Oil price rebounds strongly after US' Treasury Secretary Timothy Geithner gave upbeat comment about recovery in the financial markets. After severely selloff to as low as 47.28, investors began buying the black gold again. Currently trading at 51.3, Geithner's speech, OPEC member's 'bottoming-out' comment on oil prices and the G-20 meeting are all reasons for the rebound.Volatility will remain high this week as investors are so vulnerable to market news that one good news/data will trigger buying while a single negative data will cause them to sell their holdings.
In an interview yesterday, Treasury Secretary Timothy Geithner reinforced that there are 'encouraging signs of improvement in our markets' and 'I've never seen this much support around the world'. Furthermore, Geithner said that the White house is considering a range of options for US carmakers. This revived investors' hope that global economic recession may end soon.
OPEC's Secretary-General Abdalla El-Badri said in an occasion that oil prices are 'bottoming out'. While the comment sounds bullish, we concern that it may threaten OPEC members' discipline as oil price outlook is not as depressed as before. In fact, surveys showed that OPEC production in March probably only declined by about 100k bpd from February's levels, compared with over 900K bpd cut in February and January.
G-20 leaders are meeting in London today and they are expected to discuss about more stimulus plans to revive the economy. Also boosting investors' sentiment is that the leaders are more confident that the global recession is approaching the end.
Stock markets advance. In Asia, the MSCI Asia Pacific index added 4.6% to 86, the biggest gain in 5 months while Japan's Nikkei 225 Stock Average climbed 4.4% to 8719.78 as industry data showed that auto sales in the US increased unexpectedly and market shares from Asian carmakers continued to increase. In Hong Kong, HSBC jumped 15% to HK$49.4 while oil stock China Petroleum added 6.2% to HK$5.47. In European, UK's FTSE 100 Index rose above 4000, the first time in 6 weeks.
Gold price retreats as investors' gain risk appetite and shift their capitals to the stock markets. The benchmark contract is currently trading 1.4% lower at 912.6.
The ECB meeting later today also has impact on gold's performance. The market currently expected the policymakers to slash the main refinancing rate by 50 bps to 1%. However, just rate cut is not sufficient to restore growth and inflation in the 16-nation Eurozone, especially when its counterparts, UK, US, Switzerland and Japan, have announced massive quantitative easing plan.
Therefore, we believe the ECB may also announce some QE measure after today's meeting, in an attempt to stimulate growth as well as to prevent the Euro from rising too much. As gold price and the euro are positively correleated, depreciation in the Euro is negative for gold.