Crude oil slides further in European morning as driven by poor economic data released in the Eurozone, plunges in stock markets as well as rebound in USD. The benchmark contract for WTI crude oil drops to 67.7, $1.5 lower than Wednesday's close of 69.31.
Unemployment rate of the 16-nation Eurozone rose to 10-year high of 9.5% in May, compared with 9.3% as market anticipated and in April. Industries such as airlines, banks and construction reduced headcounts as companies were cutting costs to combat the worst recession since World War II while demand deteriorated tremendously, making many workers idle. Both the OECD and the EU forecast the Eurozone's unemployment rate will climb higher with the former expecting to rise to 12% in 2010 and the latter forecasting an 11.5% next year.
Inflation also missed expectation and indicated prices have contracted to the record low level. PPI dropped -5.8% yoy in May, more than consensus of -5.7% and -4.6% in April. On monthly basis, the gauge plunged -0.2% after falling -0.9% a month ago. The market anticipated it to have stayed flat.
While the market has turned positive about economic outlook, the disappointing data acted like cold water pouring from above and triggered selloff in commodities and stocks.
The equity market got hit today. Germany's DAX and France's CAC plummet -1.65% and -1.26% to 4825 and 3177, respectively while UK's FTSE 100 slips -0.8% top 4307 in the morning. In Asia, the MSCI Asia Pacific Index retreated -0.6% while Japan's Nikkei 225 Stock Average plunged -0.6% as led by banking sectors. Investors concerned that the US employment report for June will fall short of market expectation.
Gold loses ground and falls to 932 as the European PPI showed less inflation risk and as the dollar rebounds. USD's rally against major currencies gathers momentum and rises to 1.4066 against euro after closing as 1.415 Wednesday. Against the Franc, Pound and Australian dollar, etc, the greenback also erases previous gains.
Board of directors of the IMF has approved the issuance of bonds to its 186 members for accessing capitals to lend during the recession. It's the first time such issuance. At first, the board planned to place a cap to $150B of bonds but eventually the cap is lifted. News reported that China may buy $50B while Russia and Brazil may each buy $20B of it. The issuance once again spurs discussions about IMF's gold sales plan which was approved by the US Congress through the War Supplemental bill in mid-June.
In December 1999, the IMF engaged in off-market transactions in gold of up to 14M oz to help finance the heavily indebted members. During December 1999 to April 2000, transactions of a total of 12.9M oz of gold were taken place between the IMF, Brazil and Mexico. According to the IMF report, the steps were as follows: 'In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative (heavily indebted poor countries). In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member's financial obligations. In the end, these transactions left balance of the IMF's holdings of physical gold unchanged'. In fact, sales of gold have occurred as early as in 50s-70s when the lender sold the precious metal as a means to replenish its holdings of currencies.