DailyFX.com -
Talking Points:
-
Oil on weak rebound after crash due to higher US output, low utilization rate
-
Gold in favour before Yellen’s lecture and Japan stock fall
-
Copper under selling pressure as concerns lingered on China’s factory weakness
Commodities set on a recovery path in Asia after a big sell-off during European and US sessions that saw them hitting the bottoms simultaneous to equity losses. Both equities and commodities posted gains so far in Asia, although risk-off trades echoing China woes were not completely gone as evident in Nikkei’s loss and Australian bonds’ gains.
President Draghi of the European Central Bank disappointed dovish (and stimulus) expectations in his testimony to the Committee on Economic and Monetary Affairs of the European Parliament. He described the current policy as effective and that quantitative easing could be extended [only] if needed. This gave some assurance on economic conditions, so were French, German and Eurozone PMIs roughly in line with forecasts. The resilience in the European economy helped to ease demand concerns in commodities.
Oil picked up gently in the Asian morning though it was but a small rebound after last night’s crash. WTI plunged to 44.41 and Brent dipped past a previous daily low to 47.68. The market was caught by surprise and price trapped in a free fall as the Energy Information Administration reported US output rose for the first time in 7 weeks by 9.14 barrels, while utilization rate dropped the most since January at 2.2 percent. Prior to the report, oil rose on expectation of an output fall similar to API’s data.
In absence of major events and as Iran deal is in process, oil prices will likely swing between 43.89-50.04 range established early September, after a two-month slide towards the 38.51 record low.
Copper barely picked up from its three-day low at 2.2855 as China’s factory weakness reverberated through to Asia session. Selling pressure in the metal is adamant, it could not sustain a short-term top at 2.3250 together with zinc’s rally. US new home sales data today may add more pressure on demand if it comes out lower than July’s 5.4 percent.
The International Copper Study Group (ICSG) inferred that copper market was roughly balanced in June, although production outpaced consumption in the first half of this year. This was good news for copper yet also made it susceptible to macro sentiments outside of supply-demand.
Market positioned long gold ahead of Janet Yellen’s lecture on Thursday (Asia’s Friday morning) at University of Massachusetts, and as Japan stocks fell. A delay of interest rate hike would ease pressure on gold in comparison to other interest-yielding assets. The precious metal is aiming for the topside with resistance levels at 1136.70 then 1140.02.