Geopolitics took the centre stage in the commodity sector, although improvement in macroeconomic data and the approval of the new bailout package for Greece also impacted market sentiment. Iran's move to halt oil exports to the UK and France spurred worries about disruption of oil supply to European countries although the real demand of Iranian oil from these two countries was limited. Brent crude oil price jumped to the highest level in nine months. The prompt month contract rallied to a new record in euro term and close to a record in sterling term. As oil prices get more expensive, market concerns about the impacts on world economic recovery should emerge soon.

Tensions over Iran's nuclear development program intensified last week as the Middle East nuclear power refused to allow the IAEA to visit the Parchin military testing site near Tehran. This has made the UN nuclear agency worry that Iran might be hiding something. Meanwhile, Iran threatened to halt exports to Britain and France immediately in retaliation for the impending EU oil embargo.

EU finance ministers eventually approved the second Greek bailout package. The deal requires Greece to bring its debt down to 120.5% of GDP by 2020 from over 164% currently. The agreed reduction was similar to what was requested by the IMF. Moreover, according to Jean-Claude Juncker, the prime minister of Luxembourg, private sector bondholders were expected to incur losses of 53.5% of nominal face value of their Greek bond holdings, up from the previously expected 50.0% nominal write-down. Investors welcomed the news and the euro jumped against the US dollar after the announcement. The interest that Greece needs to pay for the first bailout package was lowered to 1.5% over market rates from 2-3% about market rates previously agreed. Moreover, the ECB and the 17 central banks in the Eurozone also agreed to forego profits on their Greek debt holdings. These measures aim to 'further improve the sustainability of Greece's public debt'. Although the deal triggered a rise in the euro against the US dollar, the impact was short-lived as investors realized that the biggest difficulty is Greece's implementation of austerity measures in the midst of economic contraction.

The G-20 summit over the weekend is expected to focus on the sovereign crisis in the Eurozone. While countries like Japan, China and Brazil pledged to support the IMF in its fund raising plan to resolve the debt problems in the 17-nation region, world leaders are expected to pressure the Eurozone countries to make more efforts in deficit reduction and economic recovery.

Crude oil prices rallied last week with the prompt-month contract for Brent crude gaining +6.33% and the equivalent WTI crude contract adding +4.93%. Year to date, Brent in USD has risen +4.8% from 4Q11 and +8.1% from 1Q11. The rally was more significant when priced in the euro and pound. We would like to point out that rising oil prices may have negative impacts on European economic recovery. Although rising crude prices have a smaller impact on the total cost of fuel in the EU than elsewhere because of high taxes and direct fuel costs represents only a small part of inflation, the impacts can still be high as Brent crude in euro term has reached a record 93.60 euro last week, exceeding the previous peak of 93.46 euro in July, 2008, the midst of financial crisis.

Surge in oil prices also has detrimental effects on US growth. US' oil demand growth is leading US' job growth by around one year, a negative growth in oil demand suggests that the nation's job market is impossible to expand.

Natural gas prices plunged after a week's rebound. The DOE/EIA reported that gas inventory dropped -166 bcf to 2 595 bcf in the week ended February 17. Stocks were +753 bcf above the same period last year and +744 bcf, or +40.2%, above the 5-year average of 1 851 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -6 units to 710 in the week ended February 24. Oil rigs fell -7 bcf to 1 265 units and miscellaneous rigs stayed unchanged at 6, sending the total number of rigs to 1 981 units. Directionally oriented combined oil, gas, and miscellaneous rigs fell -4 units to 210 while horizontal rigs increased +2 units to 1 165 and vertical rigs fell -11 units to 606 during the week.

Gold also gained last week with the benchmark Comex contract rising to a 3 month high of 1789.5 before ending the week at 1776.4, up +2.93%. However, in the precious metal complex, it was actually silver and platinum that outperformed. However, we advise investors to remain cautious about the impact of rising oil prices on US economic activities as this would affect the outlook of silver and PGMs as they have strong industrial characteristics, meaning that silver is sensitive to trends in US manufacturing activities while PGMs prices are affected by car sales. As we mentioned above, rising oil prices would derail the recovery of the US employment market. A subdued job market would in turn affect auto sales and hence PGM demand.