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November 02, 2011

Greece referendum news weighs down commodities

We are becoming increasingly persuaded that QE3 is coming, this time focused on purchases of mortgage-backed securities. The best guess is at this meeting theyll try to build some consensus around the idea and lay the groundwork for eventual purchases. Dana Saporta, U.S. economist at Credit Suisse in New York, on FOMC policies There is a loss of trust in the entire financial system and urgent need for safe-haven. The environment for gold is just perfect. Ronald Stoeferle at Erste Group Bank AG in Vienna CommoditiesDecline as Greece referendum news rattles the markets Greeces Papandreou Seeks Euro Referendum Greek Referendum Vote Seen By Christmas Euro zone Caught off-guard by Mr. Papandreou's announcement EU Leaders Hold Pre-G-20 Crisis Talks All commodities except gold close lower Greek Referendum to Hinder IMF, EU Aid Dutch Finance minister Italy, France spreads hit record high Vs. Germany Greek 1-year bond yield hits 205% Papandreou to meet European leaders today Pimcos Gross Says Greece Should Drop Out of Euro, Return Later Manufacturing in U.S. Comes Close to Stagnating FOMC policy decision due today Natural Gas Falls on Forecasts for Warmer-than-Normal Weather BOJ Warns Yen May Strengthen Two Days After Record Intervention European sovereign debt crisis took an unexpected turn for worse yesterday as Mr Papandreou announced a This hinders the planning of the IMF and the euro zone. It creates a problem for the whole sixth tranche, De Jager told parliament in The Hague late last night. I can imagine that it will be very difficult for the IMF if there is uncertainty about the sustainability. The IMFs executive board was due to meet in midNovember to decide on paying its part of the sixth bailout
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referendum on bailout deal. Equities and commodities got pummeled as the Dow Jones Industrial Average Index fell sharply for the second straight day. The referendum announcement follows last week's European grand plan of fiscal measures agreed by eurozone leaders that included a 50% haircut of privately held Greek debt as well as a new-improved regional bailout fund. The vote of confidence in Greek Parliament begins today and concludes late on Nov. 4 The said announcement is a political gambit by the Greece PM to shore up the support of masses as the popularity of the ruling party wanes after two years of severe austerity measures. Mr Papandreou s party has got merely threeseat majority. Goes without saying that financial markets and European leaders have been caught off-guard by the referendum announcement as this carries grave implications. Although majority of the Greeks favours Euro, they dont like the bailout deals and the accompanying austerity measures that have led to violent protests in the beleaguered nation. In the worst possible outcome, Greece would leave the union and default on its debts, which could be catastrophic for the global economy. The referendum talks could jeopardize the IMF, EU aid to Greece. A Greek referendum on its latest bailout package will hinder the next installment of aid funds by the International Monetary Fund and the European Union, Dutch Finance Minister Jan Kees de Jager said.

sharekhan tranche, which is worth a total of 8 billion euros ($11 billion). Greece is caught up in a vicious circle as forced spending cuts are severely affecting its economy, which makes it almost impossible for the nation to meet its debt obligations. At the same time, these cuts are necessary for the nation to win bailout packages. The nations oneyear yields reached 205% yesterday. It is no wonder that Bill Gross, manager of the worlds largest bond fund at Pacific Investment Management Co., said it would be better for Greece to drop out and then come back. Greek officials will also have to outline to international officials in the coming weeks how they will secure a seventh round of funding. Moves in bond markets dont well for the economy and markets in general as Italian and French bond yields soared to record vs. their German counterpart. Yen rallied on safe haven demand. Economic data out of the US suggested stagnating manufacturing as the ISM manufacturing PMI data was short of expectations. Asia Watch BOJ Warns Yen May Strengthen Two Days After Record Intervention Bank of Japan board member warned that the yen may strengthen further, two days after the government sold the currency to protect exporters from the threat it would stay at a postwar record against the dollar. We could see the yen, regarded as a relatively safe currency, rise even further should investors risk aversion intensify over a deepening European crisis, the official, Sayuri Shirai, said in a speech today in Kofu, central Japan. Authorities sold the yen on Oct. 31 after the currency surged to its highest level since World War II in what analysts estimate was a record intervention in foreignexchange markets. Japans government faces almost 40 trillion yen ($512 billion) in losses from its past yen sales because of the

