Commodity and equity markets moved in opposing directions yesterday with equities overshadowed by lacklustre macro-economic factors while supply concerns and a softer dollar prompted short covering in commodities.
The Stoxx 50 Index and DJIA finished down around 0.3% and the S&P500 0.2%. By contrast the CRB Index closed with a solid 2% gain with gains seen in various sectors; WTI crude gained 1.8% with Brent futures reclaiming the $100/barrel mark amid strike action in Norway, Agricultural prices were led higher by concerns the heat wave in the US would damage crop yields – soybeans hit an all-time high, corn futures soared 5% and wheat gained 2.4%.
Metal prices were also bolstered; the precious metals closed up a net 0.8% as the dollar softened; the base metals finished up a net 1.1% led by aluminium which saw strong turnover on Select with 12,300 contracts traded versus 10,700 lots of copper.
The Dollar Index settled down 0.25%. Safe-haven demand saw US treasuries yields decline with the yield on the 10-year note declining 5bps; Eurozone peripheral spreads widened over the German bund, the Spanish/German spread increased 14-bps as the yield on Spain’s 10-year note increased to 7.10%.
Equity sentiment remains negative overnight with the Nikkei off 0.4% and the MSCI Asia Pacific Index 0.3% at the time of writing. Data overnight has been largely disappointing – Australian NAB Business Confidence declined further from -2 to -3; Japanese Household Confidence softened from 40.7 to 40.4, China’s reported a larger Trade surplus of 31.7bn versus an expected 22.6bn after imports rose less than expected.
Eurozone leaders overnight have agreed to lend Spain €30bn by the end of the month, the deal is aimed at addressing the remaining weakness in the Spanish banking sector.” The euro has softened in response, currently off 0.1% against the dollar and 0.3% versus the yen.
Economic data today will show French, Italian and UK Industrial Production, UK Manufacturing Production and Trade Balance and IBD/TIPP Economic Optimism. Eurozone ECOFIN meetings will also get underway.
The combination of weaker equities and Chinese imports, particularly of copper, has led the metals to a negative start this morning with the precious metals currently off 0.3% and the base metals 0.9%. While the softer import data and recent taming of inflation have increased speculation of further monetary by China the fact the Fed appears to be some way from QE3 continues to overhang metal sentiment with the metals for the timebeing to hold ground within recent ranges with gold between $1525-1625 and copper $7290-$7800.