As shares are pounded, the surge in oil and foodstuffs (such as grains and oilseeds) so far in 2008 has seen commodity price indexes looking flush: up around 30% from January and the best performance since the first half of 1973.
Now oil, gold and other commodities may rally further Thursday night, our time, if the European Central Bank boosts rates, a move which would knock the US dollar further down towards the all time low of just over $US1.60 to the euro reached earlier in the year.
After all the drama of Friday's trading, August crude oil ended up just 57c at $US140.21 a barrel on the New York Mercantile Exchange. That was still a record close and the contract jumped $US4.85 a barrel or 3.6% over the week. In London August Brent crude rose 48 USc to close at a record $US140.31 a barrel on London's ICE Futures Europe exchange. Futures hit the highest intraday price ever of $US142.97.
Gold had a second weekly gain as the greenback fell: August Comex gold rose $US16.20 to $US931.30 an ounce in New York. That's around $US100 under the all time high hit last March. The prospect of a rise in ECB interest rates is helping gold: with the inflation figures from Europe tonight, our time, likely to see the metal rise even further.
The US dollar closed in New York at $US1.573 per euro. That was down 1.1% over the week. It fell to $US1.6019 on April 22, the lowest since the euro's debut in 1999. The Australian dollar closed at 96.10 USc in New York. September silver rose 49 USc to $US17.71 an ounce to be up 1.8% this week and is up 19% so far this year. Gold rose 3.1% and is up 11% so far in 2008.
And while the rediscovery of gold by nervous bears is a sign of the renewed tensions in financial markets about growth and inflation, the sharp fall in yields on the key US 10 year Treasury bond is a sign of just how nervous investors have become about the health of financial stocks. Yields on the 10-year bond had their largest fall since February as plummeting stocks, especially among banks and other financials, sent investors to the safety of US government debt.
Yields on two-year bonds which are usually more sensitive to monetary policy than longer-term securities, touched the lowest level in three weeks. Yields on 10 year bonds dropped 0.20%, the most since the last week of February. Yields touched 3.95%. On two-year bonds the yield fell 0.27% over the week to 2.63%.
With inflation still a major concern, it's now clear fears about the safety of US banks and financial companies is now greater than any concern that price pressures will lift interest rates and cause the economy to stumble further. So great is the concern that oil's rise last week didn't cause as much concern for many investors as the big fall on Wall Street and the new lows for commercial and regional banks in particular.
In the softs, wheat had its biggest fall for three weeks after the International Grains Council raised its global production forecast. The IGC now believes wheat farmers will harvest 658 million tonnes of the grain in the year ending June 30, 2009, up from the 608 million harvest in the crop year which ends tonight, our time.
That was a 1.2% increase from the group's forecast at the end of May. The Council believes that stocks will rise 20% or 143 million tones by the end of the year, which would put supply-demand closer to balance. Concerns about the state of the US wheat crop after the Midwest floods didn't show up in the IGC forecast. September wheat fell 30.75 USc to $US9.12 a bushel on the Chicago Board of Trade.
The US winter crop will climb 20% to 1.82 billion bushels this year, the US Department of Agriculture has estimated. The harvest was 22%. That was after a 4.1% rise in plantings. Yields in southern areas are on the improve, compared to last year. The concerns are still with corn and soybean crops. Corn fell Friday fell from the record close of the day before, while soybeans eased from a three-month high with some end users in the food industry warning they will cut consumption if meat prices don't rise.
But with retail sales sluggish and consumers looking for value, many food companies have little pricing power, especially against the likes of giant US retailer, Wal-Mart and Costco. December corn fell 1c to $US7.87 a bushel on the Chicago Board of Trade, after earlier rising to a record $US7.9925. The most active corn contract was up 4.2% in price last week.
November soybean fell 2c to $US15.595 a bushel in Chicago. The most-active contract hit a three-month high of $US15.79 and rose 3.4% over the week. US corn prices have risen 73% since the start of 2008 (better than oil). New York sugar fell sharply on Friday on speculation that Brazil and India will boost exports following good crops.
The two countries are the leading exporters in the world and their production and export figures influence global prices. October sugar fell 0.21 USc, or 1.6%, to 12.74 USc a pound on the US branch of the ICE Futures market in New York. The fall took the week's decline to 2.6%.