commodities buzz currencys appreciation, according to estimates by JPMorgan Chase & Co. Europe Watch EU Leaders Hold Pre-G-20 Crisis Talks Greek Prime Minister George Papandreou has been summoned to Cannes today on the eve of a Group of 20 summit where he will hear from French President Nicolas Sarkozy that the only way to resolve Greek debt problems is through a deal hammered out last week in a six-day crisis-management marathon. Papandreou will join a group comprising Sarkozy, German Chancellor Angela Merkel, European Central Bank President Mario Draghi, International Monetary Fund Managing Director Christine Lagarde as well as European Union authorities, according to a statement from Sarkozys office. They will meet later without Papandreou. Italy and France under pressure - Italian Prime Minister Silvio Berlusconi, under pressure to cut Europes secondbiggest debt load, convened a special meeting of advisers late yesterday to discuss budget-cutting plans. Like Sarkozy, Berlusconi held crisis talks with Merkel yesterday. His key cabinet ministers will meet today to draft measures for the countrys financial stability legislation, the Italian news agency ANSA said, citing government officials. Italy and Frances 10-year borrowing costs climbed to the highest levels relative to benchmark German bunds since before the creation of the euro in 1999. Bund yields fell the most on record, with the securities outperforming all their euro-area peers, as investors sought the safest assets. Greek two-year yields climbed to a record high 87.28 percent. US Watch Global, US manufacturing weakens Manufacturing in the U.S. was close to stagnating in October as cooling global demand prompted factories to pare production and reduce inventories. The Institute for Supply Managements factory index dropped to 50.8 last month from 51.6 in September, the Tempe, Arizona- based groups data showed today. A reading of 52 was the median forecast in a Bloomberg

Europe Watch EU Leaders Hold Pre-G-20 Crisis Talks Date 11/2/11 11/2/11 11/2/11 11/2/11 Country - Region Germany Germany Germany Euro Zone Data Unemployment Change Unemployment rate PMI manufacturing PMI manufacturing
Commodity Buzz

Period Oct Oct Oct Oct 2

Survey -10K 6.9% 48.9 47.3

Actual 10K 7% 49.1 47.1

Prior -26K 6.9% 48.9 47.3

Revised

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November 02, 2011

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US Watch Global, US manufacturing weakens Date 11/2/11 11/2/11 11/2/11 11/2/11 Country - Region Germany Germany Germany Euro Zone Data Unemployment Change Unemployment rate PMI manufacturing PMI manufacturing Period Oct Oct Oct Oct Survey -10K 6.9% 48.9 47.3 Actual 10K 7% 49.1 47.1

commodities buzz

Prior -26K 6.9% 48.9 47.3

Revised

News survey of economists. Fifty is the dividing line between growth and contraction. Manufacturing weakened from China to the U.K., partly a reflection of Beijings efforts to cool its economy and Europes debt crisis. Fed Officials May Prepare Ground for Further Bond Purchases, Survey Shows - Federal Reserve officials are probably engineering a third round of large-scale asset purchases, while they are unlikely to announce a decision today, according to economists in a Bloomberg News survey. Sixty-nine percent of those surveyed say Chairman Ben S. Bernanke will embark on a third round of quantitative easing, or QE3, with a plurality of 36 percent predicting the move in the first quarter of next year, according to the poll of 42 economists from Oct. 26-31. The FOMC plans to release a policy statement at 12:30 p.m. (US time) in Washington after a two-day meeting. The FOMC forecasts will be released at 2 p.m., and Bernanke is scheduled to hold a press conference beginning at 2:15 p.m. Market watch FOMC in focus Most of the commodities are trading higher today despite all sorts of negative developments as participants are expecting hints of further easing by the US Fed tonight. But for this FOMC meeting and upcoming G-20 meeting, markets would have been lower today. Base metals summary: All the base metals were sharply lower yesterday as aluminium posted the sharpest decline in a year. Nickel, zinc, aluminium and lead tumbled over 4%, while copper fared relatively better as it fell 3.25%. Markets can continue to trade sideways to higher before the US employment report. Upside from here looks limited to 3% to 5% in short-term. Disappointing outcomes from G-20 and FOMC meetings and a tepid US employment report could weigh heavily on the complex. For Private Circulation only
Commodities Buzz

AluminiumDown 4.82% LME 3-month aluminium closed with a loss of $107 at $2111. European demand for the light metal is reported to be soft presently. A move below Rs 102.70 would be very bearish for the counter. Resistance is at Rs 108.20. CopperDown 3.25% LME 3-month copper closed with a loss of $260 at $7730. Copper consumption growth in China, the largest user, will slow next year as the economy cools, according to Beijing Antaike Information Development Co. Refined copper consumption is forecast to rise 6.4 percent to 7.85 million metric tons in 2012, said Yang Changhua, a copper analyst in Antaike who has been studying the market for more than a decade. This compares with 8.5 percent growth this year to 7.38 million tons, Antaikes data showed. Freeport-McMoRan Copper & Gold Inc. said milling operations have been suspended since Oct. 22 at its strikehit Grasberg copper and gold mine in Indonesia. The biggest publicly traded copper producer said its Indonesian unit processed an average of about 120,000 metric tons of ore a day in October, 31 percent less than the daily rate planned for the fourth quarter. Freeport, based in Phoenix, forecast fourth-quarter sales of 185 million pounds of copper and 280,000 ounces of gold from its Indonesian unit on Oct. 19. The estimates were based on expected average fourth-quarter mill throughput of about 175,000 tons per day, according to the statement. Milling, the processing of ore to prepare it for shipment to smelters, was suspended after concentrate pipelines were damaged during protests related to a labor strike at the mine, Freeport said yesterday. The company had started repairs, but wasnt able to fully access the affected areas of the pipelines because of road blockages by striking workers.

