Commodities tumbled yesterday as driven by a series of as news. Oil prices slumped with the front-month WTI contract plunging to a new 8-month low of 85.42 before closing at 85.64, down -1.94%. Price remained under pressure in Asia today. Fuel prices were mixed. Heating oil reversed gains and lost -0.57% after rising to a 28-month high of 2.6944 earlier in the day. Gasoline rebounded almost +4% yesterday, following 2 days' fall, but gains were pared again in Asian session today. Gold slumped, after a brief recovery, although 2 ECB members warned about inflation. The benchmark Comex contract slipped to 1311, the lowest level in more than 3 months, before settling at 1319.3, down -0.99%.
Bad news came from all over the world! In Japan, S&P downgrade the country's credit rating by one notch to AA-. In China, PBOC announced new measures to cool property prices. The government approved property tax trials on some homes in Shanghai and Chongqing in order to curb asset bubbles. In the US, economic data were disappointing. Durable goods orders contracted to -2.5% in December, accelerating from the -1.3% decline in November. The market had expected a growth of +1.5%. Excluding transportation, the reading was a less-than-expected +0.5%, compared with +2.4% in November. Initial jobless claims rose +54K to 454K in the week ended January 22, raising the 4-week moving average to 429K. Investors should not be too worried about the spike as the Department of Labor said that the increase was due to weather effect. Pending home sales rose +2% m/m in December, following a +3.1% gain in the prior month.
In the Eurozone, ECB's Lorenzo Bini Smaghi and Jose Manuel Gonzalez-Paramo warned of the risks of imported inflation pressures. Bini Smaghi said in a speech in Italy that 'a permanent and repeated increase in the prices of imported products will tend to impact on inflation in the advanced countries, including the euro area...This phenomenon can no longer be ignored'. He added that policymakers have shown a tendency 'to underestimate inflation' in the past decade. Gonzalez-Paramo told reporters that 'the imported inflation is a very important part of day-to-day inflation, and so we must be very attentive to the evolution of imported inflation'. The comments heightened speculations that the ECB may hike interest rates earlier than previously expected.
Rate-hike speculations have boosted the euro, which has risen to a 2-month high against the US dollar. However, euro's strength and inflation expectations failed to lift gold. The metal began 2011 on a weak tone and will likely record the 4th consecutive weekly decline. A drop below 1300 cannot be ruled should macroeconomic date improve further.