Asian markets strengthened further Monday as Japan's growth data came in better than expected, uplifting the positive sentiment after Friday's encouraging US retail sales. In the commodity sector, both the WTI and Brent crude contracts moved sideways with a modestly upward bias. Gold recovered slightly after plunging over the past 2 trading days. The metal is susceptible to more correction should risk appetite improves further in the near-term.
Japan's economy contracted -0.3% q/q in 2Q11, smaller than consensus of -0.6% and -0.9% in the prior quarter, as driven by strong public spending. The Great Eastern Earthquake occurred in March still hurt the economy with private consumption and exports declining as a result. While the worst is probably over after the government's stimulus measures, the downside risks have increased given deterioration in the global environment.
Last Friday, investors were thrilled as US retail sales rose +0.5% m/m, in line with expectations in July after edging +0.3% higher a month ago. Sales excluding auto came in at +0.5%, higher than consensus of +0.2% and June's +0.2%. We were indeed amazed by the rise in retail sales in recent month despite weakness in the job market. Yet, investors should be cautious in coming months as whether sales can hold up further in the midst of worsening confidence and fluctuation of financial markets will have indicative effects in US' growth outlook.
Interestingly, the market readily ignored the disappointingly University of Michigan Confidence which surprisingly slipped to 54.9 in August from 63.7 in the previous month. The market had only anticipated a modest dip to 63.
The US will report the Empire State manufacturing index which probably returned to 0 in August after staying in the negative territory over the past 2 months. The NAHB housing market index might have stayed in 15 in August for a second month.
Commitments of Traders:
Speculators were bearish on the energy complex in the week ended August 9. Net length for crude oil futures declined for the second consecutive week to 11 658 contracts. Net lengths for heating oil futures and gasoline futures also dropped to 15 687 and 49 895 contracts respectively. Net short for natural gas futures increased to 189 428 contracts during the week.
Speculators were also bearish on the precious metal complex, net length for gold futures declined for the first time in 5 weeks, plummeting -43 602 to 203 573 contracts a while silver futures slid -6 463 to 18 388 contracts. For PGMs, net lengths for platinum futures and palladium futures dropped to 18 685 contracts and 12 121 contracts respectively.