Written by Sumit Roy  |

June 11, 2012

Market Wrap: Oil Reverses Early Gains As Spain Euphoria Dissipates, Copper Rises On China Data

Details

Commodities traded mixed in today's session.

Commodities and stocks reversed large, broad-based gains to trade mixed today after initial buying interest petered out. A weekend announcement that eurozone finance ministers have agreed to lend Spain 100 billion euros ($125 billion) to shore up the country's troubled banking system gave prices an early boost.

But later, investors realized that though positive on the surface, the fact of the matter is that Spain, the eurozone's fourth-largest economy, is now a recipient of bailout funds, on the heels of Greece, Ireland and Portugal before it.

That being said, the Spanish government stressed that the latest bailout was strictly for its banking system and that it would still seek to fund itself through the open market.

But if the latest movement in bond prices is any indication, that funding window is quickly closing. The Spanish 10-year bond yield — currently seen as the best gauge of eurozone sovereign debt fears — was last trading up by 29 basis points to 6.51 percent, back near recent highs.

Despite ongoing concerns related to Europe, some analysts believe that the correction in commodities is over. Among those analysts is Goldman Sachs, which predicts 29 percent upside for the asset class.

"Although the macroeconomic backdrop still remains uncertain, particularly in Europe, we believe that the selloff in commodity prices is likely overdone and the price risks are shifting more to the upside," said the firm.

Meanwhile, weekend data from China was better than expected. Industrial production grew by 9.6 percent year-over-year in May, up from April's 9.3 percent rate, while retail sales grew by 10.7 percent, down from 11 percent in the prior month.

Chinese exports in May jumped by 15.3 percent, better than the 4.9 percent in April, and imports rose by 12.7 percent, up from 0.3 percent in April. The trade balance surplus in May totaled $18.7 billion.

• Gold was last trading higher by $2.88, or 0.18 percent, to $1596.32/oz, while silver edged up by $0.15, or 0.53 percent, to $28.65. Platinum rose by $18.63, or 1.3 percent, to $1451.63 and palladium advanced $6.85, or 1.11 percent, to $621.35.
  
  "A bailout for the European banks is a positive for the euro and in a way a positive for gold, but it may take some of the risk attraction of gold away, so there is some negativity there as well," Mitsui Precious Metals analyst David Jollie said.
  
  
• Crude oil prices fell today despite news that China's imports of the commodity rose by 10 percent in May to a record 5.98 mmbbl/d. Brent was last trading down by $0.61, or 0.61 percent, to $98.86, while WTI lost $0.50, or 0.59 percent, to $83.60.
  
  OPEC is scheduled to meet on Thursday to decide whether to adjust its output quotas. But as the cartel is already producing 2 mmbbl/d above its quota ceiling, the meeting may have little bearing on prices.
  
  
• Natural gas prices were last trading at $2.23, a loss of $0.07, or 3.31 percent on the session. However, the latest weather forecasts continue to show warmer-than-normal temperatures across much of the United States (excluding California and Florida) over the next two-week period, which should boost demand for the fuel.
  
  
• The grain complex was mixed, as corn edged down by $0.02, or 0.38 percent, to $5.96/bushel, while soybeans gained $0.02, or 0.16 percent, to $14.29 and wheat rallied by $0.06, or 0.91 percent, to $6.36.
  
  "It's all about the weather. Fifty percent of the Midwest is short to very short in moisture. The crop's condition is deteriorating and it needs rain," said grains analyst Tim Hannagan of PFGBest in Chicago.
  
  
• Copper was last trading up by $0.06, or 1.69 percent, to $3.34/lb on Comex, as the weekend's data from China supports. Imports of copper by the Asian giant jumped 12 percent in May.