Crude oil rose for a second day as stock markets rallied after strong economic data. WTI crude oil price surged to as high as 76 before settling at 75.44, up +1.85%. Decline in crude inventory might have helped but the bigger-than-expected draw was possibly due to hurricane Alex.
In the US, initial jobless claims slid to 454K in the week July 3. The fall exceeded market expectations but the 4-week moving average only dipped -1K to 466K. Economists anticipate further decline in coming weeks as seasonal layoffs in the automobile sector should be over. Earlier in European session, Germany reported a jump of industrial production by +2.6% (consensus: +0.8%) in May while April's reading was also revised up to +1.2% from +0.9%. These, together with IMF's forecast upgrade, boosted sentiment and lifted stock markets. DJIA and S&P 500 Indices added +1.2% and +0.9% respectively while Europe's Stoxx 600 also gained another +1%.
After rebounding to 1208.2, Comex gold futures weakened and ended the day at 1196.1, down -0.23%. The yellow metal has yet found a catalyst to pick up the momentum to move higher as investors appear to be less concerned about sovereign crisis in the Eurozone. We expect gold will continue hovering around 1200, if not going lower, in the near-term.
Increase in risk appetite also weighed on the Treasury market with US 10-year treasury yields soaring to 3.04% at close. The well-bided 10 year TIPS auction however helped containing Treasury losses. Yet, upticks in bond yield nevertheless indicate decline in risk aversion and this should be negative for gold.
As expected, both the ECB and the BOE decided to leave their policy rates unchanged at 1% and 0.5% respectively. At the press conference, ECB President Trichet encountered many questions regarding reduction in liquidity and rise in money market rates after the expiry of the 12-month LTRO on July 1. Trichet's comment indicated he's not surprised about the market development and interpreted the situation as the consequence of banks' own decisions to reduce their liquidity demand from the ECB. He also indicated no decisions to implement further refinancing operation or to exit current policies. The BOE's post-meeting statement was usually short and we look forward to see the minutes which may unveil further debates on when to begin tightening.