June 15, 2012

Week In Review: Gold Tightly Wound Ahead Of Greece Elections, NatGas Spikes 8%, Oil Exposed To More Selling

Details

We examine the latest developments in commodity markets and the week’s performance.

Trepidation ahead of Greece’s parliamentary elections this weekend (June 17) translated into choppy, mixed performance for commodities this week. Precious metals and natural gas outperformed, while crude oil and grains underperformed.

Stocks, as measured by the S&P 500, rose by 0.8 percent on the week. Year-to-date, the index is up more than 6 percent.

Macroeconomic Highlights

Throughout the week, Spanish interest rates climbed amid an escalating banking crisis in the country. Spain’s 10-year bond yield spiked to a euro-era record 7 percent on Thursday before backing down slightly to 6.87 percent today.

But while Spain remains an ongoing concern, the immediate fear relates to Greece ahead of parliamentary elections on Sunday, the result of which could decide whether the country remains in the eurozone.

The latest polls indicate that anti-bailout politicians are running neck-and-neck with pro-bailout politicians. The election of politicians opposed to the European Union’s bailout of Greece in its current form could set off a chain of events that leads to the eventual exit of the country from the eurozone.

The worst-case scenario is that Greece’s withdrawal from the monetary union could lead to a financial crisis across Europe that eventually engulfs the world economy. Some have said that a Greek exit would be analogous to the bankruptcy of Lehman Brothers in 2008, which set off the credit crisis that year.

Yet despite this dire potential, markets were relatively well behaved this week on expectations that central banks would provide an adequate backstop if necessary. On Thursday, G-20 officials indicated that central banks would take coordinated action to provide liquidity to the global financial system, should panic ensue following the Greek election.

Outside of Europe, the data this week were soft, but not horrible. In the U.S., retail sales and industrial production fell in May and unemployment claims rose last week.

In China, industrial production ticked up in May, but remained near the lowest levels since 2009.

Commodity Wrap