Crude oil failed to follow strength in Wall Street and declined. News that the Enbridge 6A pipeline will resume operations soon disappointment oil traders and the front-month contract initially slumped to as low as 74.66. It was the stronger-than-expected inventory report that arrested the fall and narrowed the loss. Price ended the day at 76.02, down -1.02%. Oil product prices, however, performed better with gasoline slipping -0.33% and heating oil climbing +0.18%. Today in Asia, price extended the fall for the third consecutive day.
Gold pulled back after the rally on Tuesday broke a record high. BOJ/MOF's intervention in Japanese yen's appreciation has weighed on gold as the dollar was pushed higher. Yet, we believe gold's rally should remain intact as QE talks resurfaced.
The yen slumped more than -3% against the dollar as the government intervened by buying USD and selling JPY. This lifted the dollar and was negative for gold in the near-term. The intervention for the first time in 6 years is viewed as a step closer to QE in Japan. As it's expected that Japan's unilateral intervention will do little to curb yen's appreciation, the government will act further, i.e. introducing more easing measures, to achieve its goals. Come economists believe this makes the path easier for the Fed to implement its QE2 plans. As suggested by what happened in late 2008 and 2009, QE measures are positive for gold price.
Economic data released in the US contained a few downside surprises. The Empire State Manufacturing Index plunged to 4.1 in September from 7.1 a month ago. The market had anticipated an improvement to 9. Industrial production grew +0.2% m/m in August, moderating from +1% in July and lower than consensus of +0.3%. Capacity utilization also dipped to 74.7% in August from 74.8% in the prior month. However, the disappointments did not dampen sentiment as shown in stock markets. US equities, despite opening lower as dragged down by weakness in European bourses, rebounded amid M&A news. DJIA and S&P 500 gained +0.44% and +0.35% respectively.
The RBNZ announced to keep the OCR unchanged at 3% in September and revised downward its economic forecasts. The tone on the post-meeting statement was more dovish than previously anticipated. Today's focus is on the SNB meeting which should leave the 3-month LIBOR Target unchanged at 0.25%. In the US, PPI and weekly jobless claims data will be closely monitored.
