Written by Sumit Roy  |

July 05, 2012

Market Wrap: Oil Jumps On Norway Production Shutdown; Corn, Wheat, Soybeans Surge Continues

Details

Oil and grains rise, while precious metals and copper fall.

Commodities were mixed today; energy and grains moved higher amid supply concerns, while precious metals and copper fell. A plethora of supportive news from around the world was largely shrugged off, as traders took profits after recent gains.

In China, the PBoC unexpectedly cut its benchmark interest rates for the second time in two months. The one-year lending rate will be cut by 31 basis points to 6 percent, and the deposit rate will be cut by 25 basis points to 3 percent.

The rate cut comes ahead of a host of Chinese economic data next week, including figures on imports, exports, consumer prices, industrial production and second-quarter GDP. China's economy is expected to have only grown by 7.8 percent year-over-year in the second quarter, the slowest rate since the first quarter of 2009.

While China's rate move was unexpected, the European Central Bank also cut rates today in a move that was already anticipated. The benchmark overnight interest rate was slashed by 25 basis points to a record-low 0.75 percent to aid the region's economic growth, which has suffered amid the credit crisis.

Meanwhile, the Bank of England left its benchmark rate unchanged at 0.5 percent, but expanded its quantitative easing program by 50 billion pounds, as expected.

In the U.S., payroll processor ADP said that employers added 176K jobs in June, above the 100K that was expected for that survey. The official government report on Friday is anticipated to show a 90K increase in total payrolls and a 100K increase in private payrolls.

In other employment news, the initial jobless claims fell from 388K to 374K last week.

The U.S. dollar jumped by 1.24 percent to 82.8, as the euro fell on the back of the ECB's rate cut.

• The dollar's rally pressured precious metals today, as gold shed $7.43, or 0.45 percent, to $1608.20/oz, while silver lost $0.38, or 1.36 percent, to $27.76.
  
  Platinum was last trading down by $1.36, or 0.09 percent, to $1477.25 and palladium fell $9.70, or 1.63 percent, to $585.75.
  
  "Overall, rate cuts by China, the ECB, and the U.S. are all positive for gold, on a slightly longer view than just one day for the simple reason that with inflation where it is, you start cutting interest rates of course then real interest rates get lower. So we see it as a bullish development for gold, and most of the other precious metals should be benefit from that," Walter de Wet, analyst at Standard Bank, said.
  
  "Like many other commodities gold has been struggling under a lack of direction and this might give it a little more impetus. We think gold will go above $1,900 in the last quarter on exactly these reasons."
  
  
• Crude oil prices outperformed amid supply concerns in Norway and Iran. Brent added $1.17, or 1.17 percent, to $100.94, while WTI shed $0.35, or 0.4 percent, to $87.31.
  
  In Norway, a strike by oil workers may shut 1.2 mmbbl/d of production or more if allowed to continue. Meanwhile, Iran's crude exports may fall in half this month, as we explain in our latest Crude Oil Report.
  
  
• Natural gas prices were last trading up by $0.04, or 1.31 percent, to $2.94/mmbtu. Weather forecasts show milder temperatures across the United States at the end of the next two-week period, but the respite may be short-lived, according to longer-term forecasts.
  
  
• The grain complex continued to spike furiously amid weather-related supply concerns. Corn surged $0.41, or 5.67 percent, to $7.60/bushel—the highest level since August 2011—while soybeans gained $0.53, or 3.36 percent, to $16.25—the best level since July 2008. Wheat jumped $0.35, or 4.38 percent, to $8.17—the highest since May 2011.
  
  "We will see (higher prices) until the [weather] forecasts change," Karl Setzer, market analyst at MaxYield Cooperative in Iowa, told Bloomberg. "Thing is, how much damage has been done between now and then?"
  
  
• Copper was last trading down by $0.04, or 1.24 percent, to $3.49/lb on Comex despite the rate cut by China.
  
  "Risk to prices in the near term is from positioning and [government] policy, either of which would trigger a sharp short-covering rally. However, we would view these gains as difficult to sustain without an improvement in economic activity," said analysts at Barclays.