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Commodities jumped as the Fed surprisingly left the policy rate and the QE measures unchanged in September. Policymakers acknowledged that the economic recovery in the US was taking place but the improvement in the labor market remained uncertain.

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Commodities Jumped as Fed Refrained from Tapering QE

Wall Street fluctuated between gains and losses with the DJIA and the S&P 500 indices losing -0.06% and -0.03% respectively. Despite the S&P revised US’ credit outlook to stable from negative, the bond markets failed to respond positively, with yields continued to climb higher.

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Asian Shares Disappointed by the Inaction of BOJ

Financial markets slumped amid renewed concerns about the Fed’s tapering of QE measures. Wall Street declined with the DJIA and the S&P 500 indices losing -0.50% and -0.55% respectively. Asian shares also dropped on Wednesday to the lowest level this year. In the commodity sector, crude oil traded with great volatility.

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Investors’ Confidence Dampened by Renewed Speculations of Fed’s Exit

Confidence in the eurozone’s economy fell for a second straight month in April and by more than expected as austerity bites, strengthening the case for a cut in interest rates later this week.

An index of executive and consumer sentiment dropped to 88.6 from 90.1 in March, according to the European Commission’s latest Business and Consumer Survey results. That’s the lowest since December. Economists had forecast a decline to 89.3, according to the median of 26 estimates in a Bloomberg News survey.

The disappointing data highlights the euro zone’s difficult road out of recession and the souring of the mood among companies and consumers since March, after an optimistic start to the year.

Pressure for an Interest Rate Cut

Howard Archer, economist at IHS Global Insight says they “intensify the pressure” on the European Central Bank to cut its bank rate from 0.75 percent to 0.5 percent.

“The further and increased slippage in economic sentiment in April reinforces our belief that the ECB is more likely than not to cut interest rates on Thursday. If the ECB does hold fire on interest rates on Thursday, it is very likely only delaying the inevitable.”

The second successive drop in eurozone economic sentiment to a 4 month low in April fuels concern that the single currency area is headed for yet another GDP drop in the second quarter of 2013 after almost certainly suffering a sixth successive drop in the first quarter of 2013.

The drop in sentiment follows on from the purchasing managers reporting that manufacturing and services activity contracted at an appreciable rate in April.

Euro Exchange Rate

However, the euro rose against the US dollar on Monday, lifted by the formation of a government in Italy, but was held in check by the expectations of a interest rate cut by the ECB (European Central Bank).

Meanwhile, senior eurozone officials will meet later today to approve payment of another 2.8 billion euros (2.35 billion pounds) in rescue loans for Greece, on condition that the country’s lawmakers approve a reform law the day before, the country’s finance minister said on Saturday.

This comes after Greece’s parliament approved an emergency bill Sunday to pave the way for thousands of public sector layoffs and free up €8.8 billion ($11.7 billion) in international rescue loans. The bill, which passed in a 168-123 vote, will allow for the first civil service layoffs in more than a century. About 2,000 civil servants will be laid off by the end of May, with another 2,000 following by the end of the year and a further 11,500 by end-2014, for a total of 15,500.

The legislation is the latest wave of Greece’s draconian austerity program. Similar cost cutting programs are having negative effects on Spain Portugal and Italy, three key eurozone member states.

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Confidence in the eurozone falls for two months in a row as austerity bites

Brent crude oil opens the week flat at $102 a barrel as markets and traders search for clues that will drive oil prices direction in the coming days, which is not going to be easy as uncertainty over western economies continues to weigh on commodity prices.

Latest Brent Oil Price

In London, Brent crude oil futures for June 2013 delivery was trading at $102.73 a barrel, 08:00 GMT this morning on the ICE Futures Exchange, or 0.4 percent lower.

Oil Prices Heading Lower?

Oil prices for Brent and US WTI were down in Asia on Monday as weak economic data from the United States sparked concerns over a weaker demand for crude, analysts said.

“The weak (US) GDP data questions business conditions in the market, signalling that inventories may rise as demand softens,” said Desmond Chua, market analyst at CMC Markets in Singapore.

The US economy grew at a pace of 2.5 percent in the first quarter of 2013 from data released on Friday, below the average analyst forecast of 2.8 percent. A weaker American economy will have traders and investors betting down oil prices in general as fears that crude oil demand will weaken.

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Brent crude oil hovers at $102 as market looks for price direction

S&P 500 dropped as the Cypriot Parliament rejected the levy plan. There were 36 votes against the proposal and 19 abstentions. The Abstentions were from the President’s centre right party DISY supporting a revised version of the plan. Wall Street was mixed with the DJIA adding +0.03% and the S&P 500 indices losing -0.24% during the day.

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Cypriot Parliamet Voted Down Levy Plan

Financial markets climbed further higher on better-than-expected US economic data. In the European session, the euro soared after the ECB left the monetary policies unchanged and President Draghi affirmed that the Eurozone would stage a recovery later this year.

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Encouraging Jobless Claims Data Raised Expectations of Better US Employment Report

US’ data was scarce due to the Veteran Day. The focus was on Europe. EU finance ministers in Brussels ended without being able to agree on the next tranche of bailout fund for Greece. An emergency meeting will be held on November 20, hoping to find a decision. International Energy Agency forecasts that US oil production may surpass Saudi Arabia in 2017. It would become self-sufficient in energy supply and would become a net exporter.

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EU Fails to Agree on Greek Bailout, Spain Denies the Need to Seek Assistance

Crude oil prices recovered modestly in European session as escalated tensions between Turkey and Syria raised concerns over oil supply. Market sentiment was also lifted as China injected RMB 265B to the public via reverse repo operation. In the Eurozone, ECB President Draghi spoke before the European Parliament, expressing that the bloc’s facing downside risk on the economic outlook due to financial market tensions.

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Crude Oil Recovers as China Injects Liquidity and Geopolitical Tensions Escalate