverge amid fresh Fed stimulus
December 16, 2012
Global commodity markets witnessed contrasting fortunes this week, as investors tracked more Federal Reserve stimulus measures, the weak dollar, eurozone debt tensions and broadly upbeat economic data. Most commodities were lifted after the US central bank said it would replace its “Operation Twist” bond swapping programme with $45 billion a month in straight bond buys, on an open-ended basis.
That comes on top of the $40 billion a month purchasing announced in September. The Fed also provided a surprise by saying it would not lift rates as long as the inflation outlook was below 2.5 percent and the jobless rate, now at 7.7 percent, stays above 6.5 percent.
Many markets also won a boost as the greenback fell in reaction. That makes dollar-priced commodities cheaper for buyers using stronger currencies, which tends to lift demand and prices. However, sentiment remains plagued by worries over the looming “fiscal cliff” of automatic taxation hikes and spending cuts, due to start on January 1 and which could plunge the United States economy back into recession.
OIL: World oil prices began the week on the backfoot after Italian Prime Minister Mario Monti’s shock announcement of his intention to resign, in the latest twist to the eurozone debt crisis. The political uncertainty in debt-laden Italy deepened after Silvio Berlusconi revealed that he would challenge Monti in next year’s election.
Sentiment was lifted after the EU agreed to unlock Greece’s latest tranche of bailout cash, and on the back of positive economic data in China and the US. “Reports that Mario Monti would resign … and that Silvio Berlusconi would run again for Prime Minister saw stock markets and oil prices tumble in early trading this week,” said Inenco analyst Joe Conlan.
“Gains were further limited by the continued deadlock surrounding the fiscal cliff in America, despite a raft of positive economic data out of the US over the last week – the lowest new jobless claims in four years as well as strong retail sales for November, all of which should have pushed it up.” Crude futures rose Wednesday after Opec held its oil output ceiling at 30 million barrels per day, as expected, and as the dollar fell further on the Fed’s expansion of its bond-buying stimulus program.
Oil price gains were curbed after the US Department of Energy’s weekly petroleum supplies report showed an unexpected increase in the nation’s crude stocks, by 843,000 barrels, in the week ending December 7. They then spiked higher after the Fed announced a new program of bond purchases.
“We saw a brief rebound in prices on Wednesday as US stockpiles were stronger than expected and the announcement by the Federal Reserve that they would continue with their bond-buying quantitative easing,” added Conlan. By Friday on the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for delivery in January rose to $86.51 a barrel from $86.27 a week earlier. On London’s Intercontinental Exchange, Brent North Sea crude for January increased to $109.00 a barrel from $106.53.
PRECIOUS METALS: Gold prices fell despite US stimulus measures. “The gold market remains in the doldrums … despite the announcement of a further round of quantitative easing by the US Fed,” said Deutsche Bank analysts. “The move by the Fed was widely expected and therefore was likely priced in to the market (and) concerns regarding the possible resolution of the US fiscal cliff seem to be growing.”
“Given the potential for the fiscal cliff to remain unresolved until January, we expect that the gold market could remain under some pressure.” By late Friday on the London Bullion Market, gold slipped to $1,696.25 an ounce from $1,701.50 a week earlier. Silver slid to $32.52 an ounce from $32.85. On the London Platinum and Palladium Market, platinum gained to $1,613 an ounce from $1,600. Palladium climbed to $700 an ounce from $698.
BASE METALS: Base or industrial metals forged multi-month peaks on solid data from Asian powerhouse China. “Amid broadly positive economic data releases, base metals have again outperformed other commodity sectors this week,” said BNP Paribas analysts. HSBC said China’s manufacturing activity hit a 14-month high this month in another sign that the world’s number two economy was picking up steam.
The bank’s preliminary purchasing managers’ index (PMI) reached 50.9, up from a final 50.5 in November when the figure returned to growth after 12 consecutive months of contraction. A reading above 50 shows expansion while one below signals contraction. The December reading is the highest since October last year. By late Friday on the London Metal Exchange, copper for delivery in three months rose to $8,061 a tonne from $8,035 a week earlier.
—- Three-month aluminium gained to $2,120 per tonne from $2,080.
—- Three-month lead climbed to $2,300 a tonne from $2,199.
—- Three-month tin spiked to $23,100 a tonne from $21,600.
—- Three-month nickel increased to $17,819 a tonne from $17,113.
—- Three-month zinc advanced to $2,083 a tonne from $2,019.
COCOA: Prices fell to two-month lows on expectations of rising harvests in key producing nations in West Africa. “Overall weather patterns in West Africa production areas are good for harvest progress,” noted analyst Jack Scoville at Price Futures Group. By Friday on Liffe, London’s futures exchange, cocoa for delivery in March dropped to £1,543 a tonne from £1,551 a week earlier. On New York’s NYBOT-ICE exchange, cocoa for March firmed to $2,432 a tonne from $2,424 a week earlier.
COFFEE: Arabica prices struck another 2.5-year low at 143.25 cents a pound, weighed down by abundant supplies. By Friday on NYBOT-ICE, Arabica for delivery in March slid to 144.75 US cents a pound from 150 US cents a week earlier. On Liffe, Robusta for March firmed to $1,899 a tonne from $1,893 a week earlier.
SUGAR: Prices fell to their lowest point since the summer of 2010 after top producer Brazil revised its crop forecasts. “The catalyst for further erosion in price values was (the) revision of (a) previous crop estimate,” for central-south Brazil, said Sucden analyst Nick Penney. The region represents more than 90 percent of the nation’s output.
By Friday on Liffe, the price of a tonne of white sugar for delivery in March eased to $501.60 from $516 a week earlier. On NYBOT-ICE, the price of unrefined sugar for March decreased to 18.67 US cents a pound from 19.31 cents the previous week.
RUBBER: Prices rose as traders took their cue from upbeat Chinese factory output and retail sales. The Malaysian Rubber Board’s benchmark SMR20 ended the week at 285.85 US cents a kilo, up from 283.15 cents the previous week.