Financial markets opened the week with great concerns that the US might not reach an agreement on raising the debt ceiling by the August 2 deadline. The US dollar weakened against the Swiss franc, a clear signal of demand for safe-haven. In the commodity sector, oil dropped with WTI crude oil for September delivery falling to as low as 98.74 from Friday's close of 99.87 while Brent crude oil for September delivery dipping below 118 after settling at 118.67 last week. Gold rallied to a new record high of 1624.4 in Asia today as USD declined and investors fled to safe assets.
The deadlock in raising the US debt ceiling raised concerns for a default in the country's credit rating and hurt market sentiment. U.S. House Speaker John Boehner over the weekend claimed that a deal 'was never really close'. The Republicans are not pushing a 2-stage process which would involve an immediate boost to the limit and then policymakers would continue to negotiate a long-term debt-reduction deal. While Boehner stressed that it's 'not physically possible to do all of this in one step', Democrats refused to accept short-term extension with President Barack Obama threatening to veto such a measure.
The stalemate in the US Congress triggered S&P to warn of a possible downgrade again. On July 21, the rating agency said that there's at least 50% that US' AAA rating will be cut within 3 months if the debt ceiling cannot be reached by August 2.
We have a light calendar today but some important data will come out later this week. In the US, durable goods and release of the latest Beige Book will catch attention apart from the debt ceiling. A series of Japanese economic indicators including business confidence, industrial production and retail sales will be out, too. The RBNZ will meet for rate statement but we expect no change in the monetary stance.
Commitments of Traders:
Speculators were bullish on the energy complex in the week ended July 19. Net length for crude oil futures rose for a 3rd straight week, adding 4 052 to 154 947 contracts. Net lengths for heating oil futures and gasoline futures also rose to 32 363 and 67 966 contracts respectively. Net short for natural gas futures dropped to 179 198 contracts during the week.
Speculators were also bullish on the precious metal complex, net length for gold futures soared to 219 297 contracts while silver rose to 20 749 contracts. For PGMs, net lengths for platinum futures and palladium futures increased to 19 327 contracts and 14 237 contracts respectively.