Written by Sumit Roy  |

June 29, 2012

Week In Review: Oil Spikes $7 After EU News, Gold Up $50 On Friday But Lags On Week, Corn Surges 14%

Details

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

For most of the week, grains and natural gas rallied, while other commodities either held steady or fell. But news from Europe on Friday spurred a furious, across-the-board rally, which propelled every commodity but one into the green.

Stocks also rose, as measured by the S&P 500, which was up almost 2 percent on the week. The index is up almost 8 percent year-to-date.

Macroeconomic Highlights

The macro highlight of the week was a two-day EU summit on Thursday and Friday, where officials attempted to find solutions to the debt crisis in the eurozone. Expectations weren't very high going into the summit—the 20th such time leaders have met to discuss the crisis—that it would produce anything substantive.

Yet markets were pleasantly surprised when EU officials ended the summit with decisive action to stem the eurozone's debt crisis. Leaders agreed to allow the European Stability Mechanism—the permanent, 500 billion euro bailout fund—to recapitalize struggling banks directly.

Previously, only sovereign governments had access to loans from the bailout fund. Additionally, a new banking authority will be created to oversee all of the eurozone's lenders.

Finally, it was agreed that the ESM bailout fund will have the power to purchase a country's bonds on the secondary market without imposing harsh austerity conditions on said country. This may prove useful in preventing yields from spiking dramatically.

Indeed, Spanish and Italian 10-year bond yields plunged after the news and were last trading at 6.33 percent and 5.82 percent, respectively, down 61 basis points and 38 basis points.

Commodity Wrap