Market Commentary
Key Notes: Fears that the Eurozone debt crisis would spread was the dominant theme of financial markets yesterday. It did not help that manufacturing data from China and Europe was disappointing. Stocks and commodities plunged due to risk aversion. Safe havens such as the Swiss franc, the dollar and gold were sought by investors. In line with our expectations, gold was supported above $1500. The intra-day low of gold yesterday was at $1503.55.
Ahead, the U.S. will tackle the issue of raising the debt ceiling which has to be resolved by early August. Vice President Joe Biden will speak with senior lawmakers. Yet, the divisions between the Democrats and Republicans are apparent with the later demanding deep spending cuts. It may be difficult to reach a resolution until the very last minute. Today, we will also receive April new home sales data. Economists forecast a total of 300,000 annualised units. A downside surprise could increase investors’ focus on the woes of the U.S., increasing the appeal of gold as an alternative asset.
Market Summary
Precious Metals: Gold prices increased to the highest in two weeks as debt woes of the Eurozone nations continued to unsettle investors. Gold defied a stronger dollar and weaker commodities to rise higher in a flight to safety. The platinum group metals fell as investors shunned precious metals that have more industrial properties. Platinum ETFs shed 18,000 ounces of metal last week in their largest weekly decline since the week of March 25. Palladium ETF holdings have also fallen for five weeks and were down 48,000 ounces last week.
Base Metals: Copper plunged more than 3% yesterday. This is its biggest one-day loss in nearly two weeks. Slowing manufacturing growth in China and rising Eurozone debt concerns prompted the sell-off. Data showed China's refined copper imports dropped 16.6% in April from the previous month. Implied demand was steady from March but down 7.2% from a year ago, according to Reuters calculations.
Energy: U.S. crude oil retreated on widespread risk aversion due to the escalating debt crisis in Europe. China's factories expanded at their slowest pace in 10 months with its flash PMI easing to 51.1 from 51.8 in April, adding to the bearish sentiments in markets. However, June gasoline futures managed to hold its ground, ending modestly higher, due to trouble at a gasoline-making unit of a Canadian refinery. Ahead of inventory reports, crude stocks were forecast to fall 1.6 million barrels last week, while distillates and gasoline inventories were expected to rise by 500,000 barrel each.
Currencies: The euro fell to a two month low against the dollar and a record low against the Swiss franc on Monday. The euro fell to 1.2323 Swiss francs, its lowest since the euro zone single currency was launched in 1999. Spreads on benchmark Spanish, Italian and Greek government bonds widened against German benchmarks as investors dumped the bonds of weaker euro zone countries in favor of safer German debt.
