Commodities stabilize after sharp selloffs Thursday. The front-month contract (July) for WTI crude oil rebounds to 70.6 after sliding to as low as 69.31 earlier in the day. Brent crude also recovers to 71.8 after plummeting to 70.56. The contract dropped for 6th consecutive day to a 3-month low at 70.2 yesterday. Spread between WTI and Brent crude prices narrowed to $1.2/bbl from above $5/bbl a week ago.
Gold also finds support after weakening to 1166. Currently trading at 1183, the benchmark contract may find temporary support at the above-mentioned level after a correction of over -6%. Platinum and palladium also recover after being dumped severely. However, gold/platinum and gold/palladium ratios stayed at the highest levels in a year.
The chart below shows that gold/platinum and gold/palladium ratios have been declining since end-2008/early-2009. However, the downtrend reversed on April 23 and since then the ratios have been surging. We believe the reversal was driven by gold's safe-haven appeal to investors amid worries over sovereign crisis and cyclical nature in PGMs whose demand will be hurt should global economic growth slows down.
In Germany, policymakers have approved their contribution, between 123-147.6B euro, in the EU/IMF rescue plan to contain sovereign crisis in the Eurozone. The result, widely expected by investors, fails to boost the market. The euro pares gains made over the past few days and is currently trading at 1.25 against the dollar.
Stock markets also go lower. In Asia, the MSCI Asia Pacific Index slid -1.3% to 111.97, the lowest level since August 21 while all European benchmark indices edge lower.
Eurozone's economic indicators disappointed the market. Manufacturing PMI for the 16-nation region fell to 55.9 in May from 57.6 a month ago. The services index edged high to 56 from 55.6 in April. In Germany, both services and manufacturing PMIs declined more than market expectations.
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