Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the oil price slumped under US$100 a barrel and commodity prices generally fell around 7%.
The move happened in tandem with a slump in the Euro by 4 USc to US$1.45 after the European Central Bank (ECB) left rates on hold at 1.25% and suggested it would not raise rates until June at the earliest. See more here at Bloomberg on the euro's biggest fall in 8 months.
Markets had expected an earlier European rate hike, which had increased the attractiveness of the euro in recen months vs the US dollar, where the US Federal Reserve is expected to keep interest rates at 0% until next year. But the softening of the ECB's rhetoric overnight weakens the euro's attractiveness for investors relative to the US dollar. See more here at BBC.
Weak German factory orders also helped depress the euro and weaken expectations for a rise in European interest rates any time soon. Portugal also announced that its recession would deepen further after the bailout announced this week. Many countries on the fringes of the euro zone are very concerned about the effects of ECB hikes on their economies and precarious sovereign debt situations. See more here at Bloomberg on Portugal's economic forecast downgrade.
Commodity prices in US$ terms have moved in almost exact reverse to the US dollar in recent months as investors have sought inflation protection in hard assets. The surge in the US dollar overnight was matched by a slump in the price of oil, gold and other commodities. The gold price crashed another US$42/oz to US$1472/oz. See more here at Bloomberg.
Weak US jobs figures overnight also hurt sentiment on stock markets, where the S&P 500 and the Dow were down around 1% in late trade. See more here at Bloomberg on the weak jobless claim figures. Even more closely watched jobs figures are due tonight.
Commodity-linked currencies such as the New Zealand dollar, the Australian dollar and the Canadian dollar all fell in line with commodity prices.
The New Zealand dollar fell to 78.3 USc and has fallen from 81 USc in the last week. See our interactive chart below.
Our calculations at Interest.co.nz of the possible effect on the petrol price of the drop in the oil price in the last week and the offsetting effect of a drop in the New Zealand dollar vs the US dollar is for a fall in the price to around NZ$2.10/ltr for regular from NZ$2.21.9c a litre in mid-week.
There is an automatic stabilser effect in the falls in both the US$ oil price and the New Zealand dollar vs the US dollar, but the oil price move in the last week outweighs the New Zealand dollar fall.
This assumes other factors such as taxes and oil company margins are unchanged. See our interactive chart on petrol prices and its component parts here.
No chart with that title exists.
16 Comments
So crude oil and other commodity prices don't have so much to do with actual supply/demand of the core product and are more influenced by the paper traders/speculators betting on interest rates and foreign currency?
Weren't we just told that petrol prices were increased because of demand in West Africa and the USA? I don't know who to believe anymore.
meh check out these links recently posted on ZH:
http://www.reuters.com/article/2011/04/17/us-saudi-oil-idUSTRE73G14020110417
http://arabnews.com/economy/article371083.ece
And for a change, even President Barack Obama is underlining that supplies are sufficient to meet demand. Speaking at a community college in suburban Virginia last week, he said: “It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand.”
Saudis cut 800K barrels citing no physical buyers in the market and the price actually falls.
Clearly there are other factors at play now. Think usual suspects. Think BP, GS, JPM...
http://www.zerohedge.com/article/hanging-thread#comment-1245539
Not all ETF’s are equal. The Silver ETF- SLV is not just an exposure to Silver it is also an exposure to options on Silver. When investing in ETF’s it is essential to know what the underlying instrument is, what the management fees are (eg the NZX listed ETF’s are generally not competitively priced) and how much liquidity and turnover there is (eg the Water ETF trades in small volumes). Exotic or leveraged ETF’s are inherently much more risky and potentially do not perfectly track their headline exposure (eg VXX).
hope that clarifies things for you, scarfie?
Can't say I have ever looked closely at ETF's, but of course am aware of them. The rumour I have caught here and there is that the ETF funds will be in trouble if all the Silver is demanded.
I would have thought that in the current environment that it would be good practice to steer clear of them. If I was going to invest I would want the hard stuff.
I have to say that it looks mightily close to the mechanism or vessel that caused, or at least exacerbated, the 1929 crash.
I just bought silver up as it seemed to be the first mover in last weeks volatility.
Ray Smith's book "Wheres the Gold" is an interesting read.
Not all ETF’s are equal. The Silver ETF- SLV is not just an exposure to Silver it is also an exposure to options on Silver. When investing in ETF’s it is essential to know what the underlying instrument is, what the management fees are (eg the NZX listed ETF’s are generally not competitively priced) and how much liquidity and turnover there is (eg the Water ETF trades in small volumes). Exotic or leveraged ETF’s are inherently much more risky and potentially do not perfectly track their headline exposure (eg VXX).
hope that clarifies things for you, scarfie?
FYI very strong demand in NZDMO government bond auction yesterday.
http://www.nzdmo.govt.nz/securities/govtbonds/latestresults
Over NZ$3.2 billion of bids for NZ$400 million of bonds.
It helps New Zealand is not Portugal, Ireland or Greece, and our interest rates are 5% vs nearly 0% in Britain, America, Japan and Europe.
cheers
Bernard
the commodities mkts are oversold for no real reason other than this crew manipulating the mkt.to sell and buy.
http://en.wikipedia.org/wiki/Bilderberg_Group
ooh...ah just luv a good conspiracy theory before breakfast...now that charlie don't surf no more?
Mind you these could be some other contributing factors..to the commodity fall off...esp. the rise in the VIX fear index .Rising risk aversion has been the theme of the last 24 hours with:
· a rise in the VIX (+up 17% in last 4 sessions)
· a rally in the USD (DXY +2%) Euro down at 1.4540 (NZD also lower at 0.7840 with some reports of exporters buying, a lack reinsurance buying, leveraged and hedge fund selling ) and the JPY (currently 80.17) taking out long stops.
· a rally in bonds (US 10 year 6 bp lower at 3.15%)
· much weaker commodities on a speculative unwind (
· lower equity markets.
and then you have old George Soros selling down his vast gold resources having talked it up so well over last months...all adds up to fear ,loathing and profit taking, folks.
whaddya say, Ratmunster?
"The liquidation wave has arrived, as the entire commodities complex, with an emphasis on silver and crude, continues to feel the wrath of a bipolar market which from inflation has suddenly realized that the underlying deflation needs to exhibit itself before the US Central Bank has a justification for more monetization."
From Zero Hedge. Mmmmmmmm..... has the ring of truth about it
Strategic Finance's receiver has trimmed the expected recovery range for debenture holders to between 12% and 26% of their principal owed from 12% to 35%.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=107…
I reckon 35% was always dreaming...
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.