Commodity prices recover after the 2-day selloff as economists commented US' recession may end later this year. Currently trading at 68.7, WTI crude oil approaches 69 again. Short-term bond yields fall while USD also plunges against major currencies as the majority of analysts in the street disagreed with the latest speculations on interest rate hike.
Nobel Prize winner Paul Krugman said that he wouldn't be surprised if 'if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer'. The speech fuelled anticipation that oil demand will recover soon. However, we believe solid evidence showing reduction in oil inventory and increase in demand is necessary to push oil price higher from current level.
The US Energy Department will probably report addition in gasoline and distillate stockpile last week while crude oil inventory may have stayed at similar level as the prior week. However, apart from looking at the headline inventory data, attention should also be given to the factors (demand, imports, refinery runs, etc) driving the gain or withdrawal. American Petroleum Institute will report its estimates in US session and may cause fluctuation in oil prices if the results display huge divergence from consensus.
USD's rally stabilizes as bets on an increase in Fed fund rates have reduced. Against the yen and the pound, the greenback slides to 98.2 and 1.61, respectively. Note that the EUR/USD pair remains under pressure (currently trading at 1.387). Widening in spreads between Euribor and Eurodollar interest rate contracts do have implications on the near-term outlook between EUR/USD. The spread has moved to negative territory (meaning US' yield is higher than that in the Eurozone) last week for the first time this year. Historical data show that EURUSD has occasionally followed the trend of the spreads. If the relationship holds true this time, the negative spread may imply further downside on EURUSD.
Gold's decline eased after forming a temporary low at 943.8 Monday. Currently trading at 953, benchmark contract for the precious metal's movement remains sideways in European morning. While USD's pullback may offset some relief to gold, capital outflows from ETF and IMF's potential gold sales may continue to weigh on the yellow metal.
IMF's board approved plans to sell 403.3 metric tons of gold in April 2008. While the execution still requires votes from the US' Congress, it's believed that the Congress will give it green light. However, as we have mentioned a few months ago, the plan should not affect gold price severely. IMF has said any sales would be conducted so as not to 'add to official sales' and to avoid disrupting the market. Moreover, according to the Central Bank Gold Agreement(CBGA), sales are limited to 500 metric tons each year, it unlikely that the quantity of sales (403.3 metric tons) will be increased.