Oil prices erase earlier gains in European session. WTI crude oil price slips below 70 after faltering below 71. Brent crude oil also drops to 71.2 after edging mildly higher to 72.26. Heating oil and gasoline also pares previous gains amid concerns over demand outlook. Oil prices rose in tandem with equities in Asia today amid speculations that China will not raise interest rates or appreciate its currency as early as previously anticipated, driven by a potential economic slowdown.
Prices reverse gains in European session as the euro resumes recent downtrend with investors eventually factor in the news that the Bank of Spain was taking over bank CajaSur. A Bank of Spain spokesman said that CajaSur would be pumped 'at least' 523 euro while the market speculated as much as 2.7B euro would be needed in the bailout. The news revealed the vulnerability of the Eurozone banking system, especially in peripheral economies, and would rekindle market concern over the region's sovereign crisis as well as the euro. Currently trading at 1.239, EURUSD slides for the first time in 4 days. The euro also weakens against the pound after UK Chancellor of the Exchequer George Osborne announced 6.25B pounds of spending cuts today.
In coming weeks to months, oil prices will continue to be directed by risk appetite, while fundamentals will take a back seat.
Precious metals surge as the sharp declines last week spur demand. The benchmark contract for gold remains firm after rallying to as high as 1191.1 earlier today. The contract plunged -4.2% last week. Silver also rebounds after falling to a 2-week low at 17.41 last week. The benchmark currently trade at 17.79. Platinum and palladium, extending last Friday's rebound, formed temporary lows at 1446.2 and 391.2 respectively.
Australian mining stocks have been under tremendous pressure since the beginning of May as the government announced the Resource Super Profits Tax (RSPT) which applies a 40% on all profits above 6%, effective 2012. Mining giants such as Rio Tinto and BHP Billiton criticized the new policy and threatened to reduce investments. Australian Treasurer Wayne Swan refuted today that 'those companies are not telling the truth in their advertising... Their claims are fundamentally dishonest' while Treasury Secretary Ken Henry said in mid-May the proposal will 'grow the mining sector and the economy'. However, both investors and mining companies remained skeptical about the tax. Since the government announced the new tax regime on May 2, shares of Fortescue, Rio Tinto and BHP Billiton have dropped -18.8%, -14.3% and -9.77% respectively, compared with -10.6% decline S&P/ASX 200, Australia's benchmark index.