Financial markets firmed on Monday morning as investors continued to be thrilled by Fed Chairman Bernanke's speech at the Jackson Hole conference. The Chairman's dovish comments and his defense on unconventional monetary easing were interpreted as signals of QE3 in coming few months. Asian shares climbed higher although official PMI in China contracted further, sending indication that the world's second largest economy is slowing further. In the commodity sector, crude oil prices steadied while gold price climbed higher on positive sentiment.
Investors remained excited by the Fed Chairman Bernanke's speech on Friday. Bernanke showed concerns over the economic outlook in the US, particularly the job market as the unemployment rate "remains more than 2 percentage points above what most FOMC participants see as its longer-run normal value". The Chairman defended the use of quantitative easing measures as stimulus, affirming that the policies were "effective". With the message that the Fed "will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability", market speculations that QE3 would be announced shortly, probably in September or October heightened.
Optimism in the US overshadowed further slowdown in China, the world's second largest economy. The official Chinese manufacturing PMI slipped to 49.2 in August from 50.1. The market had anticipated a more modest drop to 50, Similar index compiled by HSBC/Markit showed a slip to 47.6 from 49.3 in July. Both sets of data signaled that China's manufacturing sector went further in contraction. Although the services improved with the PMI data improving from 56.3 in August from 55.6, the government should consider adding more easing measure more rapidly to prevent the economy from growing below that 7.5% target this year.
Commitments of Traders:
With the exception of crude oil, speculators were bearish towards the energy complex in the week ended August 28. Net length for crude oil futures rose +18 847 contracts to 249 262 while that for heating oil fell -440 contracts to 11 348. Net length for gasoline slipped -675 contracts to 69 445. Net short for natural gas futures added -12 474 contracts to 78 851.
Speculators were bullish towards precious metals during the week. Net length for gold futures increased +27 807 contracts to 158 491 while that for silver added +7 438 contracts to 28 638. For PGMs, net length for platinum gained +3 776 contracts to 28 663 while that for palladium rose +1 460 contracts to 7 803.