U.S. retail sales and CPI beat estimates in March

Market Highlights

ASIA-PACIFIC REGION

China’s GDP and indusial output slow; new bank loans gain

China’s GDP growth decelerated to the slowed pace in six quarters in Q1 of 2014. The economy expanded 7.4% in the period, in line with estimates but slower than in the preceding quarter when GDP grew 7.7%. Industrial production of the world’s top manufacturer missed estimates last month, coming at 8.8% versus a forecast of 9.1%. Meanwhile, China’s banks were lending slightly faster than expected. New loans amounted 1050 billion yuan in March, while analysts projected new loans to attain 1000 billion yuan after hitting 645 billion yuan in February.

EUROPE

European numbers miss forecasts

Industrial production in the single currency union expanded 0.2% in February after stagnating in January. Experts were more optimistic on the indicator, predicting industrial output to gain 0.3% in February. Meanwhile, the CPI data fuelled concerns over a possible deflation in the region. Core CPI slowed down to 0.7%, slowest pace since November 2009, defying expectations of 0.8% and decelerating from 1% in February. Adding to the flow of negative data, German investor confidence deteriorated for fourth month in a row in April, with ZEW Economic sentiment declining to 43.2 from 46.6 in the preceding month.

NORTH AMERICA

U.S. retail sales and CPI beat estimates in March

Retail sales in the U.S. surged 1.1% in March, beating forecasts of a 0.8% gain and comparing well with the February’s reading of a 0.7% increase. Core retail sales also posted a larger-than-expected rise of 0.7% versus estimated 0.5%. Consumer prices in the world’s largest economy climbed more than experts had anticipated last month. Core CPI added 0.2% in March after climbing 0.1% in February; analysts expected the rate to post a 0.1% increase. Manufacturing activity in the U.S. also was on the rise. Philly Fed manufacturing index surged to 16.6 in April from 9 in March, beating expectations of a climb to 9.6.

Precious Metals Slump on U.S., Abating Supply Concerns in South Africa

Gold started the week on the negative note, plunging the most in 16 weeks, over 2%, late Monday on talks that accelerating inflation in the U.S. leaves more room for the Fed to tighten its policy. At the same time, the weakness was short-lived as the precious metal re-approached the level of $1,300 per ounce on Tuesday as tensions in Ukraine escalated. Riots in the eastern parts of the country continued to spread; Ukraine and Western powers accuse Russia of fuelling the conflict, while Russia denies allegations. Meanwhile, the world powers failed to reach any definite agreement on Ukrainian issue at Geneva meeting last week.

Meanwhile, from the physical demand side, experts called for a 25% surge in China’s demand by 2017. However, analysts also added that India, the second-biggest gold buyer, may hold on its import restrictions to defend the national currency. This contradicts to the previous statements by central bank’s head Raghuram Rajanthat that the country may remove curbs later in the year. Gold closed down 2% last week.

Silver remained a faithful gold’s ally, finishing the week with a 2.4% loss. However, the grey metal stills remains fundamentally stronger than its more expensive counterpart. Recent import tax hikes in India resulted in a surge in silver buying; Imports skyrocketed 189% to 6,125 tonnes in 2013.

Platinum and Palladium were mixed. Early last week, platinum drew strength from on-going strikes in South Africa that are expected to result in a deficit of 836,000 ounces, according to Credit Suisse. However, platinum lost ground on Friday after top three producers offered to more than double wages until 2017. Meanwhile, palladium soared to a 32-month high amid rising worries that a standoff over Ukraine will lead to a restriction of supplies from Russia, the top producer.

Industrial Metals Mostly Higher on Supply Worries, LME Inventories

Aluminum was trading mostly flat last week, balancing between persistent output cuts by the top producers and re-emerged demand concerns linked to situation in Ukraine. From the supply side, the metal remained well-supported as companies like United Co. Rusal and Alcoa, the biggest and the third-biggest aluminum producers, reported a drop in output. Production of United Co. Rusal slumped to an eight-month low in February, while Alcoa plans to cut 800,000 tonnes of output. Alcoa also expected the aluminum market to post a deficit of 730,000 tonnes this year.

