Crude Prices Gain As Positive US Housing Data Rallies Equities

Published May 19th, 2009 - 01:29 GMT

Crude prices rose substantially for the session as optimism fueled equity rallies. Lowe’s Cos. earnings beat analyst estimates and following the release by forecasting a better quarter for the company. This helped to raise market optimism in earlier trading. Later, the National Association of Homebuilders sentiment survey built on the optimism further as it showed a second month of gains, rising to 16, the highest since September 2008.



Commodities - Energy

Crude Prices Gain As Positive US Housing Data Rallies Equities

Crude Oil (WTI)                $59.290                +$2.950       +5.24%
Crude prices rose substantially for the session as optimism fueled equity rallies. Lowe’s Cos. earnings beat analyst estimates and following the release by forecasting a better quarter  for the company. This helped to raise market optimism in earlier trading. Later, the National Association of Homebuilders sentiment survey built on the optimism further as it showed a second month of gains, rising to 16, the highest since September 2008. These pieces of data suggest housing conditions may indeed be improving in the US and sets the stage for tomorrow’s US housing data. If the data continues to show better results, rallies could continue going forward. Meanwhile, despite expectations from the Department of Energy that crude prices would remain weak due to large stockpiles, supply worries grew over threats from a Nigerian militant group to block off waterways used for energy transports in the region. Further worries came after news emerged of a Sunoco Inc. refinery fire. Nevertheless, even with supply hiccups, global demand and supply factors point to further weakness in prices. Regardless, fundamental reasoning has had little impact on crude pricing in past months as the major influence on price movement comes from risk sentiment. In this regard, strength provided by equity rallies may be short-lived. Much of the optimism that has been spurred up came from minor improvements in housing data and commentary but little data that fully supports a bottom. The violent up-swing in equity rallies could just as quickly be retraced if there isn’t further positive news. Given the nature of the crisis, the latter is more likely than the former. As aresult, barring further equity rallies, crude will likely decline in the near-term.





Commodities - Metals

Safe-havens Fall As Equities Rally

Gold                                  $920.200             -$14.850     -1.59%
Gold prices declined today as equity markets swung upward. Prices have benefitted from the uncertain nature of the economy in recent weeks and today’s recovery pulled some of that steam out of safe-havens. On the other hand, the if rallies are redeemed by a true recovery forming, this would open up the way for dormant inflationary pressures to emerge. Given the sheer amount of capital injected into the economy, this is a considerable risk and could begin to strongly support higher gold prices. Nevertheless, even if equities turn bearish again, until the market gets more solid data pointing firmly to which direction the economy is headed, gold prices will likely trade flat or gain modestly for the short-term.

Silver                                $13.7400             -$0.2500     -1.79%
Silver prices followed gold’s down for the day. Although inflationary pressures provide upside potential in the future, silver is used in many industrial applications and is thus subject to weakness from lower global production. Recently, this inverse relationship with gold has begun to resurface and could become more pronounced if the economy turns weaker. As a result, strength that would be provided by its safe-haven status could be offset. Consequently silver will likely gain modestly in the short-term.
 

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