Commodities firmed with US crude oil prices soaring to a 4-month high as ice storm hit the southeastern US and the OPEC raised it demand growth forecast for this year. Meanwhile, crude stockpile at Cushing as well as distillate inventory were reported to have dropped last week. Gold rose to a new 3-month high on technical buying and as the US dollar mixed. Wall Street slipped in the absence of meaningful dataflow.
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Crude Oil Firms as Ice Storm Raises Demand
Gold price is expected to record an annual decline of almost 30% this year, representing the first year over year decline since the turn of the new millennium. Investment outflow in gold-linked ETFs was a key driver for such a dismal performance. Fed’s tapering of ultra accommodative measures should weigh on gold in 2014.
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iBank Focus – 2014 Gold Price Outlook
Financial markets were mixed today following the drop in the US market. The Fed maintained the status quo as expected but it dropped the language about tightening in financial conditions and turned softer on the housing market.
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Fed Softened on Housing Market, Gave No Hints on Tapering
Talks over raising the US debt ceiling stalled as the House Republicans’ proposal still include a provision to prevent funding of the health insurance. Regarding the deadlock, Fitch’s put the AAA rating of US sovereign debts on negative watch. On the dataflow, the Empire State index and the ICSC chain store sales were disappointing. More Fed officials spoke about QE tapering. The hawkish Dallas Fed President, Fisher, stated that it is now “too tender a moment” to think of reducing QE.
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Fitch Threatens to Cut US Rating as Debt Limit Talks Stalled
The ICE US Dollar Index has shot back over 83 in trading on Tuesday as the euro zone’s economic fears once again grew after weak German data raised concerns about the health of the regions economy,
reviving speculation that the ECB (European Central Bank) could cut interest rates as early as next month.
Latest Dollar Index Rate
The ICE US Dollar Index, which tracks the US dollar against a basket of major world currencies was at 83.135, 07:35 GMT this morning, off open highs of 83.230. A stronger dollar tends to pressure commodity prices including oil and gold as they are priced in the currency.
Dollar v Euro
The last time the Dollar Index was firm at 83 was in the summer of 2012. Expect that any downward pressure on the euro to add further strength to the index as many investors and traders are now agreed that the shared euro currency is overvalued.
“A rate between $1.10 and $1.20 is reasonable over the next three or four quarters.” said Ken Dickson, investment director at Standard Life Investments, in Edinburgh, Scotland, commenting that the single currency should be significantly lower. Standard has had a short euro position for some time. The current rate is around $1.30.
The US dollar managed to hold onto gains against the euro as it was shown that American new home sales rose broadly in line with market expectations in March. In a report, the US Census Bureau said new home sales rose by 1.5 percent to a seasonally adjusted 417,000 units in March, compared to expectations for an increase to 420,000.
Following the release of the data, the US dollar held on to gains against the euro, with EUR/USD shedding 0.35% to trade at 1.3021.
In response to the European news one industry expert asserted: “The overall picture is pretty bleak. The likelihood of the ECB cutting interest rates increased today. All in all, it’s negative for the Euro.”
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US Dollar Index shoots back over 83 as euro zone economy fears grow
Financial markets rallied on Tuesday amid hopes that the Fed would continue it ultra accommodative monetary policies. Meanwhile, Chinese Premier Wen Jiabao’s Government Work Report outlined a relatively conservative macroeconomic policy framework for this year.
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Stocks Rallied on Dovish Comments from Fed Officials
Commodity prices remained under pressure in US morning amid concerns over the stalemated fiscal cliff negotiation. While President Obama threatened to veto the so-called “Plan B” proposed by the GOP, the Republican-controlled House is set to vote for it. Crude oil prices slipped while gold price extended recent weakness with the benchmark Comex contract falling to as low as 1653.1, a level not seen since August.
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Commodities Remain Pressured as GOP Set to Vote on Plan B Despite Obama’s Veto