The optimism from the previous week spilled over to last week as global markets focused more on some of the encouraging growth indicators, ignoring forecast reports of declining crude oil demand. So firm was the optimism that markets even ignored reports of slowdown in the Chinese exports and instead concentrated on the potential of increased bank lending in propping up the Chinese growth.
This despite the fact that China?s bank lending was down in September, the lowest in the year so far! Clearly the markets were in no mood to believe that anything is wrong with the Chinese growth story! Such fierce optimism in the Chinese story was not completely misplaced because the retail inflation rate in September was 0.1% lower than in August, thus giving confidence to the markets that the Chinese central bank would have the power to ease bank lending. Adding further to the optimism were reports of increased consumer spending in the US and of course, the meeting of the G-20 leaders with the IMF at the end of the week to provide succor to the Greek economy as well as revive the euro zone economies.
In a significant development the Slovakia Parliament agreed to back the European Financial Stability Facility (EFSF), a company created to help countries in the euro zone area tide over their financial difficulties. Slovakia?s approval put an upward pressure on the euro which appreciated against the dollar by 3.50% over the week, making commodity investment cheaper. The effect of all the above was to increase the prices of the front-month global benchmark commodities all across the board with the largest increase seen in the Brent crude oil contract which increased by 8.17% over the week to close at $ 114.68 per barrel after opening at $ 106.01 per barrel at the beginning of week.
The other energy contract, WTI Crude, closed at $ 87 per barrel by the end of the week after having opened at $ 82.75 per barrel at the beginning of the week, making a weekly gain of 5.13%. Though the market was not risk averse last week, near-month gold futures ended higher by the end of the week at $ 1683 an ounce .
Among the agricultural commodities the two key grains viz., corn and soyabean saw substantial rise in their near-month futures contracts, rising by 6.84 and 9.67% respectively, over the week.
The run up in the corn futures could be partly explained by the USDA?s report mid-week which lowered the 2011 corn production estimate by 64 million bushels. Soyabean production was reported lower for the current month as compared to same time last year by 65 million bushels, putting an upward pressure on soyabean futures. In fact, the fall in soyabean prices which was seen recently was stopped because of the lower production reports for 2011. In the domestic commodity futures markets, near-month futures in rape mustard seed increased by 2.29% over the week amidst reports of increasing demand in the physical markets. The RM seed near-month futures contract closed at 2809 per quintal. Near-month refined soya oil futures contract gained by 3.10 % during the week. Among the spices, coriander futures gained by 4.73% over the week.
The author is senior economist, NCDEX. The views expressed are personal.