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Commodity Prices Weakened Further After Disappointing US Employment Report

Fri, Jul 3 2009, 05:58 GMT
by Oil N' Gold Team

Oil N' Gold

Crude oil price sank -3.7% to settle at 66.73, the lowest in 4 weeks, as sharp fall in non-farm payrolls in June raised concerns and boosted rally in USD. Others in the energy complex also slipped further. The benchmark contracts for RBOB gasoline slid -3.7% to 1.7908 while heating oil and natural gas plunged -3.6% and -4.7% to 1.7016 and 3.615, respectively. Prices recover modestly in Asian session and trading will remain thin throughout the day due to holiday in the US.

The US Labor Department reported that non-farm payrolls dropped -467K in June, a figure significantly higher than market expectation of -375K as well as slightly upward revision of -322 K in May. The sharp fall erased market anticipation, which arose as the pace of job loss had moderated over the past few months, that the US employment condition has troughed.

Unemployment rate climbed to 25-year high at 9.5% in June, compared with consensus of 9.6%, from 9.4% in the previous month. A milder increase was in fact driven by reduction in labor force as more people dropped out from the labor market. Moreover, lower average working hour and flat hourly wage (on monthly basis) suggested weak personal income and implied sluggish demand during the month.

Natural gas recorded more severe declines than others in the energy complex as its consumption (almost 30%) heavily relies on industrial and power generators. Contraction in employment signaled lower demand for gas.

Precious metals also plunged on strength in the dollar. Gold futures for August delivery dropped -1.06% to close at 931 while silver contract plummeted -2.6% to 1.3408 as the dollar index surged as much as +0.9% to 80.5 Thursday. USD rose +1.4% against the euro, after the employment report as investors sought safe haven investment. Moreover, ECB's decision to keep policy rate unchanged at 1% and refusal to confirm it's floor, as well as higher-than-expected rise in unemployment rate in the Eurozone (May: 9.5% vs consensus of 9.3%) added pressure to the sentiment.

Platinum pared gain from the prior day and slid almost -1% to settle at 1193.3 as rise in employment rate indicated the auto market will take longer to recover. Employment at auto dealer plunged 9K in June. Although we do not know how much of the job loss after closure of Chrysler (-27K) and GM (-10K) was counted in May and in May, we believe further decline in auto payrolls will be seen in coming months.

US auto sales plunged to 9.69M annual rate in June from 9.9M in May and 13.7M in the same period last year. Vehicles sales by Chrysler, GM and Toyota were also lower than market expectation. The news also weighed on platinum price.

Published on  Fri, Jul 3 2009, 05:59 GMT