International Forex Inforamtion

Commodity prices continued to sink deeper Wednesday amid renewed concerns about global economic recession. The energy complex got the biggest hit with crude oil plunging -4.4% to close at 60.14 while gasoline and heating oil diving -5.7% and -3.9% to 1.63 and 1.54, respectively. Although the black gold's selloff stabilizes and recovers slightly after hitting 60.01 (currently trading at 60.8), we find the level can just provide temporary support and further decline after consolidation is likely.

The inventory report by the US Energy Department was generally bearish. Although -2.9 mmb decline in crude inventory came in higher than consensus and API's estimates, Cushing stock rose for the second consecutive week and by an impressive +1.6 mmb. We worry that, as the peak driving season ends and refinery facilities enter the maintenance season, crude stockpile will set to increase in coming weeks.

Gasoline inventory came in higher-than-expected as high gasoline price continued to motivate refiners but discourage consumers. 4-week average gasoline demand was down -1.4% yoy. We believe the high margin is unsustainable and recommend selling short on every rebound in gasoline crack.

Condition for distillate was disastrous. Its inventory level rose +3.74 mmb to 158.74 mmb, the highest since 1985. At the same time, its demand reached the lowest level since mid-2003 with 4-week average falling -21.6% yoy. Same as gasoline, we are bearish on distillate crack.

Natural gas is expected to have gained +85 bcf to 2806 bcf in storage in the week ended July 3. Gas price plummeted -2.2% to 3.35 Wednesday as driven by broad-based decline in energy and commodity prices. Its fundamentals remain weak as industrial consumption is expected to fall -8.2% while total demand will decline -2.3% to 62.1 bcf a day in 2009.

OPEC revised down its forecasts for world oil demand by -5.7M bpd to 87.9M bpd for year 2013 as world economic outlook remains uncertain and recovery from global recession will only take place gradually, thus demand for crude should only 'rise slowing over the medium term and return to 2008 level by around 2013'. At the same time, the cartel's production will be reduced to 31M bpd by that time, compared with 31.2M bpd in 2008 as increase in Canadian oil sands and biofuels, together with stable non-OPEC crude and NGLs, will take up the balance.

While the market has expected discussions about 'exit strategies' at the G-8 summit, world leaders concluded that it's too early to 'exit' as world economy remains weak. Rather, more stimulus measures may be needed. Although IMF revised upward its economic forecasts in 2010, its trimmed inflation outlook as well as underlying comments still pointed to the fragility of world economy which was negative for risky assets including commodities.
IMF forecasts the world economy will contract -1.4% in 2009, down from -1.3% projected in April. However, in 2010, the lender expected it will grow by +2.5%, compared with +1.9% in April's estimate, as led by emerging countries including China while Europe will be lagging both the US and Japan. For advanced economies alone, GDP will contract -3.8% in 2009 before expanding +0.6% (April's projection: +0%) in 2010. For the US, the world's largest oil consumer, GDP is expected to contract -2.6% this year and then rise +0.8% in 2010.

Concerning inflation, the IMF forecast global CPI will increase +0.1% in 2009 and then rise to +0.9% in 2010. In its previous Outlook in April, it had forecast increases of +0.3% and +0.6% respectively. The Fund said that although there's small risk for sustained deflation, the risk of inflation remains subdued through 2010 due to the significant output gap.

Diminished inflation outlook, strength in dollar and weakness in commodity prices continued to drive precious metals lower. The benchmark contract for gold slipped to as low as 904.8 Wednesday before finishing the day at 909.3 (-2.1%). Others in the precious metal complex also got hammered with silver, platinum and palladium losing -2.8%, -3% and -2.7% to 12.85, 1101.8 and 234.1, respectively. While we see buying interest above 900, near-term outlook for gold remain skewed to the downside. USD rallied against major currencies except for Japanese yen as risk-averse investors sought safe investments. Against the euro, the greenback rose to 1.383 before retreating to 1.394. Against the pound, USD surged to 1-month high at 1.5984 before pulling back.