Global commodity markets were upbeat at the beginning of the week as the markets were confident about the long-term economic recovery of the global economy with fears of a Greek default allayed and comforting assurance of the Fed willing to support the US recovery.
The optimism of the market received a further boost as the two big investment banks Goldman Sachs and Morgan Stanley presented a bullish view on oil and copper predicting a global recovery in the second half of the year. The rally in the equity markets further helped the rally in the commodities. Some of the major macroeconomic developments during the week were that of the European Central Bank raising its benchmark interest rates by 25 basis points, downgrade of Portugal?s credit rating to junk status and Chinese central bank raising its interest rate by 25 basis points. None of these factors dented the underlying optimism of the commodity markets.
However, by the end of the week the optimism was somewhat tempered with weaker than expected non-farm payrolls data coming out of the US. By the end of the week there was also some concern about the euro zone after a EU draft document said that Europe will support banks that fail the stress test if those lenders cannot raise capital from investors within six months. On balance, concern about Europe seemed to have prevailed over optimism about US recovery and this was reflected in the euro-dollar exchange rate.
Dollar strengthened against euro by 2.06%. Despite this, most commodity futures prices saw a gain on a weekly basis, a hint of the bullish underpinning of the markets last week.
The market?s outlook and confidence is best gauged by the performance of copper futures. The red metal jumped to its highest in three months last week, registering a weekly gain of 2.55%, bolstered by its assessment of a global economic recovery in the second half of the year. Copper futures also received support from reports of adverse weather in Chile and strike at Grasberg mine in Indonesia will squeeze supplies in the coming months. Crude oil futures too saw a weekly gain with Brent crude gaining by over 6% over the week while WTI crude gained by 1.28%.
Part of the Brent?s gain was explained by the continued unrest in Libya following air strikes by NATO in the Libyan town of Brega, including its refueling equipment. Though gold futures rose by 3.68% over the week, closing at $1541.6 per ounce, it was very much within its trading range in the recent past. Silver futures gained substantially over the week (by over 7.7%) buoyed by reports of growing industrial demand for silver in the global market.
Corn futures saw an upward correction in prices after the heavy sell-off last week. Having factored in the bearish factors the markets reacted to the stock to use ratio of corn, which at 5.2 % is said to be the tightest since World War II and news of renewed imports from China. Corn futures gained by 4.39% over the week. Wheat futures gained by 5.33%. Despite reports of higher supply there was an upward bias in the wheat futures mainly because of expected downward revision in wheat acreage by the USDA in its forthcoming August estimates.
Coriander futures fell over the week by 4.5%. Cumin seed futures fell by almost 1.6% as traders reported weakening demand from the Gulf countries as well as the EU. Turmeric futures gained by 0.28%.Guar seed futures lost by 0.28 %.
The author is senior economist, NCDEX. The views expressed are personal.