Commodities Higher and Dollar Lower on Middle East Worries

March 7, 2011

WTI crude oil advanced 2.0% to $106.55 per barrel, and Brent, which is better correlated with gasoline, is at $116.92 per barrel.  Gold rose 0.8% to $1439.40 per ounce, and silver hit another 31-year peak.

A Libyan civil war intensified over the weekend, and investors are bracing for Saudi Arabia’s “Day of Rage” on Friday.  If the Saudi ability to boost production were to be impeded, the upside scope on oil prices will broaden.

The euro is 0.3% stronger at $1.4027 in spite of a warning from Moody’s that Greece’s rating may be downgraded further.  EU leader discussions over a handling peripheral debt remain contentious, but investors are more focused on oil than Euroland debt.  An article ran last week in the Financial Times entitled ‘Dollar’s haven status at risk from rising oil.”  The U.S. currency also lost 0.4% against sterling, 0.3% relative to the yen and Australian dollar, 0.2% against the yuan, and 0.1% versus the Canadian dollar and Swiss franc.

Markets continue to soak in the reality of a likely ECB rate increase next month.

The kiwi is unchanged against the dollar, as investors hedge the possibility of a New Zealand central bank rate cut this week.

Equities fell by 1.8% in Japan, 1.4% in Australia and India, 1.2% in South Korea, 1.1% in Sri Lanka, 0.8% in Taiwan, 0.5% in Malaysia, and 0.4% in Hong Kong.  But Chinese share prices advanced 2.0%, and the British Ftse is up 0.4%.  The Paris Cac and German Dax show declines of 0.3% and 0.2%.

The yields on 10-year German bunds and British gilts rose three and four basis points.  The 10-year JGB yield slid two basis points.

The latest corruption scandal to plague Japan’s ruling Democratic Party resulted in the resignation of Foreign Minister Maehara.

Japanese reserves dropped by another $1.495 billion in February and have declined by $26.6 billion since October.

Japan’s index of leading economic indicators rose 0.9 to 101.9 in January, the best reading since August 2006.  The coincident index printed at 106.2, up from 103.7 in December and 102.4 in November.

The Sentix gauge of Euroland investor sentiment improved to 17.07 in March from 16.70 in February and 10.60 in January.

Norwegian industrial production fell 2.7% in January and recorded a 6.4% on-year decline. Danish industrial output advanced 2.8% in January.

New Zealand building permits jumped 9.6% in January after plunging 18.2% in December.  It was the greatest monthly increase in 22 months.

U.S. monthly consumer credit figures will be released in an otherwise light Monday from a data standpoint. ECB President Trichet after the monthly Basel meetings will be speaking. Lockhart and Fisher of the Fed also have speaking engagements.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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