Oil prices extended slump on Friday amid weaker than expected US payroll data. Concerns over the recovery momentum of the US and reemergence in sovereign debt problems in the Eurozone have weighed on commodity prices. Although the US ISM manufacturing data remained firm, rising +1.4 points to 54.8 in April, compared with consensus of 53, the manufacturing PMI in the UK unexpectedly fell to 50.5 in April, compared with market expectations of 53. In China, the official manufacturing PMI rose to 53.3 in April but was below forecast of 53.6. The data compiled by HSBC showed a reading of 49.3 (revised up from the preliminary reading of 49.1), indicating the sector remained in contraction. Later in the week, US' ADP employment change showed a +119K addition in payrolls in April, a decline from the downwardly revised 201K in March. In the Eurozone, the jobless rate climbed +0.1% to 10.9% in March while the final manufacturing PMI was revised lower to 45.9 in April from 46 in preliminary reading.
The most eye-catching data released during the week was the US non-payrolls which surprising fell to 115K in April, down from the upwardly revised 154K a month ago. The unemployment rate, however, slipped to 8.1% from 8.2% due to the decline in participation rate to the lower level since 1981.
The RBA and the ECB held meetings last week. The RBA lowered the cash rate by -50bps to 3.75% in April as economic developments since the last meeting has weakened and inflation has moderated. The central bank acknowledged the growth later in the year would be 'below-trend' but a deep downturn is not likely. The ECB held the main refinancing rate unchanged at 1% in May despite slowdown in macroeconomic outlook. President Draghi stated that economic data received in the first 3 months of the year indicated tentative stabilization of economic activity at low levels. However, despite downside risks, a gradual recovery should follow later in the year. Unlike market expectations, the central bank did not hint any further stimulus in coming months during the meeting
WTI crude oil began the decline in the middle of the week and accelerated the pace of the fall on Thursday as the OPEC predicted that oil supply would exceed demand this year and beyond. Moreover, the cartel indicated that current levels of oil prices were too high, mainly driven by speculation. The OPEC's secretariat general, Abdullah al-Badri, stated that There has been no shortage of oil in the market. Producers have been able to meet consumer needs. The OPEC also sees this as being the case for the rest of 2012 and the foreseeable future. He also added that today the price continues to be driven by excessive speculation. This triggered the selloff which was then exacerbated by the disappointing US payroll data.
Natural gas rose for a second consecutive week, signaling a temporary bottom has been formed 1.902 in mid-April. The DOE/EIA reported that gas inventory increased +28 bcf to 2 576 bcf in the week ended April 27. Stocks were +840 bcf above the same period last year and +857 bcf, or +49.8%, above the 5-year average of 1719 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -7 units to 606 in the week ended May 4. Oil rigs increased +27 units to 1 355 and miscellaneous rigs stayed unchanged at 4 units, sending the total number of rigs to 1 965 units. Directionally oriented combined oil, gas, and miscellaneous rigs slid -9 units to 234 while horizontal rigs increased +19 units to 1 158 and vertical rigs added +10 units to 573 during the week.
Gold rebounded for the first time in 4 days on Friday as weak US employment data pressures the greenback. However, the yellow metal has been hovering within a range of around 1650 for more than a month. This trading pattern has been inline with that of the euro which has been range-bounded since the beginning of February. It is believed that official sector buying has been supporting oil prices as futures and ETF demand have dropped recently. Physical demand also softened as China and Japan were on public holiday and despite India's gold festival.