oday was a huge day for commodity trading. Crude oil led the charge, but gains were broad based with metals, grains and tropicals also surging higher.
A number of factors converged to give commodities a big boost. The recent soft US nonfarm payrolls report was weak enough to put the Fed back on hold, but with Fed Chair Yellen talking up the US economy Monday, the US economy appears to have moved back into a sweet spot of growth strong enough to support growth in resource demand and corporate earnings but not strong enough to force the Fed to end the party. Meanwhile, signs of growth continue to emerge in other economies. In particular, China imports (mainly raw materials) were better than expected, while better than expected UK industrial production today and recent positive consumer components of GDP in the US, Japan and the Eurozone all indicate a broadly improving world economy and resource demand picture.
WTI and Brent broke out to new 2016 highs today as they put $50/bbl behind them gaining 2.3%. A big 3.2 mmbbl drop in US DOE inventories ignited today’s advance as the improving US supply/demand balance continues to drive the bus on crude oil pricing. Gasoline trailed at first after starting summer driving season with a disappointing 1.0 mmbbl inventory build but it caught up in the afternoon. There was a lot of big action in agricultural commodities as well today with Arabica Coffee spiking 5.6%, oats rallying 4.2% while Silver, Soybeans and Sugar all gained 3-4%.
Somewhat surprisingly, commodity price gains did not translate inter higher resource share prices. Action in miners and energy producers was mixed even within groups with some companies rallying and some selling off. Because of this, Canadian indices underperformed their US counterparts on the day falling 0.6% in Canada and rising 0.3% in the US. In Europe a strong industrial production report and rising commodity prices helped the FTSE to a 0.3% gain while the Dax fell 0.7%.
NZD has been really active around today’s RBNZ Official Cash Rate (OCR) decision not to change interest rates. The street had initially been anticipating a 0.25% rate cut but dovish expectations had been fading. Confirmation of no cut for now sent lingering doves to close out losing positions and scramble to get back on side.
The RBNZ’s outlook was mixed. The central bank indicated global volatility has eased but risks remain. Commodity prices are improving while the inflation picture is mixed with house prices in Auckland a source of alarm but offset by soft fuel and import prices.
The bank indicated it considers NZD higher than appropriate and expects it to decline over time but did not make any threats toward intervention. It also indicated monetary policy remains accommodative and left the door open to additional interest rate cuts in future which could limit longer-term upside but has been ignored for now. NZD dipped to $0.7000 just before the announcement then spiked up a penny toward $0.7100 where it has been holding at a higher level so far.
There have been no major corporate announcements so far this evening.
Significant announcements released overnight include:
RBNZ official cash rate 2.25% no change expected
DOE crude oil inventories (3.2 mmbbls) vs previous (1.3 mmbbls)
DOE gasoline inventories 1.0 mmbbls vs previous (1.5 mmbbls)
Canada housing starts 188K vs street 189K
UK industrial production 1.6% vs street (0.4%)
UK manufacturing production 2.3% vs street (1.5%)
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
9:50 am AEST Japan machine orders street (1.8%)
11:30 am AEST China consumer prices street 2.2%
11:30 am AEST China producer prices street (3.2%)
7:00 am BST Germany trade balance street €22.8B
8:00 am BST ECB Draghi speaking
9:30 am BST UK trade balance street (£3.7B)
10:00 am BST Greece unemployment rate previous 24.2%
10:00 am BST Greece industrial production previous (4.0%)
10:00 am BST Greece consumer prices previous (1.3%)
8:30 am EDT US jobless claims street 270K
8:30 am EDT Canada new house prices street 2.1%
10:30 am EDT US natural gas street 76 BCF
10:30 am EDT Bank of Canada Review and Poloz speaking
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