More of the Same for Commodities

Daily Analysis - 03/08/2015

Dollar and Other Factors Drive Oil, Gold Down

The dollar is unstable. It does not know what news to react to, much of which is mixed. These days, it is nigh impossible to expect good news, such as met expectations, to drive anything upwards as something good today can and will affect something bad tomorrow. Any news at all breeds volatility, and the latest fluctuations of the dollar have driven commodities, especially gold and oil downwards on their continuing journey into the depths.

Mixed Market News Ahead of Rate Hike

On Friday, stock markets made no significant gains or losses, after news of flat corporate earnings and data showing slow growth in the 2^nd quarter US economy. Expenditure on capital machines for companies slowed significantly, but increased consumer spending offset this, hence the weak splash on the back of these reports. The Fed could be close to an interest rate decision given this slow momentum. The dollar is rising again, reaching a one week high against peer currencies on the aspiration of the Fed to a more stable economy and an inflation target of 2% close to reality.

Greece Faces IMF While Europe Watches

The Euro rose 0.5% to $1.0925 after reaching one week lows at the $1.0894 level. Even tougher on the currency is the notion that the IMF will not be able to join into further bailout discussions unless the Greeks agree to further reforms. Economic data in the United States has unearthed a chance of a rate increase, though analysts caution that Greece's unresolved debt issues and volatility in China's stock market may increase, forcing the Fed to push the rate hike even further from September. China’s manufacturing PMI fell to 47.8 from 48.2, to levels the lowest in two years, driven from real appreciation of the CNY and the previously mentioned turmoil in equities. Euro yearly inflation rates remain at 2% despite the hit from sliding oil prices. Core inflation is projected to increase.

Hazy Outcome for Pound on Manufacturing Figures

Commodities prices have been driven even further down from their recent lows on the back of a stronger US dollar. MXN rose on the statement from Mexico’s Central Bank that a governmental intervention was needed to help the peso. The GBP remains in bullish territory due to an interest rate increase on the books for early to mid 2016, exponential job growth in the UK and protective statements released from the Bank of England. The month-over-month manufacturing report for the UK is the main attraction for the Euro-hour economic event calendar. The index will most likely increase .10% to 51.5 due to expansion in the factory sector. The outcome may not have a favorable effect on the Pound however, as many traders await official announcements from the Bank of England regarding policy changes before setting positions.