Written by Sumit Roy  |

June 22, 2012

Week In Review: Silver Sinks To 6-Month Low, Key Test Next Week; No End In Sight For Oil Free Fall

Details

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

This week’s trading featured the Greek election aftermath, an escalation of the Spanish banking crisis and a highly anticipated monetary policy decision from the Federal Reserve.

In the end, most economically-sensitive commodities fared poorly. However, two weather-driven markets—natural gas and grains—put in solid gains for the week amid forecasts for a heat wave across the United States.

Stocks, as measured by the S&P 500 fell close to 1 percent in the week.

Macroeconomic Highlights

A favorable outcome in last weekend’s Greek parliamentary elections gave markets a short-lived boost. A win for pro-bailout politicians means that the country will likely remain in the eurozone, at least in the short-term.

But the Greek-inspired euphoria quickly gave way to concerns elsewhere in Europe. Interest rates on the Spanish 10-year bond yield spiked as high as 7.29 percent early this week amid worries about the Spanish banking system and the likelihood that the government would have to bailout struggling lenders.

By the end of the week, however, yields fell sharply as bargain hunters stepped in to buy Spanish debt. Some traders found the 7 percent yields attractive, arguing that Spain is too big to fail and that the odds of a Spanish default are low. The 10-year yield was last trading near 6.38 percent.

For the U.S., the biggest macro highlight of the week was the Federal Open Market Committee monetary policy decision. In a move that was expected by many, the U.S. central bank extended Operation Twist. The asset swap program, which had been scheduled to end this month, will now continue until the end of the year.

The Fed said that the extension will mean another $267 billion worth of its short-term Treasury holdings will be converted into longer-term Treasuries. Nevertheless, some traders were disappointed that the central bank did not take stronger action in the form of a third round of quantitative easing (QE3).

Commodity Wrap