Industrial production accelerates; core CPI raises deflationary risks

Market Highlights

ASIA-PACIFIC REGION

Japan current account misses estimates; China money supply slows

The current account of the world’s third largest economy registered a record deficit in November as widening trade gap is weighing on the country’s balance of payments. The deficit amounted 592.8 billion yen compared to a forecast of 380.4 billion yen. Meanwhile, core machinery orders soared 9.3% in November compared to expectations of 1.2% gain and October’s figure of 0.6%. At the same time, neighboring China saw some negative data. China’s new loans increased much less than expected by 481 billion yuan versus 589 billion yuan, confirming the view that money-supply is slowing down.

EUROPE

Industrial production accelerates; core CPI raises deflationary risks

The industrial production in the single currency union rose more than predicted in November, adding to signs that the Eurozone’s economy is improving. Industrial production gained 1.8% in November, while in October it shrank 0.8%. Experts called for a 1.6% advance. However, other indicators such as CPI were on the negative side, with core CPI coming at 0.7% in December after rising 0.9% in November thus raising worries about deflation in the region.

NORTH AMERICA

Retail sales grow faster than expected, while prices hold steady

U.S. retail sales exceeded estimates in December as customers bought more during the holiday season. Core retail sales rose 0.7% in the last month of 2013 compared to a forecast of 0.4% jump and November’s reading of a 0.1% gain. Consumer prices rose the most since June in December due to surging fuel and rent costs. Core CPI added 0.1% in line with predictions and unchanged from the preceding month. However, consumers grew more pessimistic, with UoM consumer sentiment gauge coming at 80.4 in January versus a forecast of 83.5.

Precious Metals Edge Higher On Asian Demand; Deficit Concerns

Gold was trading higher in the first two days of the week but it pared gains later in the week. The advance can be attributed to the effect of last Friday’s U.S. payrolls data that calmed concerns that the Fed will continue reducing its bond-buying programme soon. However, a release of the Fed Beige Book on Wednesday showed that many policy makers believed the growth was moderate across the U.S. This again raised worries that the central bank will continue tapering in the months to come thus pushing the traditional inflationary hedge lower.

Notwithstanding negative factors coming from the U.S., the precious metal saw support from another part of the word. China’s demand that lifted gold prices to almost a three-month high in the first weeks of the year is likely to remain in place in the days to come. The premium in the world second largest economy rose to $20 per ounce in the first trading sessions of 2014. Moreover, India, one of the largest buyers of the metal, may see its imports restrictions eased as its current account deficit may narrow significantly this year.

Silver as usually mirrored gold moves last week. The grey metal finished with a 0.4% gain last week despite stronger U.S. Dollar and Fed tapering speculation. The bullion’s upswing was propped up by signs of strengthening demand in India as well as optimism over the world’s economy that may spur industrial demand for the metal.

Platinum and Palladium prolonged their winning streak last week. According to the HSBC, platinum deficit in 2013 amounted 889,000 ounces and 402,000 ounces this year thus recording the third consecutive year of deficit. Meanwhile, dwindling Russia’s state supplies are likely to drive global palladium deficit to 1.06 million ounces in 2014 from 740,000 ounces in 2013.

Industrial Metals Soar On Brighter Demand Prospects; Indonesia’s Ban

Aluminum gained after the World Bank revised up its global growth estimate to 3.2% from 3%, citing improvement in the 18-country currency bloc and accelerating economic progress in the U.S. At the same time, investors remained cautious about the lightweight metal’s prospects given a large production surplus in China. Alcoa, the third-biggest aluminum producer in the world, expects Chinese market to record a surplus of 400,000 tonnes in 2014, while the rest of the world may see a deficit of about 300,000 tonnes.

Copper rebounded amid positive data releases from the world biggest economies. Moreover, the red metal gathered momentum after Barclays said it expects copper prices to average at $1,125 per tonne despite that fact the global market may move into a small surplus this year. However, the climb was constrained by rising Chile’s production. Chile, the top world’s producer, may see its output climbing to six million tonnes in 2014 versus 5.77 million tonnes last year, according to SONAMI.

Nickel led gains last week as Indonesia finally imposed a ban on ore exports. Indonesia accounts for about 18-20% of global nickel supplies and the ban that came at a time when the overall global economy is improving is likely to remain a dominating positive factor in the weeks to come. However, availability of alternative suppliers such as neighboring Philippines may allay the effect of changes in Indonesian regulation.

Zinc climbed after Barclays projected the markets will fall into the first deficit in more a decade in 2015. Zinc surplus is likely to shrink significantly this year that is also reinforced by falling LME inventories. Zinc stockpiles at the LME-monitored warehouses slumped 2.39% last week and almost 28% year-to-date.

Energy Futures Mostly Higher as U.S. Inventories Dwindle

WTI and Brent oil fell on Monday as supply concerns abated after the U.S. President Barack Obama urged Congress to refrain from imposing fresh sanctions on Iran as the oil exporting-country agreed to halt activities related to nuclear power starting January 20. Meanwhile, easing worries across Libya’s output put a drag on Bren oil prices. Libya, the holder of the largest reserves in Africa, increased its production to 650,000 from 210,000 barrels per day in three weeks ended January 13 as protesters agreed on a temporary restart of Sharara, the second-biggest oil field in the country.