Copper managed to pare losses after the data showed that China’s growth slowed down slightly less than expected in the first quarter of 2014. China’s GBP gained 7.4% in Q1 of 2014 compared to a 7.7% expansion in Q4 of 2013; experts called for a 7.3% advance. The red metal also continued to gain inspiration from reports that experts overestimated this year’s surplus that was expected to be at a 10-year high of circa 400,000 metric tonnes.

Nickel hit a 14-month high last week on stocking supply concerns. Indonesia, which accounted for about 20% of global nickel ore exports, banned outbound shipments of unprocessed metal in January this year. Meanwhile, Russia, another big exporter of the metal, also may fail to compensate for the fall in supplies as Western economies may impose sanctions on the country amid on-going instability in Ukraine.

Zinc was bolstered by the recent ILZSG report showing that global market was in deficit of 60,000 tonnes last year after posting a supply glut of 236,000 tonnes in 2012. LME inventory data also lent some support to the metal. Zinc stocks at the LME-monitored warehouses declined 2% last week and slumped 28% year-to-date.

Energy Futures Prolong Winning Streak; EIA Data Mixed

WTI and Brent oil were volatile last week amid mixed fundamentals. Brent oil commenced with week with solid gains as re-escalation of tensions between Ukraine and Russia outweighed a possible rise in Libyan production after rebels surrendered two oil ports to the country’s government. WTI also followed Brent futures lead, drawing additional strength from a drop in OPEC output. OPEC production slid 890,000 barrels per day to 29.6 million barrels per day in March. Also supporting prices, the IEA said global demand is likely to rise 1.4% this year, while China’s consumption may add up to 3.4%. Positive numbers from U.S. also boosted energy prices.

However, the upswing was restricted by a record jump in the U.S. inventories in the week ended April 11. The EIA announced crude oil stockpiles surged 10 million barrels versus a forecast of a 1.3-million-barrel rise and a previous week’s reading of a climb of four million barrels.

Natural gas recovered all losses it incurred in the beginning of the week on Thursday as the EIA data spiked a rally in prices. The EIA report indicated that U.S. natural gas storage rose 24 billion cubic feet in the week ended April 11. Experts projected inventories to jump 35 billion cubic feet after a small increase of four billion cubic feet in the preceding week. The commodity also shot up on colder-than-normal weather forecasts in the U.S. at a time when spring weather usually erodes natural gas demand.

Heating oil found support on a bigger-than-expected drop in the distillate fuel supplies, which include heating oil and diesel. Distillate fuel inventories plunged for the first time in several weeks in the week ended April 11. Stockpiles dropped 1.3 million barrels, while experts called to a drop of 200,000 barrels, according to the EIA.

Agricultural Commodities Mixed; Wheat and Soybeans Gain on Ukraine

Wheat jumped last week as possible supply disruptions in Ukraine propped up grain prices across the globe. Political instability and riots across the Eastern parts of the country prevent farmers from plating that is likely to weigh on this year’s crop. Another support came from the U.S. where freezing weather may curb yields in southern Plains at a time when drought also poses a risk to the harvest. Demand-side support also was at a play, with U.S. exports coming at 683,544 tonnes last week, outshining expectations and surpassing previous week’s reading of 626,404 tonnes.

Corn unexpectedly failed to move in tandem with wheat futures, ending the week with more than a 1% loss. From the positive side, unfavorable weather conditions in Iowa, Wisconsin and Arkansas were slowing planting, while demand for U.S. corn stayed solid. Meanwhile, according to the USDA weekly report, U.S. sold 1.45 million tonnes of corn last week. U.S. plantings stood at only 3% last week as of April 13. Turmoil in Ukraine, the third largest corn exporter, also was supportive for the commodity prices.

Soybeans rose as demand from the U.S. mills hit a record. Processors crushed over 150 million bushels last month, posting a 12% increase year-on-year, according to NOPA. Tightening supplies as well as Ukrainian woes also pushed the oilseed higher. At the same time, worries over China’s demand were mounting amid ideas that the country may default on circa two million metric tonnes of shipments as Chinese importers face difficulties in opening letters of credit.

Coffee traded lower for the most of the week as rains in Brazil were expected to aid crops damaged by drought. However, on Friday coffee futures surged as the data showed that southern Minas Gerais, the top producing state in Brazil, my lose up to 35% of its crop. However, the rally was short-lived-coffee closed 2% down last week.

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