Oil N'Gold: Risk-Off Trades Dominate, Commodities Slump as USD Strengthens

Risk appetite remained weak in European session amid concerns about 'measured QE' policies. The dollar strengthened while growth currencies and other risk assets plunged. Aussie tumbled as inflation missed expectations. Focus in the US session will be on durable goods orders, new home sales and oil inventory data. Commodities fell across the board. The front month contract for WTI crude oil slipped below 82 ahead of official oil inventory report. Precious metals and base metals also slumped on profit taking.

The Wall Street Journal said that the Fed will likely announce a bond purchase program, worth a few hundred billion dollar spanning over several months, at the FOMC next week. The amount would be significantly lower than market expectations of at least $500B over 5 months. Investors took profits from previous 'short USD' trades as the selloff was probably over extended with such a 'small' amount of QE.

Currently trading at 0.9715, Australian dollar plummeted for a second day against the dollar as CPI surprisingly eased to +2.8% y/y in 3Q10 from +3.1% a quarter ago. This may prolong RBA's pause in tightening. Other commodity currencies, New Zealand and Canadian dollars also fell. The RBNZ will leave the official cash rate......Read the entire article.


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Phil Flynn: Quantitative Ease Off

The Petroleum markets took a bit of a breather after surging the first few days in August on rising speculation that the Fed worried about anemic Job Growth and a less then sustainable rate of economic activity will revisit the nuclear option and print more money to get the economy moving again. The Wall Street Journal added to this speculation by raising the possibility that the Fed may reinvest the cash it receives when its mortgage bond holdings mature and buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is was expected to do.

This speculation drove traders back into the “carry trade” as the dollar tanked against other major currencies most notably the Yen as traders viewed the US recovery softer than in other parts of the globe. Yet despite some less than spectacular data the oil market anyway backed off the easing talk and tried to focus on weak demand.....Read the entire article.

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Phil Flynn: Pricing In Mediocrity

Global oil markets are finding it hard to get excited living in this new post Federal Reserve World. The passion left the market place and sunk in to a kind of what might be described as a stag deflation mode. All across the yield curve, from the short end to the long, yields are sinking to near record lows. While cheap money is keeping our economy meandering along, it is not the type of drive that seems to be the type of growth that will translate into strong energy demand. What’s more, even stories that are normally bullish for oil and the products are not giving the market the support you would expect.

For example the Chinese allowed their currency, the yuan renimbi, to rise to what is called the highest level in the modern era. The Wall Street Journal reported that on the over the counter market, the dollar was at CNY6.7900 around 0930 GMT, down from Thursday's close of CNY6.7997. It traded between CNY6.7856 and NY6.7977. The low end of the range was below the previous modern-era intraday low of NY6.7958, set Monday. The yuan is up 0.53% this week. Yet not even what many thought would be a bullish move for oil has given us much play. In fact oil lost ground on the announcement.Now some say that is because the move by the Chinese was only a.....Read the entire article.

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Phil Flynn: The Dollar Drops While China Rocks

The dollar drops while China rocks. China has either given in to pressure or has realized that its peg to the dollar may soon become counterproductive.China shook the global markets by announcing that they were going to allow their currency to be more flexible. As expected, oil soared on the news because the move will make oil cheaper in China and may inspire more Chinese buying of more commodities! Yet will this be for the long haul as a stronger yuan may slow exports by making Chinese goods more expensive overseas. For now though it is a commodity buying spree as the markets react to what most people feel will be the most obvious result.

The Wall Street Journal says that China’s central bank's statement Saturday came as a surprise and effectively marked the end of currency's de-facto peg to the U.S. dollar. It has been seen as a clear signal that China will let the yuan resume a gradual rise against the U.S. dollar after nearly two years of being effectively pegged around CNY6.83 to the U.S. dollar. Property developers were among the biggest gainers, as a stronger yuan would attract fund inflows and strengthen demand for real estate in China.....Read the entire article.

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