Stock markets soared in Asia, carrying forward the optimism of the EU summit last week. Added to the bullishness was China's PMI data which showed that manufacturing activities were still on expansion and better-than-expected Tankan survey in Japan. In the commodity sector, crude oil retreated after the rally last Friday. The EU sanctions on Iran entered into full force but with a number of exemptions. It is estimated that around 1M bpd out of 3.3M bpd will be removed from the market. However, concerns over supply shortage were overshadowed by worries over debt problems in the Eurozone. The front-month contract for WTI crude oil retreated to 83.66 in Asian session today after jumping to a 2-week high of 85.34 last Friday. The equivalent Brent crude contract slipped to 91.73, following Friday's rise to as high as 98.29. Gold also retreated after the rally on Friday.
China's official PMI data eased to 50.2 in June from 50.4 last month. A reading above 50 signaled expansion in the manufacturing sector. Meanwhile, similar data compiled by HSBC and Markit reported a drop to 48.2 in June from 48.4 in the prior month. With the government's stimulus of cutting interest rates and RRR, the country economy is probably bottoming out. We expect further RRR cut soon as the government accelerate measures to boost growth in the second half of the year.
In Japan, the BOJ reported that the quarterly Tankan large manufacturer index improved to -1 in 2Q12 from -4 in 1Q12 while that for non-manufacturing index rose to 8 in 2q12 from 5 in the previous quarter. Moreover, large Japanese businesses expected capital spending will increase +6.2% in the first quarter of this year, up from a previous forecast of no change. With the policy virtually at 0%, the BOJ increased the size of the Asset Purchase Program by 10 trillion yen to 65 trillion yen in February and then by 5 trillion yen in May. The duration was also extended to end 2012. Passage of the sale tax hike last week has lifted speculations that the BOJ would feel more obliged to adopt further easing policies.
The US ISM manufacturing data probably slipped -1.5 points to 52 in June. Construction spending might have climbed +0.2% m/m in May after gaining +0.3% in the prior month. In the Eurozone, the unemployment rate probably rose to 11.1% in May from 11% a month ago.
Commitments of Traders:
Speculators were mixed towards the energy complex in the week ended June 26. Net length for crude oil futures slid -11 075 contracts to 112 833 while that heating oil recorded net short of 590 4 896 contracts. Net length for gasoline decreased -291 contracts to 60 578. Net short for natural gas futures fell -3 618 contracts to 110 077.
Speculators were bearish towards precious metals during the week. Net length for gold futures slipped -13 785 contracts to 122 619 while that for silver dropped -3 880 contracts to 6 222. For PGMs, net length for platinum decreased -455 contracts to 19 797 while that for palladium dipped -1 311 contracts to 4 462.
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