The risk to global economic recovery posed by continued weak macroeconomic data coming out of the US and ongoing uncertainty about the resolution of the debt crisis in Europe seems to have bogged down the commodity futures markets last week. The concerns on recovery seemed to have weighed in more than any concern about long-term supply constraints or runaway demand for commodities. Moody?s downgrade of Greece to Caa1, raising the country?s risk of default, only added to the anxiety of the markets. China?s non-purchasing managers? index falling to 61.9 in May compared to 62.5 in April further deepened the anxiety. And though India?s lower fourth quarter GDP growth rates (compared to the previous quarters) did not have much direct bearing on global commodity market sentiment but as a part of the Asian growth story, numbers coming out of India are watched by global market participants.

Data on US non-farm payrolls (a measure of hiring activity in the labour market) showed no significant change in May 2011 as compared to what was forecast. Following the data on increase in the jobless claims in the last few weeks, this further pointed to a faltering US economy. In addition, the ISM index for manufacturing industry activity in the US also showed a sharp decline in the rate of growth for the month of May dropping to 53.5 from April?s reading of 60.4. Essentially both the labour and the manufacturing sector in the US are showing signs of deceleration in growth. The effect of such bleak macroeconomic data on the dollar was to weaken it against the Euro during the week (it weakened by about 2.09%). The weakness in dollar was also contributed to by the strength in Euro which gained on the news of Germany?s strong economic reports. Despite the weakness in the dollar the bellwether commodity indicators did not gain uniformly across the board over the week. In fact, near-month copper and WTI crude oil futures declined by 0.95% and 0.46%, respectively and near-month Brent crude futures increased by 1.15%. There were too many upside and downside factors working on crude futures causing them to move only within a restricted range. The markets are waiting for the Opec meeting in Vienna next week where a decision on increase in output ceiling by the group of major oil producers is expected. The lack of clear direction in market?s movements was reflected in the sideways movement of near-month gold futures on COMEX which (despite volatility during the week) gained by only 0.37% during the week.

The gains in commodity futures were seen in softs and agricultural commodities. Benchmark near-month cotton and sugar futures saw weekly gains of 5.33 and 4.17%, respectively. Other than a weak dollar, cotton futures gained on the reports of a lower than forecast US cotton output and one of the lowest global stocks/use ratio of the soft commodity. Sugar futures rose, in the main, as a reaction to USDA?s forecast of record global consumption in 2011-12 and reports of lower output of sugar from Australia. Near-month wheat, corn, and soyabean futures gained by more than 3% each on reports of slow pace in planting progress and inimical climatic conditions in major grain growing areas in the world.

Among commodities traded, near-month chana futures gained by around 2.3% over the week on reports of fresh buying in the spot markets. Domestic sugar futures declined by more than 2% over the week on weak spot market demand and enough stocks with millers. Refined soya oil moved side ways and declined over the week by about 0.37% apparently following weak global cues. Potato futures saw quite a bit of movement both ways during the week. However, on a weekly basis it registered a decline of about 1.9% amidst reports of increased arrivals from producing centres and weak spot market demand.

On the policy side one of the developments in the Indian commodity derivatives markets last week was deferment of the proposed raise in stamp duty on trading in commodity derivatives by the government of Maharashtra. It may be recalled that in its Budget proposal for 2011-12 in March, the State government had proposed to levy a stamp duty of ?5 on every? 1 lakh worth of trade in commodity futures from the current level of ?1 per lakh rupees worth of transaction. The same has been deferred.

* The writer is senior economist, NCDEX. The views expressed are her personal