Oil continued to trade with great volatility, highly sensitive to macroeconomic events and derailing from fundamentals. Germany's approval of the beefed-up EFSF with a large margin and the generally positive US dafaflow improved market sentiment and thus sent oil prices higher. The front-month contract for WTI crude fluctuated from 79.64 to 83.98 yesterday and finished the day at 82.14, up+1.15%. The equivalent Brent crude contract closed almost flat at 103.95. In the precious metal complex, silver was up modestly while gold ended the day flat at 1617.3 amid USD strength. Both metals moved with extreme volatility.
Now that 13 out of 17 Eurozone member nations have approved the new EFSF fund, sentiment was temporarily lifted with Greek bonds rallying and Italian bond auction receiving good response. Germany's parliament approved the new EFSF fund with 523 votes in favor and 85 against. Supporters of the plan far exceeded expectations. Details of the vote showed that Chancellor Merkel obtained a yes vote from 315 members of the coalition, meaning she she would not have sought the opposition party's help to pass the bill. This is crucial as passage of legislations in the future should be a lot easier than when helps from opposition are needed. Another good news is that Slovakia has brought forward the vote to October 17 from October 25. It's reported that the ruling coalition was close to reaching an agreement to support the new rescue fund.
US data came in stronger than expected. 2Q11 GDP growth was revised higher to +1.3% from previous estimate of +1.0%. The market had anticipated a milder upward change to +1.2%. While consumer spending and exports were higher than flash estimates, imports were lower. Initial jobless claims fell -37K to 391K in the week ended September 24, taking the 4-week moving average -5K lower to 417K. Pending home sales fell -1.2% in August, less than consensus of -2.1% and July's -1.3%. The set of data helped boosting market sentiment yesterday, sending the Wall Street higher.
While much of the focus has been put on both sides of the Atlantic, outlook in Asia Pacific appears to have weakened also. Fitch's and S&P's downgraded New Zealand's credit rating amid concerns over the country's fiscal deficits. Fitch trimmed New Zealand's rating to AA from AA+, citing the country's high level of net external debt is an outlier among rated peers - a key vulnerability that is likely to persist as the current account deficit is projected to widen again'. S&P also lowered the country's rating by 1 notch after the 'assessment of the likelihood that New Zealand's external position will deteriorate further'. The downgrades are expected to increase borrowing costs of New Zealand. They will also make it more difficult for the RBNZ to remove the emergency cut implemented after the earthquake.