Crude oil rebounds for the second day as investors awaiting releases of inventory report by the US Energy Department (EIA) and the FOMC statement. Currently trading at 71.35, the benchmark contract rose +1.5% after plunging to a 2-month low at 68.59 Monday.
Although the American Petroleum Institute reported surprising increase in crude inventory, the market continues to anticipate the EIA's report will show -2mmb decline last week. Attention should be paid on Cushing stocks, where New York- traded WTI oil is stored, as its 6-week build in stockpile has widened the discount of WTI crude to Brent crude.
The Fed Chairman Ben Bernanke will announce the Fed funds rate will stay at 0-0.25% and current economic conditions justify it to remain low for an 'extended period'. While it's a pleasant surprise that the jobless rate fell to 10% in November as a result of addition in payrolls, one month's data should not change the central bank's stance. Moreover, the Fed normally raises interest rate only after the unemployment rate has fallen for several months. We expect the Fed will, while acknowledge improvement in market development, remain cautious.
In response to questions from Senator Jim Bunning, the Fed Chairman Ben Bernanke said that 'The bulk of the evidence indicates that resource slack is now substantial...I continue to expect slack resources, together with the stability of inflation expectations, to contribute to the maintenance of low inflation in the period ahead'. This indicated the central bank remains cautious on the economic outlook.
The dollar retreats after surging to the highest in more than 2 months against the euro, as speculations that the Fed will hike rate early next year fades for now. The dollar index loses -0.2%.
Gold price strengthens as USD pulls back. The yellow metal for February delivery soars to 1134. Others in the precious metal complex also edge higher. Silver adds +0.7% to 17.6. For PGMs, platinum trades at 1456.8 and palladium rallies +1.7% to 372.3.