Funds were seen flowing to the dollar again yesterday amid strong US economic data. Weak trading in Greece's newly-issued 7-year bonds and poor response in the 12-year bond raised worries about Greece's fund raising ability. IMF's criticism on Germany's and Italy's fiscal contraction plans also damped market sentiment.

Commodity prices changed little. WTI crude oil was firm in late US session as encouraging US economic data spurred hopes on recovery. However, strength in the dollar capped gains. The front-month contract closed at 82.37, up +0.24%.

Gold halted the 3-day rise and slid -0.41% to 1105.3. Decline in the euro dragged the yellow metal down.

USD rose against the euro for the first time in 3 days. The Conference Board's consumer survey rebounded to 52.5 (consensus 50) in March, following a decline to 46 in the prior month. Also, the Case-Shiller 20-city home price index gained +0.3% m/m in January. It's the 8th consecutive monthly seasonally adjusted increase and most cities in the survey have recorded consecutive growth for 4 months.

Greek 7-year notes fell on the first day of trading. Bloomberg data shows that the decline drove yields to 6.27% at 4:28 pm in London, up from 6% when issued. Worse still, the country's sale of 12-year bonds yesterday raised only 390M euro, compared with the 1 billion-euro upper limit. The dismal performance in Greek bonds suggests Greece is facing difficulty in raising funds to meet its debt obligation. This weighed on the euro. Although the EU and the IMF have jointly developed a bailout package to assist Greece in overcoming its debts, the plan acts as a 'last resort' and European leaders wish Greece can eventually handle the problem itself without triggering the use of the package. Greece must raise as much as10.5Beuro by the end of the year.

An IMF report criticizing the 16-nation Eurozone's biggest economy, Germany, exerted further pressure on the euro and overall market sentiment. The IMF downgraded Germany's GDP growth to +1.2% this year and +1.7% in 2011, compared with corresponding projections of +1.5% and +1.9% made in January. The IMF said that recovery in Germany should continue at a 'moderate pace'. However, there are substantial downside risks including 'banking weakness', possibility of weaker-than-expected global trade' and increasing unemployment'. The Fund also urged the government to develop a credible plan ti cut its deficits. 'The authorities face the challenge of sustaining recovery while preparing to exit, as part of an international coordinated strategy, from the extraordinary measures introduced during the crisis...Over time, fiscal policy will have to transition from support to credible consolidation'. Also, 'the recovery continues to rely on fiscal support for one more year, but consolidation is in order once private demand has become self sustaining...This sits uncomfortably with plans for tax cuts in 2011'.

The US Energy Department will probably report that crude inventory increased +2.5 mmb in the week ended March 26. Yesterday, the industry-sponsored API said that crude oil inventory added +0.42 mmb last week. The increase was less than forecast and this provided some supports to oil price. For oil product inventories, gasoline and distillate stockpiles dropped -0.95 mmb and -1 mmb, respectively, according to API.

Weekly change in inventory as of 26/03/10 ChangeMarket Expectation Previous
Crude oil  +2.50 mmb+7.25 mmb
Gasoline  -2.00 mmb-2.72 mmb
Distillate  -1.25 mmb-2.42 mmb

Comparison between API and EIA reports:



API (Mar 26)

EIA (Mar 26 )

ActualInventoryPrevious
Forecast (using API's inventory level)Inventory
Crude oil+0.42 mmb352.3 mmb+7.50 mmb
+0.74 mmb 352 mmb
Gasoline-0.95 mmb224.2 mmb-0.81 mmb
-0.56 mmb 224 mmb
Distillate-1.00 mmb148.2 mmb-2.50 mmb
+2.31 mmb 148 mmb

API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.  

Source: Bloomberg, API, EIA