Commodity prices move sideways in European session as investors awaiting the US employment report. WTI crude oil eased a tad after a 2-day rally brought price to 75, mid-level of recent trading range. Gold changes little but the outlook remains firm.
We find it worthwhile to discuss about the agricultural sector although it's not under our prime coverage. Wheat prices rallied after Russia, the world's 3rd largest wheat exporter, extended the ban on exports until late next year. The front-month CBOT wheat futures settled yesterday at a 1-week high of 6.8075, up +0.78%, after jumping +3.52% in the previous day. Prices of corn and meat have shown resilience recently.
Prime Minister Vladimir Putin said at a meeting of senior officials that Russia could only consider lifting the ban on grain exports only after next year's harvest is gathered. Putin did not indicate on when the ban would be cancelled but it's unlikely to end until the country harvest next year's crop by November 2011. Economists forecast Russia's harvest may fall to 60-65M tons, from 97M tons in 2009, due to the worst drought over a century.
Corn prices touched a 14-month high as adverse weather in Russia and other European countries hurt harvest and boosted demand for US supplies. The market also worried that next week's USDA monthly WASDE report may unveil weak corn yields.
Surge in food prices have triggered inflationary worries, especially in emerging economies. As food prices are assigned heavy weights in calculation of headline CPIs. In emerging countries, weights of food prices are even higher than those in advanced countries. Therefore, further rise in food prices could induce purchases of gold as inflation-hedge, especially in emerging markets.
Economic data released in the Eurozone was mixed. Retail sales eased to +0.1% m/m in July from an upwardly revised +0.2% a month ago. From a year ago, sales grew +1.1%, beating market expectations of +0.6% but softer than the upwardly revised +1.2% in June. Services PMI in the 16-nation region was revised up to 55.9 (preliminary: 55.6) in August from 55.8 in July while that for Germany dropped to 57.2 from preliminary reading of 58.5.