Investors turned their focus to US economic data yesterday as the turmoil in Egypt showed no signs of moderation. The upbeat Chicago PMI & personal consumption data sent Wall Street higher. In the commodity sector, crude oil prices also surged with the front-month WTI contract rising 92.84, the highest level since October 2008, before settling at 92.19, up +3.19%. Brent crude also rose with the benchmark contract piercing above 100 for the first time since September 2008. Gold price, however, eased from Friday's rally, losing -0.54%.
US data released yesterday signaled the recovery remained in progress. Chicago PMI climbed to 68.8 in January from 68.6 in the prior month. The market had anticipated a drop to 65. The underlying details of the report were also strong with the 'new orders' component improving to 75.7 from 71.3 and the 'production' component rising to 73.7 from 72.2. The 'employment' component also soared to 75.7, the highest level since 1984, from 58.4 in December. Consumer spending rose +0.7% m/m in December, exceeding last month's gain of +0.3% and consensus of +0.5%. Personal disposable income rose +0.4% m/m and +3.4% y/y. The savings rate slipped to 5.3%. Stronger household consumption helps growth and signals higher confidence to the economy. Wall Street was buoyed by the encouraging data with DJIA and S&P 500 gaining +0.58% and +0.77% respectively.
Crude oil jumped amid fears that the Egyptian crisis may be spread to other regions, including the Middle East, and would affect oil supplies. OPEC Secretary-General Abdullah al-Badri said saw no immediate reason to change production policy'. The oil market currently has more than enough oil to meet current demand. Global inventories are high. Forward cover is close to 60 days which is 6 to 7 days above the 5-year average'. Moreover, OPEC members are producing 29.3M bpd and are holding over 6M bpd. Consequently, al-Badri does not see 'any shortage of oil in the market'.
Gold's near-term outlook remains weak and the outflows from gold ETFs signal the shift in market sentiment to precious metals. Gold price is mainly driven by investment demand. As economic outlook improves, investors in advanced economies liquidate their long positions in gold holdings, resulting in recent price correction. Speculations for tighter monetary policy outlook also weigh on gold. However, physical demand from Asian markets should emerge as a support for price. Indeed, premiums in Hong Kong and India are at 18-month highs.