Metals and Energy React to Heightened Market Worries

Jun 19 • Market Commentaries • 1786 Views • No Comments on Metals and Energy React to Heightened Market Worries

Equities are trading down following the increased  risk from Europe to control the rising debt concerns. World leaders pressured Europe at the Group of 20 Nations Summit on Monday to take ambitious new steps to resolve its debt crisis while China has committed itself to boosting the resources of the International Monetary Fund in order to increase the war chest with extra $430 billion.

However, markets may primarily eye the developments related to the global concerns of slowing demand and economic activity and may continue to weaken metals in today’s session due to higher borrowing costs. Economies from around the World including the resource-rich Peru are slowing indicating greater risk and increased demand for safe-heavens and likely keep riskier assets and base metals subdued.

The economic calendar shows, the UK CPI is likely to decrease from prior levels due to lower oil prices; however, the Euro-zone construction output and Zew survey numbers may continue to deteriorate due to weak economic sentiment and may likely pressurize the gains of the shared currency ‘Euro’ and base metals. The US housing releases may increase slightly after increased demand for mortgages and may provide slight respite in the late evening. Presently, weak labor sector and dwindling wealth of middle class in the US has continued to weigh on housing releases. Overall, weak equities and increased borrowing cost of Spain and Italy may continue to weaken base metals in today’s session and hence initiating shorts might be recommended for the day. During early Asian session, oil futures prices are trading near three day low on European concern basically from Spain.

The Spain 10 year bond yield climbed high 7.29 percent, which is creating concern of spreading debt to other Euro region. Spanish bad loans in April jumped to 8.72 percent, the highest since 1994. After Greece’s election, now the focus has been shifted from Greece to Spain. In G20 meet for today it is expected that world leaders will be talking about stabilizing the economic growth of Euro zone and extending the fund of IMF.

 

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Gold is trading down slightly, with no direction at all, holding to a pretty close range ahead of the US FOMC meetings, where investors believe that Fed Chairman Bernanke will introduced additional monetary easing to help stimulate the sluggish US economy.

The euro may react to it vulnerably, which may further weigh on oil prices. Other than this, there is no concrete result have outcome from the third round of nuclear talk. Today is the second day of this talk. However, chances of implication of oil embargo from July 1is more as P5+1 groups are not agree that Iran is in to a peaceful program. Thus, oil prices may come under initially. Other than this, Enbridge pipeline has been declared to increase its capacity by 400000 million barrels per day, which may reduce the supply glut further in Cushing area, this may add some positive sentiment in oil prices. From, economic data front, most of the economic releases are expected to paint a negative picture in Eur0-zone and German, however rise in housing starts may add some positive picture of US economic growth. Overall, market will be eyeing on news from G20 talk, which may fluctuate oil price movement.

Currently, gas futures prices are trading above $2.650/mmbtu with gain of near than 1 %. Today we may expect gas prices to continue the positive trend supported  by its intrinsic fundamentals. As per National Hurricane centre, there are 60 and 70 percent chance of tropical storm formation near gulf coast region which may create supply concern to add positive direction in on gas prices.  As per US Energy department,  natural gas storage has been increased by 67 BCF in the last week, which is lower than last 5 weeks average at this time. Consumption of power sector have also increased by 6 percent, which may support gas prices to remain on higher side. As per US weather forecast, temperature is expected to remain high in eastern region, which may create demand for gas consumption.

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