Commodity Markets
The falling oil price was the most significant event on the commodity markets this week. Oil prices have been dropping over 30 per cent in barely a month, due to the attempt of the Middle East countries to counterbalance an expected lack of supplies, caused by the war in Iraq.
Therefore, it was expected that the Opec would decide on a production curb on its meeting in Vienna. Surprisingly, Opec members agreed to lift formal production quotas by 900,000 bpd to 25.4 million bpd by next June. This should lead to a drop of 2 m bpd. It is however supposed that the Opec members overestimated their production volume and that any cut would be less than 2 m bpd.
Furthermore, the published data by the U.S Energy Information Administration confirmed that the U.S strategic oil stock is higher than expected. It has increased 9 million bbl to 286 million bbl, comfortably above the 270 million bbl, considered as the "lower operational level" which is needed to keep refineries running smoothly.
Although there are still considerable technical and legal problems in Iraq it is speculated that the country could start pumping oil within weeks and come back to the world market. All this facts were capable to bring the oil price down and could reduce it further in the coming weeks.
The second topic which had the potential to shake commodity markets was Sars. The rising amount of deaths caused by the illness could considerably slow down economic activity in the Asian region, reducing the demand for metals and oil. The virus has already prompted Singapore to cut its economic forecasts for this year. Also China will have to adapt its forecast. China?s economy could contract by no less than 2 per cent in the second quarter.
China, as the biggest consumer of copper, nickel and iron ore cause the cooper prices to fall on the Shanghai futures exchange. Traders worried about future demand of metals if the disease will spread further.
Until now, gold seems largely unaffected by the deadly virus. However, there were reports this week that the first woman in India is affected by Sars. India could cause to gold price to fall as it accounts for 12 per cent of the global gold demand or more than 575 tones.
Stock Markets
After the rally at the beginning of the week that brought the Down Jones Industrial Average up more than 150 points, we saw some profit takings in the last two days. Announced company results have not been overwhelmingly positive but have exceeded estimates. Published economic data could not support the trading as the number of people seeking unemployment benefits has been rising. On the other side, the positive increase of the demand of U.S. investment products did not affect the market.
In Tokyo, the Nikkei felt to a 20 year low today as investors reacted with dismay to Sony?s failure to reach its profit targets. Sony had to announce a loss of 111.1 bn Yen in the first quarter. Today, there was no trade in Sony?s shares as the title was ?limit down?. The company?s announcement was said, to have destroyed the positive image of Japanese companies for the near future. A further burden was Sars and the uncertain situation in North Korea.
Currency Markets
The euro climbed to t a new four-year high against the dollar on Thursday. The European single currency pushed through the $1.10 level in early trade,, which triggered automatic buy orders and provided for a six week high of $1.1035 against the dollar.
It is said that the yield differentials were the main theme in the foreign exchange market, making the euro more attractive as capital inflows into the Euro zone increased.
The positive performance of the U.S stock market could not strengthen the dollar and it has remained under selling pressure. Positive earnings drove the US equity market, but its correlation with the dollar continued to decline as the picture of the overall U.S. economy remained cloudy in March and April.
Author: Andreas Wild
