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Market Sentiment Reverses and Commodities Move Sluggishly

Mon, Nov 2 2009, 04:38 GMT
by Oil N' Gold Team

Oil N' Gold

Crude oil remains weak in Asia Monday. Currently trading as 77.43, the benchmark contract initially dropped to a 2-week low of 76.56 as investors have turned risk-averse. Stock market in Asia slumped as an extension of decline in US market Friday. Should equities continue to fall, we will likely see oil price sliding below 75.

A survey showed that OPEC's oil production increased to 28.76M bpd in October, the highest level in 10 months as members took advantage of high oil price. OPEC-11 totally produced 26.31M bpd, +1.465M bpd above their target while Iraqi production was unchanged. As production increased, spare capacity reduced to 5.74M bpd in October, down-1.37% from 5.82M bpd in September. Earlier last month, several OPEC members warned about the sharp rally in crude oil and said they would increase production in order to control price. In fact, the 11 members with quotas have been increasing production since April 2009 as some countries relied heavily on oil exports for revenue while others tried to benefit from the price hike.

Gold edges slightly higher after falling to as low as 1035.4 last Friday. Its appeal as safe-haven may return amid the bankruptcy of lender CIT Group. Rebounds are also seen in other precious metals ith silver rising to 16.4 and platinum recovering to 1329.

Bankruptcy of CIT Group, the 101-year-old commercial lender, may trigger credit concern and selloff in the stock markets. USD sink deeper despite deteriorated market confidence as investors prefer to park their money in Japanese yen and gold.

The MSCI Asia Pacific Index has so far dropped -1.6% today as strength in Japanese yen raised concerns on corporate earnings. In Japan, the Nikkei 225 Stock Average lost -2.7% to 9763 as several large companies, such as Daiwa Securities, Brother Industries and Mitsubishi, reported disappointing earnings results. The Japanese yen surged to as much as 89.2 against USD today. This threatens the export-oriented economy in Japan.

We are packed with indices for manufacturing activities today. Released earlier, China's PMI rose to 55.2 in October, up +0.9% from the previous month. This was the 8th month that the PMI reading stayed above 50. Particularly, the import index jumped +2.1% to 52.8, the highest level since April 2008. This suggested that domestic demand was growing rapidly. According to the Development Research Center of the State Council, GDP growth is expected to reach around 9.5% in 4Q09.

In Europe, final readings for October manufacturing PMIs are anticipated to have remained unchanged at 50.7 and 51.1 for the Eurozone and Germany respectively. UK's manufacturing PMI probably rose to 50.1 in October from 49.5 a month ago. In US session, we will have ISM manufacturing index which should have improved to 53 in October from 52.6 in the prior month.

• Crude Oil: Net speculative long positions rose sharply to 109.6K contracts, the highest level since March 2008, as oil price rallied above 80. However, subsequently selloff after price breached above 80 suggested a temporary top may have been formed at 82. Decline in net longs may be seen next week
  
• Natural Gas: Net shorts increased to -153.8K contracts. Natural gas price declined last week despite the moderated pace of storage increase as the market concerned about oversupply
  
• Gold: Net speculative long positions dropped for a second week to 241.8K contracts. Gold price has entered consolidative phase before resumption of the uptrend. Therefore, further liquidation and decline in net long positions cannot be ruled out
  
• Silver: Net speculative long positions fell almost -2K to 441K contracts. Similar to gold, rally in silver price looked excessive and correction is needed before the uptrend resumes.
  
• Platinum: Net long positions stayed at record high level even though price retreated in tandem with other precious metals. Despite its 'noble' status, around 50% of platinum application is in car making. Therefore, platinum price is a derivative of macro-economic outlook.

Published on  Mon, Nov 2 2009, 04:38 GMT