Crude oil changes little in Asian session Monday after last week's rally. Price however continues to trade around 76 as supported strong Chinese imports and robust stock markets. Weakness in Japanese yen and growth upgrades by the South Korea's central bank are boosting Asian shares. Gold trades within a narrow ranging above 1200. Improved market sentiment and lack of further bad news from European countries reduce the demand for safe havens for now.
Beating market expectations, China's net imports of crude oil rose to a record of 5.4M bpd in June, up +25.4% from May and +35.7% from the same period last year. While this may hold up market sentiment in the near-term, the fact shown in the preliminary data is that imports growth in China decelerated to +34.1% in June from +58% in the first 5 months of the year, suggesting domestic demand has slowed down. Meanwhile, exports growth from China fell to +43.9% in June, following an increase of +48.5% in the first 5 months of the year. This shows that sovereign debt crisis in the Eurozone might have taken its toll. Yet the impact has so far been less severe than previously anticipated.
Stock markets remain firm in Asia after the Bank of Korea raised its forecasts for GDP growth in 2010. The central bank said GDP will grow +5.9% this year, compared with +5.2% projected in April. However, growth in 2011 is trimmed to +4.5% from +4.8%. Concerning inflation, the central also revised the CPI to +2.8% (April: +2.6%) in 2010 and +3.4% in 2011. While the upgrades indicate more rate hikes (after the +25 bps hike last week) from the central bank is coming, the market views them as positive as they reaffirm the emerging market-driven growth.
In Japan, the ruling Democratic Party of Japan lost control of the parliament's upper house as voters opposed the plan of raising the sales tax. The election result may impede the pace of fiscal consolidation and pressure the Bank of Japan to implement more measures to fight deflation. Japanese yen plunges for a 4th day against the dollar. Yet, weakness in the yen is supportive for stocks as it helps export companies.
We have a light calendar today but UK's final estimate of 1Q10 GDP may move the market. Economists forecast the government to revise down the reading to +0.3% q/q from +0.4% previously estimated. In NY session, Fed Chairman Ben Bernanke will speak in Washington DC.
Commitments of Traders
For the week ended July 6, commodity prices remained in their broad-based downtrend and this caused speculators to sharply reduced risks. Net length in crude oil plunged one-third to 26.2K contracts, the lowest in 4 weeks. Net length in heating oil and gasoline slumped prices declined during the week. Net lengths for heating oil tumbled -14.9K (more than -6%) to 8.45K, a level never seen February 2009, while that for gasoline dropped -6.56K to 36.1K. Meanwhile net shorts in natural gas slid for a second week to -146.3K.
Net lengths for gold and silver contracted for the first time in several weeks, by -35.7K and -6.87K, respectively. Platinum and palladium's net lengths reduced further, to lowest levels since August 2009 and October 2009 respectively.
We expect net lengths to improve in coming weeks as risk appetite has improved since the middle of last week. Encouraging economic data and growth outlooks drove prices higher and this should trigger short coverings and probably establishment of long positions.