Crude oil price stays above 71 level in European morning despite USD's fight-back as militants in Nigeria threatened to sabotage more oil facilities. Without much industry-specific data to be released rest of the week, potential disruption in Africa's largest oil exporter serves as the main reason for oil trades.
The armed militant group MEND yesterday destroyed a major pipeline at Shell's Forcados terminal whose exports were scheduled to be around 0.2 M bpd before the attached in March. Shell is the not the only company affected by militant attacks. In May, MEND destroyed facilities of Chevron's companies. Dated by September 2008, the group declared oil war against the government and multinational oil companies operating in the regions.
The dollar index rebounds after plunging for 2 consecutive days as the greenback rises against major currencies such as Japanese yen, euro and the pound. Economic data in the UK showed some disappointments after a better-than-expected employment report in May. Released earlier, retail sales dropped -0.6% mom, worse than consensus of +0.3% and +0.9% in the prior month. On annual basis, the gauge slid -1.6% following a +2.6% rise in April. The decline was led by clothing, textiles and footwear retailers and department stores. Moreover, CBI's Industrial trend total order improved to -51 in June from -56 a month ago. Analyst had expected a bigger improvement top -45. Market's focus has shorted to initial jobless claims and May's leading indicators in the US.
Stock markets drop on renewed economic worries. UK's FTSE 100 Index slips for another day, losing -0.7% to 4248. Germany's DAX and France's CAC 40 also lose grounds. In Asia, the MSCI Asia Pacific Index lost -1.3% with Japan's Nikkei 255 Stock Average plunging -1.4% to 9704. Recent rally in Japanese yen weighed on shares and appreciation in the nation's currency poses negative impact on exports.
SNB announced to keep target interest rate unchanged at 0.25% at its June meeting. The central bank also pledged to continue buying bonds to supply the market with liquidity and intervening the currency market to prevent Swiss Franc's strength. Concerning inflation, the central bank said that while the risk of deflation has abated, it still remains a concern. Also, outlook for inflation still necessitates a firmly expansionary monetary policy.
SNB also kept economic forecasts published in March unchanged with annual average inflation dropping to -0.5% due to the fall in the price of commodities since 2008. However, the trend will be reversed from the beginning of next year, rising to +0.4% in 2010 and +0.3% in 2011.
Gold price falls back to 939 after rising to as high as 944 earlier as pressured by USD's rebound. Yesterday, we mentioned that factors affecting gold prices include USD's movement, central banks' sales, inflation expectation, etc. Inflation may come from surge in commodity prices and/or simulative monetary policies which were the causes of inflation experienced during the 1970-1980s. Moreover, inflation can be caused by excessive creation of money and currency debasement occurs as a result. This is the situation we are experiencing currently. As confidence in paper money is threatened, investors probably turned to gold.
Why gold but not other metals? It's because gold has been widely accepted and was used as a form of money in the past. Moreover, it's scarce, divisible, indestructible and storable, making it a convenient medium of exchange. Switzerland was the last country to back its money with gold.