Concerns on US Recovery and EU Crisis Continued to Weigh on Markets

on June 04 2012 3:18 AM

Financial markets in Asian session Monday were pressured as the US employment report released last Friday indicated fragility of the recovery path of the world's largest economy. Over the weekend, it was reported that German Chancellor Angela Merkel would push for ambitious steps towards greater fiscal union at the EU summit on June 28/29 while Spanish Prime Minister Mariano Rajoy wanted to add more pressure on Merkel on issuance of joint European bonds. Uncertainty would remain high in the 17-nation region. In the commodity sector, the front-month contract for WTI crude oil declined for the 5th straight day with price currently trading at 82.18, the lowest level since October 2012, while the equivalent Brent crude contract trading at 97.4 after closing below 100 last Friday. Gold eased modestly after Friday's rally. The benchmark Comex contract continued to hover around 1620.

European leaders have yet to finalize a plan to resolve the sovereign crisis in the Eurozone,. Reuters stated that Germany's Chancellor would put forward a proposal for the creation of a European finance ministry and new powers for the European Commission and European Parliament. The aim is to strengthen the fiscal union. However, other countries, including Spain, favored joint issuance of European bonds. Spanish Prime Minister Mariano Rajoy stated that the EU needs to reinforce its common institutional architecture so that investors regain confidence in the single currency. Regarding the banking problems, Rajoy said that Spain will emerge from the storm through its own efforts and with the support of our European partners.

Only second-tier data will be released today. The Eurozone Sentix Investor Confidence probably dropped -5.5 points to -30 in June. In the US, factory orders might have risen +0.3% in April following a -1.5% drop in the prior month.

Commitments of Traders:

With the exception of natural gas, speculators were bearish towards the energy complex in the week ended May 29. Net length for crude oil futures slid -5 186 contracts to 178 885. Net length for heating oil slipped -4 690 contracts to 823 while that for gasoline added -1 018 contracts to 72 143. Net short for natural gas futures dropped -15 446 contracts to 100 235.

Similarly speculators were mixed towards precious metal, bearish towards gold and silver while bullish towards PGMs. Net length for gold futures gained +4 439 contracts to 110 712 while that for silver declined -2 239 contracts to 8 558 contracts. For PGMs, net length for platinum increased +990 contracts to 14 087 while that for palladium rose +162 contracts to 2 743.

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