Poor economic data in the US echoed the theme of slowdown demonstrated in Asian countries and this exacerbated risk aversion and accelerated the selloff in risky assets. Decline in commodity prices was broadly based. WTI crude oil price tumbled to a 3 week low at 72.05 before recovering to 72.95, down -3.54%, at close while Brent crude lost -3.56% to settle at 72.34 (intra-day low at 71.5). Base metals were generally lower with losses ranging from 0.8-3.8%. Gold slumped and broke below 1200 as a time as triggered by panic asset sales and ease in funding pressure in the Eurozone. The benchmark gold futures fell -2.67% to settle at 1206.7.
US ISM manufacturing index declined 3.5 points to 56.2 in June while the market had anticipated a milder drop to 59. Initial jobless claims surprisingly increased to 472K in the week ended June 26. This also gave rise to the highest 4 week average, at 466K, since the first week of March. This reading, together with weaker than expected ADP employment addition released Wednesday, suggests the US job market remains vulnerable. Pending home sales contracted -30% m/m in May after rising +6% in the previous month. The decline almost doubled consensus reading.
Signs of slowdown in economic recovery in the US and China (June PMI dropped to 52.1) raised worries over a double-dip recession.
Funding concerns in European banking system eased. The ECB lent a further 111.2B euro in its 6 day operation after a much lower than expected 131.9B euro 3 month operation conducted in the prior day. Banks needed to repay 442B euro in the 12 month LTRO. Meanwhile, a Reuters source said that Germany banks had fared well under the stress tests. The news boosted the euro which surged +2.3% to 1.2522 against the dollar at close.
Today in Asia, most commodities rebounded as yesterday's selloff was probably overextended. In Australia, the government and mining companies reached an agreement on mining tax. Australian Prime Minister Julia Gillard announced to cut the tax to 30% on coal and iron ore earnings, compared with a previous plan to collect 40% of all resource profits. At the same time, the current Petroleum Resource Rent Tax to all onshore and offshore petroleum and gas projects is extended.
Focus of the day is US employment report. Consensus forecast non-farm payrolls dropped -110K in June after rising 431K in the prior month. Unemployment rate probably increased to 9.8% from 9.7% in May.
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