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commodities buzz

Copper output in Japan may be 1.38 million metric tons in the 2011 financial year, compared with 1.5 million tons the previous year, according to Ryuji Ida, senior analyst at the Metal Economics Research Institute in Japan. In terms of reconstruction needs after the earthquake and tsunami, copper consumption may cease downward trend seen in recent years, Ida said in an interview at a forum in Jinan, Shandong. Full reconstruction demand will emerge next year, Ida said. The red metal needs to take out strong resistance at Rs 396 to extend its rally to Rs 401 level. Support is seen at Rs 386/ Rs 376. NickelDown 4.98% LME 3-month nickel closed with a loss of $975 at $18600. Support is at Rs 916. Resistance is at Rs 950. ZincDown 4.3% LME 3-month closed with a loss of $86 at $1914. Support is at Rs 93.50. Resistance is at Rs 97.50. LeadDown 4.80% LME 3-month lead closed with a loss of $100 at $1982. Support is at Rs 97.00. Resistance is at Rs 100.50/ Rs 103. Precious metals summary: The complex closed mixed in a volatile session as gold was up by a tad, while silver slid in sympathy with industrial commodities. The complex was quite volatile as the Greece referendum news sent the complex sharply lower. Traders dumped both commodities and equities on risk aversion. Gold came close to test its major support around $1675. However, the yellow metal rallied sharply after falling as traders piled into the metal on its safe haven allure. Silver was hit hard as it tumbled more than $2.50 from its days high. Gold is likely to extend its rally on its safe haven appeal. Silver could be very volatile. GoldUp 0.28% Spot gold closed with a gain of $4.85 at $1719.55. Support is at Rs 27250. Resistance is at Rs 27670/ Rs 27870. SilverDown 2.79% Spot silver closed with a loss of $0.95 at $33.34. For Private Circulation only
Commodity Buzz

Support is at Rs 54700/ Rs 53850. Resistance is at Rs 56350/ Rs 57000. Energy complex summary: The complex closed lower as crude oil fell on Greece referendum news and disappointing global manufacturing data. Natural gas tumbled on weather forecast. Crude oil is likely to inch higher amid expectations from FOMC and G-20 meetings. Natural gas could be bought on dips. Crude oilDown 1.07% Crude oil closed with a loss of $1 at $92.19. The counter fell below $90 as selling pressure intensified. The Organization of Petroleum Exporting Countries doesn't see oil prices falling below $100 a barrel, the group's secretary general was quoted as saying Tuesday, whilst also downplaying any significant rift within the group. The Mehr news agency quoted Abdalla Salem el-Badri, who is at a Tehran conference, as saying "estimates indicate that oil prices will not drop below $100 a barrel until year-end." However, Mehr also quoted el-Badri as pointing out that OPEC members are not complying with its quotas, with the group producing 29.9 million barrels a day on average. Crude oil inventories fell 156,000 barrels to 339.9 million last week, the American Petroleum Institute said. Gasoline stockpiles fell 1.13 million barrels to 208.6 million, the report showed. Inventories at Cushing, Oklahoma, the delivery point for futures traded on the New York Mercantile Exchange, fell 59,000 barrels to 32 million. The government report may show stockpiles of crude oil rose 1 million barrels last week, according to the median of 13 responses in a Bloomberg News survey. Gasoline inventories probably fell 800,000 barrels, the survey showed. Oil refiners in developed nations need to restructure as demand for diesel accelerates more quickly than consumption of gasoline, according to the former executive director of the International Energy Agency. Companies face the challenge of building plants that produce more middle distillates, which include diesel, instead of the motor fuel, Nobuo Tanaka, who is now the global associate for energy security and sustainability at the Institute of Energy Economics in Japan, said in Singapore today. There are huge opportunities for investment in member states of the Organization for

November 02, 2011

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commodities buzz

Economic Co-operation, where plants are less efficient than the newer refineries being built in emerging economies such as China, he said. Crude oil can rise to test major resistance around Rs 4700 if the developments at G-20 and FOMC meetings turn out to be positive. Support is at Rs 4460. Resistance is at Rs 4575/ Rs 4620. Natural gasDown 3.88% Natural gas closed with a loss of $0.1505 at $3.781. Natural gas futures dropped by the most in almost seven weeks on forecasts for higher-than-normal temperatures that would damp demand for the heating fuel. Gas fell as U.S. heating demand will be 9 percent below average through Nov. 11, according to a daily forecast from

Weather Derivatives in Belton, Missouri. Fuel consumption in the Northeast will be 13 percent below normal. Gas stockpiles rose 92 billion cubic feet to 3.716 trillion in the week ended Oct. 21, 4.4 percent above the fiveyear average, the departments report last week showed. Inventories reached a record 3.84 trillion cubic feet in the week ended Nov. 5, 2010, according to Bloomberg data. Barclays Capital raised its estimate of 2012 gas production. U.S. supplies will grow by 2.2 percent in 2012 with an average price of $3.80 per million Btu, down from a previous forecast of $4.55. Support is at Rs185. Resistance is at Rs 190/ Rs 191.

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