In commodities, the slide continued last week and looks like holding centre stage for sometime to come – or until oil prices show clear signs of stabilising.
Given last week’s 10% plus fall in oil prices, despite the tensions between Iran and Saudi Arabia, a steadying in oil prices looks a remote prospect at the moment.
The weakness in commodities and the events in China last week finally shook the Aussie dollar from the rut it was in above 72 US cents, and the currency slid for the week to end well under 70 US cents.
Some of that fall came on Friday night when the currency lost a cent as it fell to a close of 69.53 US cents (According to Bloomberg).
That left it down more than 4.5% for the week, which was a significant move and illustrates the sharp rise in nervousness about the Australian economy in the wake of the events in China’s markets.
That wobbly confidence among investors will be test again this week by the release of China’s preliminary trade report for December and 2015 out on Wednesday.
A weak report, especially for the key imports of commodities like iron ore, oil and copper, could see renewed selling of the Aussie currency.
Friday night’s fall came despite an easing in the level of fear about the China markets – which rose on Friday, but were still down 9.7% for the week.
The solid US jobs report failed to impact commodity markets, but impacted currencies, helping the greenback rise on talk of a rate rise from the Fed in March.
That’s rubbish, but it helped to again weaken commodity prices.
Last week’s rise in gold futures prices won’t help the Aussie or confidence today.
Gold is back performing its usual role as a ‘safe’ haven for nervy investors at times of heightened volatility. With the slide in China’s markets last week spilling over into the rest of the world’s markets, gold futures prices staged a solid rebound – but not silver.
Comex gold futures fell by $US9.90, or 0.9%, to settle at $US1,097.90 an ounce on Friday night, thanks to the stronger US currency and an easing in worries about China. That was a rise of 3.6% for the week, the largest since the week ended August 21, last year according to FactSet data. That saw gold bulls emerge from the woodwork forecasting a run up to around $US1,200 an ounce in coming months,
But for silver, no such joy. Comex March silver futures fell 42.6 cents, or 3%, to $US13.918 an ounce at the close on Friday. That left it with a gain of just 0.8% for the week instead of one closer to 4%.
Comex March copper ended flat at $US2.022 a pound, but that was down 5.3% for the week. But the real action was again in oil and the message wasn’t good.
Despite a solid fall of 20 in the number of US oil rigs in the weekly survey from Baker Hughes, oil futures failed to recover on Friday night and as a result the week’s losses topped 10%.
February West Texas Intermediate crude futures dipped 11 US cents, or 0.3% on Friday in New York, to settle at $US33.16 a barrel. For the week, prices ended 10.5% lower and the settlement price was the lowest since February 2004, according to FactSet data. And in London, February Brent crude (the global oil indicator price), lost 20 cents, or 0.6%, to $US33.55 a barrel, for a weekly loss of 10%.
That was also the lowest price settlement since June 2004. A repeat this week of last week’s 10% slide will push futures prices closer to or just under$US30 a barrel. Reuters reported that some types of heavy Canadian crude (from oil sands) is selling for $US20 a barrel or a bit less.
It is discounted from natural crude because of the higher cost and lower quality, but it’s a sign of what could lie ahead for global oil prices in coming weeks.