From the positive side, energy futures were bolstered by weak payrolls data released on January 10 that calmed worries that the Fed will continue tapering soon. Furthermore, weekly EIA inventory report pushed both WTI and Brent oil higher, indicating a much bigger-than-expected decline in the U.S. stockpiles in the week ended January 10. Oil supplies plunged 7.7 million barrels compared to a forecast of a 700,000-barrel decline and previous week’s reading of a 2.7-million-barrel fall.

Natural gas was gradually advancing until late Wednesday when weather forecasting agencies started to call for milder temperatures in the U.S. On Thursday, the closely-watched EIA report took a toll on the commodity futures, showing that natural gas supplies fell slightly less than predicted in the week ended January 10. Inventories slid 287 billion cubic feet versus a forecast of a decline of 296 billion cubic feet.

Heating oil added 2.82% last week as an unexpected slump in the U.S. storage outweighed mild weather forecasts across the most U.S. territory. Distillate fuel inventories, which include diesel and heating oil, sagged one-million barrels last week, while analysts expected a rise of 1.3 million barrels.

Farm Commodities Decline Despite Solid Global Demand

Wheat ended 0.97% down despite solid demand across the globe. Egypt issued a tender to buy 60,000 metric tonnes of the grain after it agreed to buy 55,000 metric tonnes of the U.S. wheat on January 11. The overall exports data also was positive, with U.S. outbound shipments almost doubling to 25.2 million bushels in the week ended January 12. Furthermore, ideas that analysts downplayed the risks of cold weather in the U.S. were supporting prices. Currently, snow cover in the top producing regions of the U.S. remains thin, adding to worries that cold may damage winter seedlings.

Corn rose in the beginning of the week as the USDA reduced its estimate of the U.S. ending stocks for 2013-14 season by 161 million bushels to 1.63 billion bushels amid smaller than earlier predicted harvest and strong demand for the grain. However, talks that U.S. inventories will be still twice as big as in the preceding season as well as concerns over China’s cargoes rejections on the grounds that the U.S. grains contain unapproved GMO sent corn prices lower.

Soybeans soared the most in five weeks on Monday after the USDA reported upbeat exports in the preceding week. U.S. soybeans inspected for imports climbed 45% on an annual basis to 58.38 million bushels, with China accounting for about 73% of the export demand. Later in the week, the USDA announced a sale of 106,000 tonnes of the oilseed to China for 2014-15 season. Additionally, dry and hot weather in central Argentine may threaten crop yields thus reducing global supplies.

Coffee halted its advance as support from index rebalancing and solid Robusta prices started to wane. Coffee futures added 8.3% in the week ended January 12, the most among all commodities covered in the report, on talks that index rebalancing will increase demand for the futures given that Arabica prices recorded a 23% loss last year.

EXPLANATIONS

Commodities

• Gold - COMEX active contracted (USD/t o.z.)

• Silver - COMEX active contract (USD/t o.z.)

• Platinum - New York Mercantile Exchange active contract (USD/t o.z.)

• Palladium - New York Mercantile Exchange active contract (USD/t o.z.)

• Aluminum - Active contract of primary aluminum of minimum 99.2% purity at the LME (USD/MT)

• Copper – Active contact of electrolytic copper at the LME (USD/MT)

• Zinc - Active contract of zinc od minimum 99.995% purity at the LME (USD/MT)

• Nickel – Active contract of nickel of 99.8% purity at the LME (USD/MT)

• Crude oil - light, sweet crude oil active contract on the New York Mercantile Exchange (USD/bbl.)

• Brent oil - Brent oil active contract on the ICE Futures Europe (USD/bbl.)

• Natural Gas - natural gas active contract on the New York Mercantile Exchange (USD/MMBtu)

• Heating oil - heating oil active contract on the New York Mercantile Exchange (USD/gal.)

• Wheat - wheat active contract on the Chicago Board of Trade (cents/bu)

• Corn - corn active contract on the Chicago Board of Trade (cents/bu)

• Coffee - benchmark Arabica coffee active contract on the NYB-ICE Futures Exchange

• Soybeans - active contract on the Chicago Board of Trade (cents/bu)

Indices

• S&P GSCI Precious Metals Total Return Index - commodity group subindex composed of gold and silver; the index reflects return on underlying commodity futures price movement

• S&P GSCI Industrial Metals Total Return Index - commodity group subindex composed of futures contracts on aluminium, copper, lead, nickel and zinc

• S&P GSCI Energy Total Return Index - commodity group subindex composed of futures contracts on crude oil, Brent oil, RBOB gas, heating oil, gas oil and natural gas

• S&P GSCI Agriculture Total Return Index - commodity group subindex composed of futures contracts on wheat, red wheat, corn, soybeans, cotton, sugar, coffee and cocoa

Indicators

Long-term price forecasts - aggregated price forecasts based on predictions of 20 international banks forecasts

USDA Wasde Total Estimated Inventories (Today)-current level of inventories of wheat in 1000 MT, corn in 1000 MT, soybeans in million bushels and green coffee in 1000 bags