There was something for everybody as some economic indicators pointed towards the first “green shoots” of recovery while others supported the old saying that “one swallow does not make a summer”

Some economic indicators showed a deceleration in their decline which gave some cause for optimism. On the other hand some continued to surprise the market on the downside as seen in the first quarter US GDP data which came out at -6.1%.

Stock markets bought the idea of recovery and the S&P 500 index headed for the biggest monthly gain since 1991. The optimists in the market for the past two months has been clinging by their fingernails to the data that points in their direction. We would of course all like to see a bottom here but the economic activity is still declining, albeit at a slower pace than towards the end of last year.

Our chief economist wrote this during the week: “We are sticking to our predictions in 2009. The most important one for investors to recognise is that we expect a great deflationary pressure – not in terms of size – but we do expect it to be present in most of the developed countries. Many European countries are going into deflationary territory while some are clinging on to inflation year-on year, but they are getting closer to deflation. We expect this development to continue as the unemployment rate continues higher and as the banking system is force to take more write downs in their loan portfolios.”

“New order indices will be an important place to look for evidence of change in economic activity and so far those are not offering any cause for celebration. Another one would be leading indicators. An especially important one would be if the bank reserves – part of the money supply – that are now piling up in the commercial banks are being used for anything. That would certainly be a turnaround. However, that would surprise me as most of the time when you have a recession the lending activities contract for at least two years in the banking system. So far we have only seen lending activities, at least in the US, contracting for six months, so we expect this will continue for at least 1½ years.”

We feel on basis that buying commodities at this moment in time as an inflation hedge is too early and the deflationary risk is much greater than the opposite.

Crude Oil continued to trade sideways around $50 with the room for manoeuvre being reduced every day. The current range which is defined by trend lines from this year's highs and lows points to a range between $47.50 and $54.70. We advise investors to play the range but feel the downside risk is greater with a chance of a move back to $45.

The outbreak of Swine Flu has already had some impact on travelling and could become more of an issue as we approach the US driving season towards the end of May. For now though these negative news which comes on top the economic crisis has only had a limited impact with rising stock markets and a weaker dollar pulling in the other direction.

Gold were driven lower this week by the rise in global stock markets with the Swine Flu failing to reignite upside momentum. This was the first second straight monthly loss since April 2008 primarily on the back of investor demand drying up as attention has turned to other asset classes.

As mentioned above we would be cautious about using Gold as an inflation hedge expecting deflation to be more of a problem near term. Technically the Gold future for June delivery continues to trade in a downward channel with the range currently being between $865 and $915.

We advise investors to continue to play the range but like Oil feel the downside offers a better reward.

The selloff in Copper over the last two weeks seems to have run its cause with strong demand returning at the $190 level on the July future. Prior to that a month long buying spree from the Chinese State Bureau (STB) drove prices higher and that buying has now become visible as LME registered warehouses in Asia show the lowest inventory levels in four years.

The falling stock piles combined with rising equity markets has somewhat reduced concerns that the economic downturn will reduce demand for metals.

Technically July Copper now seems a decent buy below $200 with a target towards $210 followed by $216 which is 200 day moving average.

US grain and oilseed markets had a roller coaster week first being hurt badly by the outbreak of Swine Flu only to recover strongly as the current planting season has run into delays due to wet weather. Soybeans in addition found support as Argentina once again reduced the size of their estimated production.

Next week could become very interesting for the sector as both Corn and Soybeans are close to important resistance levels. July Corn could break the month long down trend on a move above $417 and could target $447 afterwards. July Soybeans is testing 200 day moving average and a weekly close above 1064, which is trading at the time of writing, could target 1076 and 1135.

Rounding off with the Commodity league table no major changes over the last couple of weeks. Copper is still in front with a return of 50% while Natural Gas stays firmly stuck at the bottom having lost 39% so far in 2009.

Good luck and good trading