Crude oil price recovers as a -2.08% selloff sending price to a 6-week low spurs buying interests. Stock markets are mixed but strong earnings reports from Chinese machinery companies boost optimism on better outlook in emerging economies in the second half. Decline in USD against EUR also increases attractiveness of oil investments.
The MSCI Asia Pacific Index changes little but regional stock market performance is mixed. In Japan, the Nikkei 225 Stock Average slid -0.84% to 9 102.2, the lowest level in 9 months, as comments from ECB's Axel Weber on prolonged stimulus measures heightened economic uncertainty. Strength in Japanese yen also increased downside risks on export companies. China's Shanghai Composite Index and the CSI 300 Index are 2 of the very few indices that gained in Asian session. Sany Heavy Industry Company's net income jumped +162% to RMB2.88B in 1H10 from the same period last year while that for Changsha Zoomlion surged +94% to RMB 2.2B to the same period last year. Research said that the machinery sector may benefit from railway infrastructure investment and potential policy loosening on infrastructure spending.
On the other hand, Chinese oil stocks dropped despite stronger-than-expected earnings results amid worries that economic slowdown may dampen demand. Another concern is on margin squeeze as a result of Chinese government's mechanism to controls fuel prices (e.g. gasoline and diesel). Oil companies have difficulties in passing the increase in crude oil price (input for refineries) to customers.
Currently trading at 1231, the benchmark contract for gold changes little after a late-session recovery from 1223.6 last Friday. Disappointments from economic data will likely increase risk aversion and support price. Meanwhile, growing physical demand from India as the festive season approaches is an additional catalyst to price. We remain positive on the yellow metal's medium-term outlook.
Commitments of Traders:
Speculators were bullish towards crude oil, adding +1 720 in net lengths, despite decline in price in the week ended August 17. However, they were rather bearish towards fuels with net length for heating oil and gasoline plummeting the most in 4 years during the reporting week. Net length for heating oil slumped to 2 926 from 28 956 while that for gasoline declined to 23 914 from 48 145 last week. Surge in petroleum stockpiles to the highest level in 2 decades triggered worries about the demand outlook in the US. Moreover, gasoline demand, which didn't show impressive gains during the driving season, is set to weaken as summer comes to an end. Net shorts for natural gas, rising for a second week, reached 160 712 during the week.
Investment demand for gold returned as increasing macroeconomic uncertainty drove demand for safe-haven assets. Net length for gold soared +13 541 to 204 228 as the yellow metal's characteristic as 'store of value' looks appealing. Others in the precious metal complex showed mixed performance. Net length for silver dropped -162 to 35 572 as investors worries about the metal's demand outlook. For PGMs, net length for platinum dipped -649 to 16 917 while that for palladium climbed +107 to 12 452.