While the US economic data was positive, comments from the Philly Fed President Plosser poured cold water on QE3. Financial markets were also mixed by ECB President Mario Draghi’s assurance of the need of the new asset purchase program and reports of protests in Spain. In the commodity sector, crude oil initially gained after US President Obama stated that he would do everything to stop Iran’s nuclear program. Prices faltered after investors received Plosser’s comments. The front-month contract for WTI crude oil slipped -0.61% while the Brent crude contract added +0.58%. Gold prices remained firm with the benchmark Comex contract staying above 1750.
Although the market has been excited after the Fed announced QE3 in the September FOMC meeting, not everyone believes that the new measures are effective. Philly Fed President Plosser stated that additional asset purchases are "unlikely to reduce long-term interest rates by a significant amount" and "we are unlikely to see much benefit to growth or to employment from further asset purchases". Plosser also said that "conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility".
In the Eurozone, ECB’s President Draghi reiterated the necessity of the outright monetary transactions (OMT) program. Draghi stated that the central bank had "moved to ensure price stability by removing unfounded fears about the continuance of the Eurozone…There is no doubt that these measures are supporting financial market sentiment". Yet, Draghi also stressed that "without reforms and conditionality, the interventions would not be effective and would not be credible". The market has widely anticipated that Spain would be the next country to seek funding from the EU/ECB/IMF, although the government has still refused to make formal request so far. Spain will announce it new budget plan this week. Yet, the debt ridden country was reported to have violent protests against austerity measures, signaling the government would face a lot of challenges ahead in implementing fiscal consolidation.
Concerning oil inventories, the industry-sponsored API estimated that crude inventory increased +0.34 mmb in the week ended September 22. For fuel products, gasoline stocks added +0.11 mmb while distillate slipped -0.48 mmb. The official DOE/EIA report will probably show that crude stock rose +0.9 mmb while gasoline and distillate storage gained +0.2 mmb and +0.8 mmb respectively.
Oil and Gold Reports contributed by Oil N' Gold