The recovery in markets from recent news driven events has been incredible – in terms of pace and scale. This has certainly lifted sentiment in equity markets and the spill on effect for commodities and currencies as been a benefit.

The US posted strong signs of economic recovery across a variety of indicators last week particularly from unemployment and non-farm payroll.

While the Aussie Dollar has continued to push ahead against the greenback, these ongoing indications plus the potential for a possible rise in US interest rates may well call a halt to that party. As such, some caution should be exercised in this area – although 1.05 remains our short to medium term target, this may not be smooth sailing.

Amongst commodities, the strength most notably in Live Cattle has reflected ongoing strength in demand from Asia – and world food demand in general, while Corn put on serious weight as a result of a major fall in inventory as well as pressure on Bio Fuel demand (Corn is refined into ethanol) stemming from higher oil prices.

In our session this week, we will look at the impact of fuel prices on commodities, and where the opportunity sits within that.


Gold falls as Fed is expected to tighten monetary policy

Is the Fed about to shift monetary policy? Speculation is rising that the Federal Reserve will tighten sooner than expected dampening demand the alternative investments as money flows into U.S. dollars. The improving economy, i.e. the strong jobs numbers last week, encouraged Fed members to signal they probably will not extend bond purchases beyond June this year. The immediate price action of gold on the jobs numbers saw gold fall showing how sensitive gold prices are the economic recovery. As the numbers improve, we hope, the “safe haven” premium will be discounted in the gold price. Unless we see further weak data gold may have put in a major top at current levels.


Crude Oil rallies on U.S. employment gains and Middle East Conflict
Oil rose to $108.00 a barrel after Labor Department figures showed that 216,000 jobs were created in the U.S. last month more than the 190,000 jobs expected. The increase forecasts possible higher demand as we approach the seasonal driving season. Prices were also supported by the continued fighting in Libya as Qaddafi’s forces regain the initiative after two weeks of allied air strikes.

The oil market is highly correlated to the equity markets right now and as equity markets are seen as a measure of economic growth and a barometer of petroleum demand.

Brent crude, the European benchmark, traded at a premium of $10.76 over U.S. futures last week. The spread extended to $19.74 on February 21st on middle eastern unrest. The average spread last year was 0.76 cents.

We remain positive on the near term price outlook for crude as key economies remain on track and tensions in Libya continue to pressure prices.

Corn futures push higher on lower than expected inventories
Inventories of corn slumped to a 4-year low in the U.S. according to the United States Department of Agriculture. Stockpiles of corn declined 15% year on year as demand for animal feed, fuel and food climbed. Corn rose limit up for 2 days as the market adjusted to the surprising lack of corn stocks and improving export demand. Farmers are expected to plant a record number of corn acres this year and still not improve ending stocks as demand grows.

Cotton farmers are also expected to plant a record number of acres this year as all-time high prices create a supply response.

All corn and cotton acres will be at the expense of soybeans and if the acreage numbers are confirmed during planting season we expect to see soybean prices respond to the upside

Received & published by Henry Sapiecha

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