World market tumbles in Asian session on Monday as investors worry accelerated austerity measures in debt-struck peripherals will slow down economic growth. Moreover, risk appetite diminishes amid speculations of a breakup of the euro. The single currency tumbles to a-year low at 1.223 against the dollar and remains under pressures. Stock markets and commodities also plummet.
Currently trading at 70.2, the front-month contract of WTI crude oil price slid below 70 for the first time in 3 months earlier in the day. Since the beginning of the month, the contract has dropped -18%, or -$16/bbl. Brent crude also drops and current price level at 76.5 represents the lowest level since March 2010. The front-month contract has lost -13% so far in May.
Apart from Eurozone's growth concerns, investors also concern the failure of China's bond auction would weigh on Chinese growth and hence fuel demand. The finance ministry sold around 87% of the RMB20B of 273-day securities at an average yield of 1.72%, compared with 1.54% at the last sale. Analysts said cash available to banks reduced as the government raised the required reserve ratio. This has made banks prefer longer-maturity debts for higher returns. Lack of demand for the bills may result in higher interest rates which may hinder economic growth.
Gold resumes its recent uptrend as growth woes mount. Currently trading at 1242, the benchmark contract returns to historical highs after briefly pulling back last Thursday and Friday. To tackle the sovereign crisis, the ECB announced several measures to pump liquidity to the market. While the central bank stressed the purchases will be sterilized and will not result in debt monetization, the market remains skeptical and believes inflation may result. This drives investors to seek gold as an inflation-hedge.
Moreover, central banks in the developed world may delay the schedule of raising interest rates as economic recovery is at risk. A low-rate environment is also positive for gold as it reduces the opportunity cost of holding the yellow metal.
Commitments of Traders
Crude Oil: Net speculative long positions slipped to 92.9K in the week ended May 11 as traders dumped crude oil amid escalated Eurozone sovereign crisis. The front-month contract of WTI crude oil tumbled -5% during the reporting week. Net longs will dwindle further in the coming week as risk appetite diminishes and investors turn to safe assets
Natural Gas: Net speculative short positions shrunk to 191.7K as traders closed short positions after seeing price close below $4. Relatively mild stock builds and decline in rig counts rekindled traders' hope in gas price. While we may see further decline in net shorts and rise in gas price, fundamentals in gas market should remain weak throughout the year as demand fails to catch up with ample supply
Gold: Net speculative long positions surged for a third consecutive week to 235.8K. During the week, gold price also broke the previous record high made in December 2009 as investors fled to safe-haven assets amid concerns over sovereign crisis in the Eurozone. The market was clearly unconvinced by EU/IMF's 750B euro Stabilization Package for debt -laden countries as well as ECB's bond purchases and other accommodative policies. Recent talks about euro's disintegration and slowdown in global growth as driven by accelerated fiscal consolidation should help support gold
Silver: Net longs in silver slid for a second week despite rally in price. Although silver usually moves in tandem with gold and has been regarded as 'poor people's gold', its heavy application in industrial activities affects its performance
Platinum: Net longs in platinum declined for a second week despite modest recovery in price. Worries over auto demand in the face of a new round of economic slowdown affect performance of platinum