Commodities slumped Tuesday as the White House rejected Republicans' budget proposal which might save $2.2 trillion. The plan involves cutting half the revenue increases and doubling the reduction in healthcare that Obama's administration proposed. The deadlock raised concerns that the fiscal cliff problem would not be resolved before the year-end and would lead to recession in the world's largest economy. In the Eurozone, financial ministers might discuss at the EU meeting on December 13 about the bailout fund to Cyprus. 10B euro out of the rumored 17B euro would be for bank recapitalization. Crude oil plunged with the front-month contract for WTI and Brent crude oil contracts losing -0.66% and -0.97% respectively. Gold plummeted to a 1-month low of 1692.6 before settling at 1695.8, down -1.47%.
President Obama rejected the GOP's proposal that is estimated to reduce as much as $2.2 trillion in 10 years as the plan entirely relies on spending cut without consideration of raising tax on America's wealthiest people. Obama stated that the proposal by the House of Representatives Speaker John Boehner "is still out of balance. You know, he talks, for example, about $800B worth of revenues, but he says he's going to do that by lowering rates. And when you look at the math, it doesn't work”. Regarding tax hike, Obama insisted that "we're going to have to see the rates on the top 2% go up. And we're not going to be able to get a deal without it”. The drag raised worries that the US economy would fall into recession if no compromise is made before the year-end. The fiscal cliff, resulting from expiration of the tax holiday and automatic spending cut of the government since January 1, 2013, might lead to a economic crisis in the US as $600B might be removed from the economy.
In the Eurozone, following the Financial Time's leaking of a draft MoU between Cyprus and the Troika, it is widely anticipated the upcoming Eurogroup meeting would bring discussion of the deal. The financial assistance would involve 17B euro, around 100% of Cyprus's GDP. Of which, up to 10B euro would be for recapitalizing the country's banking sector. Germany's Finance Minister Schaeuble made a few comments yesterday. He cooled hopes that the ESM would be used for bank recapitalization in the short-term as Ireland hopes the funds would be used to buy Irish banks such as AIB and Bank of Ireland. Schaeuble also put a brake on the banking union plan. He reiterated that the plan "would be very difficult to get an approval from German parliament if you would leave the supervision for all the German banks” and "nobody believes that any European institution would be capable of supervising 6 000 banks in Europe”. Moreover, he stressed the necessity of "a Chinese wall between banking supervision and monetary policy”. On the contrary, French Finance Minister Moscovici said that "The ECB must supervise all banks with a European passport”.
According to the industry-sponsored API, crude inventory slipped -2.2 in the week ended November 30. For fuels, gasoline gained +5.7 mmb while distillate added +1.1 mmb. The official report from the DOE/EIA probably shows that gasoline inventory soared +2 mmb while distillate rose +0.8 mmb.
Oil and Gold Reports contributed by Oil N' Gold