Market sentiment was bolstered amid speculations that China will step up its monetary easing policy, encouraging sales and guidance from Alcoa and stronger-than-expected US economic data. Wall Street climbed with DJIA and S&P 500 gaining +0.56% and +0.89% respectively. In the commodity sector, the front-month contract for WTI crude oil added +0.92% to settle at 102.24 while the equivalent Brent crude contract bounced +0.74% to end the day at 113.28. Oil prices were supported as the EU and Japan moved closer to embargoing Iranian oil and protests in Nigeria escalated.

China's preliminary trade data in December missed expectation as import growth came in weaker than anticipated. This, together with the drop in money market rate, triggered speculations that the China government would add further liquidity to the market before Chinese New Year begins next week The People's Bank of China injected a net RMB 51B into the market last week through maturing central bank bills and repos. The central bank also stated that it was suspending bill sales until the holiday is over. Stimulus from the government should increase the chance of soft landing.

As the earning season begins, Alcoa delivered good aluminum outlook despite loss over the last year. Alcoa reported revenue of $6B in 4Q11, compared with consensus of $5.7B and the prior-year quarter's $5.7 billion. EPS of $0.03 was also in line with market expectations. The company forecast +7% global aluminum growth in 2012, compared with +10% last year, as led by aero and auto. Cash flow was strong with cash on hand being $1.9B and the company generated $656M of FCF, above guidance of $500-550M. Capex for 2012 is expected to be $1.7B.

Concerning oil inventory, the industry-sponsored API estimated that crude stock gained +0.40 mmb in the week ended January 6. Gasoline and distillate inventories also added +1.89 mmb and +0.85 mmb respectively. It's expected that stockpiles of both crude oil and fuel products showed increases in the DOE/EIA weekly report.

Weekly change in inventory as of 06/01/11 ChangeConsensusPrevious
Crude oil  +1.00 mmb+2.21 mmb
Gasoline  +2.25 mmb+2.48 mmb
Distillate  +2.25 mmb+3.22 mmb

Comparison between API and EIA reports:

       

  API (Dec 30)   EIA (Dec 30) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil+0.40 mmb334.88 mmb-5.12 mmb +7.00 mmb334mmb
Gasoline+1.89 mmb220.99 mmb+3.38 mmb +1.38mmb219 mmb
Distillate+0.85 mmb146.25 mmb+5.25 mmb +5.05 mmb145 mmb

       

API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks

Source: Bloomberg, API, EIA