July 06, 2012

Week In Review: Corn & Soybeans Near Record Highs, Gold Falls But QE3 More Likely, NatGas Hits $3

Details

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

It was a relatively stable week for most commodities, with most prices fluctuating less than 2 percent in the period. However, the grain complex surged again amid weather-related supply concerns.

The S &P 500 fell nearly 1 percent on the week and is now up 7.4 percent year-to-date.

Macroeconomic Highlights

The holiday-shortened trading week was quite heavy in terms of economic data. Early in the period, ISM said that its U.S. manufacturing index slipped below the 50 level (which separates contraction from expansion) for the first time since 2009. The gauge dropped from 53.5 to 49.7 in June.

Meanwhile, across the Atlantic, unemployment in the eurozone rose from 11 percent to 11.1 percent, a new euro-era record. The region's PMI Manufacturing gauge rose from 44.8 to 45.1, but remains firmly in contraction territory.

In Asia, China's Manufacturing PMI fell from 50.4 to 50.2—the lowest level in seven months.

Then on Friday, the Bureau of Labor Statistics released disappointing U.S. employment numbers for June. Nonfarm payrolls expanded by only 80K in the month, below the 100K that was anticipated. Private payrolls grew by 84K, below the 106K anticipated.

The unemployment remained steady at 8.2 percent, as analysts had expected.

On the whole, this week’s data from around the world pointed to feeble economic growth, though none of the releases deviated substantially from expectations. The tepid pace of expansion has fueled speculation that monetary authorities will step in to stimulate growth.

Indeed, this week we saw such action. On Thursday, the People’s Bank of China unexpectedly cut its benchmark interest rates for the second time in two months. The one-year lending rate was cut by 31 basis points to 6 percent, and the deposit rate was 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 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.

After disappointing figures on manufacturing and employment, traders will now closely eye comments from Fed officials to see if the U.S. central bank joins its counterparts in easing policy further. Bulls hope that the next meeting on Aug.1 contains an announcement of QE3.

Commodity Wrap