Market Commentary

Key Notes: The Federal Reserve’s Beige book was released yesterday. It reported that “widespread signs” that economic growth had eased in the six weeks through August. However, it maintained the view that the economy continued to expand and is not relapsing into a contraction. Gold ended the day flat. This was after rising to an intra-day high of $1262.25. We had earlier established that gold may reach a new high above $1260 on an intra-day basis.

Going forth, gold may consolidate above the $1250 level before continuing on its upward climb. Today, the initial jobless claims figures from the U.S. may set the tone for the markets. Currently, economists forecast a total of 470,000 new filings compared with 472,000 in the prior week. Should new filings be higher than anticipated, this could boost gold prices. On a cautious note, a sustained breach of $1250 could signal profit-taking and may result in gold retracing to the $1240 level.

Market Summary

  • Precious Metals: Gold ended the day flat after some investors unwound risk aversion plays. Gold reached an intra-day high above $1260 but failed to reach a new high, prompting some short term traders to take profits. In other gold news, China, the biggest gold miner, had a fall in output in July. This provided some support to prices due to speculation that a lower output may be insufficient to satisfy domestic demand. China is also the second biggest consumer of gold, after India.
  • Crude Oil: Crude oil rose for the first time in three days, boosted by a weaker dollar that increased the appeal of commodities as an alternative investment. The Energy Information Administration (EIA) also raised 2010 global oil demand and lowered forecast for non-OPEC crude oil production growth in 2010, adding to positive sentiments. The American Petroleum Institute reported that U.S. crude oil inventories plunged 7.3 million barrels last week. The U.S. EIA inventory report will be released at 1500 GMT today.
  • Currencies: The euro appreciated versus the dollar as successful bond auctions by Portugal and Poland reduced concerns that European governments will struggle to fund deficits. Portugal’s sale of bonds due in 2021 attracted bids for 2.6 times the amount offered, compared with 1.6 times in a March sale. Poland’s auction of five-year debt attracted the strongest demand since 2008.
  • Indices: U.S. stocks climbed as improved demand for Portuguese and Polish bonds tempered speculation Europe’s debt crisis will trigger another recession. The premium demanded to hold Portuguese 10-year bonds instead of benchmark German bunds was 350 basis points, declining reaching a record 372 points yesterday. Alcoa Inc., JPMorgan Chase & Co, Boeing Co. and General Electric Co. rose at least 1.6% to lead gains in 23 of 30 Dow Jones Industrial Average stocks.

Key events/data to look out for:

  • US: Initial Claims.
  • UK: BOE rate decision.
  • Euro-Zone: CPI.
  • Japan: Consumer Confidence.
  • China: Trade Balance.