Market sentiment eased a tad as Italy passed the 2012 Budget and Prime Minister Berlusconi promised to resign. Wall Street fell in the morning session but then reversed after the news. DJIA and S&P 500 rose +0.84% and +1.17% respectively. In the commodity sector, the benchmark contract for WTI crude oil rose to as high as 97.08 before settling at 96.8, up +1.34%, while the equivalent Brent crude contract surged to 116.48 before ending the day at 115, up +0.38%. Gold stroke above1800 briefly, for the first time since September, as demand for safe-haven rose. The benchmark Comex contract settled at 1799.2, up +0.45%.
The Italy parliament passed the 2012 Budget with 308 votes, short of the 316 majority vote that would ordinarily be required, as the opposition party abstained. Moreover, Prime Minister Berlusconi said he would step down in late November/early December after implementing a first set of structural reforms. While the developments have eased market worries temporarily, the longer-term outlook of Italy remains uncertain and it depends on whether the country can implement comprehensive structural reforms.
In Greece, local media said that former ECB Vice President Papademos will become the new Prime Minister of the interim government which will be responsible for implementing the plan agreed by the EU on October 26 so as to tap the 130B euro bailout. At the same time, the 6th tranche of the troika fund of 8B euro will be granted next month and Greece will be required to provide written acceptance of the fund. Austrian Finance Minister Maria Fekter stated that Greece has to carry out reforms 'immediately', even though the new government may not be formed until March.
Looking at Asia, China's headline inflation eased to +5.5% y/y in October from +6.1% a month ago. This is expected that the government may loosen its monetary policy in light of lower inflation, moderating domestic economic growth and global economic headwinds.
Concerning oil inventories, the industry-sponsored API estimated that crude stock climbed +0.45 mmb to 340 mmb in the week ended November 4. Gasoline and distillate inventories fell -1.50 mmb and -2.88 mmb respectively.
|Weekly change in inventory as of 04/11/11||Change||Consensus||Previous|
|Crude oil||+0.50 mmb||+1.83 mmb|
|Gasoline||+1.00 mmb||+1.36 mmb|
|Distillate||-2.20 mmb||-3.58 mmb|
Comparison between API and EIA reports:
|API (Nov 04)||EIA (Nov 04)|
|Actual||Inventory||Previous||Forecast (using API's inventory level)||Inventory|
|Crude oil||-0.15 mmb||339.71 mmb||-0.16 mmb||+0.25mmb||340 mmb|
|Gasoline||-1.50 mmb||207.09 mmb||-1.13 mmb||+0.81 mmb||207 mmb|
|Distillate||-2.88 mmb||141.57 mmb||-3.44 mmb||-0.32 mmb||142 mmb|
API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks
Source: Bloomberg, API, EIA