Crude oil rebounds to 72 in European session. The first rise in 6 days was mainly driven by technical buying as price has fallen to oversold territory and improved risk appetite. While deficits in peripheral European countries remain a problem, EU ministers show commitments to quell the crisis and minimize the negative impact on global recovery.
EU Economy Commissioner Olli Rehn reinforced that 'Not everyone will accelerate consolidation in a very uniform way'. Only debt-ridden countries such as Spain and Portugal are requested to make additional deficit cuts. Stronger countries like Germany and Finland will not be asked to accelerate fiscal consolidation. This was in response to recent market concerns over slowdown in economic recovery as countries step up fiscal tightening.
A 14.5B euro emergency loan was transferred to Greece for repaying an 8.5B euro bond maturing on Wednesday. The country recently approved additional austerity measures to cutting its deficit from 13.6% of GDP in 2009 to 3% by 2014. The government will raise VAT to 23% from 21% and increase excise taxes on fuel, cigarettes and alcohol by 10%. Tax hikes are accompanied with reduction in wage, pensions and public investments.
Apart from sovereign crisis news, what investors care most is crude inventory level. Consensus anticipates crude stockpile rose for a 5th consecutive week, by +0.625 mmb, in the week ended May 14 while gasoline supplies dropped -1 mmb. After US market close, the industry-sponsored API will report its estimates.
Gold heads towards 1210 as investors become less risk-averse. However, correction in gold should be viewed as a buying opportunity.
Platinum rebounds after tumbling -3.04% to settle at 1663.2 yesterday. Since the beginning of May, the metal has fallen around +5% but the drop is mild when compared with its relentless rally started in 2009. Palladium changes little after plunging -4.6% yesterday.
Johnson Matthey's 2010 outlook depicts a bullish picture in PGMs. The company said platinum may rise to 2000, the highest level since July 2008, over the next 6 months, with the floor at 1600. Platinum demand will strengthen in the auto sector but weaker in Chins; jewelry market. Supplies will likely rise despite constraining factors such as power outage in South Africa. However, the excess supply will be absorbed by strong investment demand. To net, demand/supply in platinum will be close to balance this year.
For palladium, price will move between 475 and 700. Although modest surplus will be seen as mining production rises and Russian sales increase, gross demand will also surge due to stronger physical investment and recovery in the auto sector.