INFORMATION DECK ABOUT YOUR KNOWLEDGE: Easing

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Monday, March 25, 2013

Weekly Fundamentals - Brent Crude Extended Decline on Easing Iranian Tensions

ONG Focus | Insights | Written by Oil N' Gold | Sat Mar 02 13 04:19 ET

Early last week, the market attention was mainly on the hung parliament formed after the Italy election. Sentiment was also damped by Moody’s downgrade of UK’s triple A credit rating. Later in the week, investors’ risk appetite improved after Italy’s bond auctions and ECB President Draghi’s Assurance that the central bank would not exit monetary easing soon. Another focus was the US sequester, i.e. about $85 billion in spending cuts, that began on March 1. Negotiation on Friday between Obama and congressional leaders failed to reach an agreement to avoid the reductions.

Crude Oil: Brent crude plunged last week with the front-month contract reverting back to the 110 level as geopolitical tensions eased for the time being. The P5+1 negotiation about Iran’s nuclear development was held last week in Almaty. While the meeting, the first time since last June in Moscow, has not made any deal yet, it is deemed to be a more constructive one as all parties agreed to hold a new round of talks in Turkey on March 17-18 March and then more high-level talks in Kazakhstan on April 5-6. Moreover at the meeting, the Western allies agreed to offer Iran limited sanctions relief if it stops its output of 20% enriched uranium. Iran stated that it would consider the offer. Yet, Tehran’s Interim Friday Prayers Leader Hojjatoleslam Kazem Seddiqi stressed that “any proposal which denies the people their rights is dismissed by the nation and no official has the right to compromise in this regard”.

Natural Gas: The DOE/EIA reported a -171 drop of gas storage to 2 229 bcf in the week ended February 22. Stocks were -307 bcf less than the same period last year and -308 bcf above the 5-year average of 1 921 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -8 units to 420 in the week ended March 1. Oil rigs increased +4 units to 1 333 and miscellaneous rigs remained unchanged and the total number of rigs fell -4 units to 1 757. Directionally oriented combined oil, gas, and miscellaneous rigs slipped -12 units to 185 units while horizontal rigs added +1 unit to 1 141 units and vertical rigs added +7 units to 431 during the week.

Precious Metals: Despite a modest rebound earlier in the week, selloff resumed with the benchmark Comex gold contract losing -0.03% on weekly basis. In the complex, the decline in PGMs prices was more severe with platinum and palladium losing -2.11% and -2.03% respectively. South African government has proposed measures to allow more institutions to provide exposure to commodity ETFs, in particular gold and platinum.

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Saturday, March 23, 2013

Sentiment Boosted by Draghi's Affirmation of Monetary Easing

ONG Focus | Insights | Written by Oil N' Gold | Fri Mar 01 13 01:19 ET

Wall Street ended the day largely flat (DJIA: -0.15%; S&P 500: -0.09%) as early rise eased. Earlier in the day, sentiment was lifted as ECB President Draghi affirmed the central bank is not about to exit its current policy stance and the market expected Italian political leaders would be able to former a government. Yet, whether the government would be an effective one is another issue. In the commodity sector, the benchmark Comex contract for gold plunged to as low as 1574.3 before ending day at 1578.1, down -1.10%.

ECB President Draghi stressed that the "monetary policy remains accommodative" and the central bank is "far from having an exit in mind". In the Q&A session after a speech at the Catholic Academy of Bavaria, Draghi stated that "while sovereign debt markets have improved, bank lending is still very fragmented" across the Eurozone. Moreover, "credit in some countries is still difficult to obtain. The benefits of the painful actions undertaken so far have not yet materialized". In Italy, the centre-left allies were able to win a narrow victory in the lower house of parliament but the Senate was split. Former Prime Minister Silvio Berlusconi stated that his centre-right coalition is willing to alliance with the centre-left rivals. Berlusconi stated that "markets go their own way. They are independent and also a little crazy". The EU has urged the country to form a stable government as soon as possible.

On the dataflow, Eurozone’s CPI eased to +2.0% y/y in January from +2.2% a month ago. Core inflation slowed to +1.6% in January from +1.7% y/y in the previous month. US GDP grew +0.1% in 4Q12, up from a previous estimate of -0.1% drop. The market had anticipated a better gain of +0.6%. Initial jobless claims fell to 344K in the week ended February 24 from 362K in the prior week. The market has anticipated a drop to 361K. In Japan, core CPI dropped -0.2% y/y in January while the leading Tokyo core CPI slipped -0.6% y/y in February.

Today, the University of Michigan confidence probably stayed at 76.3 in February, same as preliminary estimate. Construction spending might have added +0.5% m/m in January, easing from a +0.9% gain a month ago. The ISM manufacturing index probably fell to 52.5 in February from 53.1 in December.

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Tuesday, March 19, 2013

Sentiment Mixed on Disappointing European Data and BOJ Easing Bias

ONG Focus | Insights | Written by Oil N' Gold | Tue Mar 12 13 00:24 ET

Financial markets gained modestly as optimism on US' employment market was offset by disappointing European economic data. Wall Street gained with the DJIA and the S&P 500 indices adding +0.35% and +0.32% respectively. On the commodity sector, crude oil prices rose with the front-month WTI contract -0.12% while the Brent contract slipped -0.57% during the day. The benchmark Comex gold contract edged higher but remained hovering slightly above 1550.

In France, industrial production dropped -1.2% m/m in January with manufacturing down -1.4% m/m. Worse still, it seems that output contraction in France would not end soon given the level of the manufacturing PMI. In Italy, the economy contracted -0.9% q/q in 4Q12 while the annual rate revised lower to a decline of -2.8% from -2.7%. Over the weekend, Fitch downgraded Italy's debt by one notch to BBB+ with a negative outlook. These issues sent the country's equities and debts lower. Another debt-ridden country, Greece, recorded an upward revision in the 4Q12 GDP which now slumped -5.7% y/y, instead of -6.0%. Elsewhere, it's reported that Cyprus has accepted bailout conditions from the ECB/EU/IMF Troika. Cyprus has requested a rescue fund totaling 17B euro, equivalent to the country's annual GDP.

In Japan, the yen plummeted to the lowest level in more than 3 years against the US dollar on BOJ easing expectations. Kikuo Iwata, the Japanese government's nominee as next deputy BOJ governor, indicated that the central bank would continue with easing monetary measures. The BOJ minutes for the February meeting unveiled that some of the board members suggested that that buying JGBs with longer remaining maturities can be considered in the future although the central bank decided to maintain the status quo during the month.

We will have two major central bank meetings later this week. The RBNZ is expected to leave the OCR unchanged at 2.5% but might release a more hawkish statement due to improvements in the housing markets in recent months. The SNB would also leave its monetary policy unchanged. It would also maintain its stance to keep the floor of EURCHF at 1.2. the central bank purchased CHF 188B in foreign currencies last year.

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