Crude oil's rally accelerated after breaking above the resistance level at 80. The front-month WTI contract rallied +3.02% to a 3-month high of 81.34. Better-than-expected PMIs in the US and Europe, weakness in USD and news of a tropical depression forming in the Atlantic were forces driving price higher. Risk appetite improved as earning results from banks were generally strong. Wall Street and European bourses jumped as led by banking and commodity sectors.
ISM manufacturing index in the US slipped to 55.5 in July, compared with consensus of 54.3, from 56.2 a month ago. The employment component climbed to 58.6, the second highest reading since May, from 57.8 in June. New exports orders rebounded after a drop in June while inventory returned to expansionary territory for the first time since March. On the flip side, it's disappointing that new orders dropped -5 points to 53.5 in July after plunging -7 points (June: 58.5, May: 65.7) in June. Meanwhile, production index slipped for a 4th month to 57 from 61.4, 66.6 and 66.9 in June, May and April respectively. Despite the less-than-expected moderation in manufacturing activities as indicated by the headline reading, the details depicted a rather mixed outlook.
Fed Chairman Ben Bernanke's reiterated his cautiously optimistic stance at a speech yesterday. The Chairman said that 'rising demand from households and businesses should help sustain growth' which 'is now expanding at a moderate pace'. Yet, 'notable restraints on the recovery' include weak housing, commercial real estate and labor market. Bernanke reaffirmed that the Fed will make sure that 'monetary policy continues to provide support the economy needs until we begin to see sustained growth and particularly growth in jobs'.
Stock markets rallied with major indices in the US and Europe gaining +2% or above. As driven by strong PMI and impressive earnings from HSBC and BNP Paribas, Stoxx600 soared +2.64% to a 3-month high of 262.09. HSBC's profit rose to $6.76B in 1H10 from $3.35B in the same period last year. Pretax- profit of $11.1B was higher than market consensus of $8.8B. The management said that the strong result was due to the North American unit which returned to profit for the first time in 3 years and reduction of bad-debt provisions by -46%. Moreover, BNP Paribas SA, France's biggest bank, reported a +31% increase of net profit to 2.11B euro (consensus: 1.61B euro) as bad-loan provisions fell -54% to 1.08B, the lowest level since before Lehman Brothers Holdings' 2008 bankruptcy. US stock markets were also lifted by market optimism and DJIA and S&P 500 soared +1.99% and +2.2% respectively.
While oil prices have been directed by the macroeconomic outlook and stock prices, the National Hurricane Center said a weather system nearing the southeastern Caribbean has a 90% chance of strengthening into a tropical depression. The news might have supported oil price a bit, though the system is unlikely to affect oil facilities in the Gulf of Mexico.
Gold was a tad higher. The benchmark contract initially rose, in tandem with oil and base metals, to as high as 1193.9 but then faltered and settled at 1185.4, up +0.13%. Silver, platinum and palladium outperformed gold as a bullish economic outlook is indicative of stronger industrial demands.