A risk-off day as the Fed downgraded US economic outlook, followed by moderated growth in China’s economy and BOE’s downward revision on GDP and inflation forecasts. Stock markets plummeted in both the US and Europe while commodity prices were broadly lower amid worries that global economic growth will stall in the second half. USD, JPY and Treasuries soared as investors demanded for safety.
WTI crude oil price tumbled yesterday, recording the biggest 1-drop since July 1. The front-month contract weakened below in Asian session as China reported weaker-than-expected growth in IP, lending and fixed asset investments. The decline then accelerated in NY session as US’ trade deficits unexpectedly widened to $49.9B in June (consensus: $42.2B) from $42.3B in the prior month and demand for gasoline and distillate contracted last week. Crude oil ended the day at 78.02, down -2.78%.
Apart from widening in trade deficits, bad news from the job market continued to unnerve investors. The US Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) reported a drop in hire rate to 3.3% in June from 3.5% a month ago. Meanwhile, the separation rate edged up to 3.3% from 3.2%. Note that hires are the total number of additions to the payroll occurring at any time during the reference month while total separations includes quits (voluntary separations), layoffs and discharges (involuntary separations), and other separations (including retirements).
Demand upgrades from both the EIA and IEA were largely ignored as the market has been focusing on the macro outlook. The US Energy Department (EIA) raised slightly global oil demand to 85.91 in 2010 (previous: 87.29M bpd) and 87.42 in 2011 (previous: 85.52M bpd) as driven by growth in non-OECD countries. Among the OECD countries, only the US is expected to show significant increases in oil consumption of about 0.15M bpd in both 2010 and 2011. Outlook for average oil price was also revised higher. The EIA currently expected prices to average 81/bbl in 4Q10 and 84/bbl in 2011. Meanwhile, IEA raised its demand forecasts to 86.6M bpd for 2010 (previous: 86.44M bpd) and 87.9M bpd (previous: 87.8M bpd) for 2011. Yet the agency cautioned there are ‘significant downside risks’ to consumption.
Inline with crude oil, gold price fell yesterday and closed below 1200 for a second day. The yellow metal has lost its safe-haven appeal to assets such as JPY, USD and Treasuries as it belongs to the commodity sectors. The mixed monetary stance in major central banks also makes gold’s outlook more volatile than last year.