'Double dose' of stimulus gives markets a boost

London

COMMODITY markets last week mostly rallied as China cut interest rates for the first time in more than two years, boosting the demand outlook in the Asian powerhouse. Prices also won support after European Central Bank chief Mario Draghi signalled readiness to act quickly to deter deflation, sparking fresh stimulus hopes.

"Markets in Europe took a double dose of stimulus on Friday; Mario Draghi again implied that the ECB is moving towards full quantitative easing and shortly afterwards China cut interest rates for the first time in two years sending commodities and risky assets flying," said CMC Markets analyst Jasper Lawler.

Crude oil raced higher after the People's Bank of China (PBOC) on Friday unexpectedly moved to prop up flagging growth in the world's second-largest economy.

The PBOC cut its one-year deposit rate by 0.25 of a percentage point to 2.75 per cent and reduced the one-year lending rate by 0.40 of a percentage point to 5.6 per cent.

"Sentiment improved as we received fairly optimistic news from China," said Sucden analyst Myrto Sokou. "Global equities markets rebounded and crude oil prices spiked after China cut interest rates for the first time since 2012."

Traders also focused on whether the Organization of Petroleum Exporting Countries (Opec) was likely to cut output to tackle recent heavy price falls. Prices began the week on the back foot, sinking on data that showed Japan sank back into recession and on scepticism that Opec will reach a deal to cut output.

Oil rebounded somewhat on Thursday following strong economic reports from the United States that offset disappointing data from China and the eurozone.

By Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in January stood at US$79.56 a barrel (US$78.77 one week earlier). On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for December rose to US$75.80 a barrel (from US$74.92 for the expired December contract a week earlier).

Gold soared on China's rate hike and reports of Russian stockpiling, as the market rebounded from recent four-year lows and dragged other metals higher. "A breakout in gold has seen the price clear US$1,200, helped on its way by China's decision to cut interest rates," said analyst Chris Beauchamp at trading firm IG.

By late Friday on the London Bullion Market, the price of gold rebounded to US$1,203.75 an ounce (from US$1,169 a week earlier). Silver jumped to US$16.30 (US$15.35).

On the London Platinum and Palladium Market, platinum rallied to US$1,230 an ounce (US$1,178). Palladium fell to US$794 (US$760).

Industrial metal prices also hurtled higher on the news from Beijing.

By Friday on the London Metal Exchange, copper for delivery in three months increased to US$6,739.75 a tonne (US$6,616.50 a week earlier).

Three-month aluminium rose to US$2,061.25 tonne ( US$2,016); lead gained to US$2,063 (US$2,020; tin rebounded to US$20,295 ( US$19,830); nickel rallied to US$16,463 (US$15,392); and zinc increased to US$2,302 a tonne (US$2,242.75).

Cocoa Prices weakened as concerns over the Ebola outbreak continued to dim in key producing nations Ivory Coast and Ghana.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in March fell to £1,869 a tonne from £1,877 a week earlier.

On the ICE Futures US exchange, cocoa for March eased to US$2,821 a tonne from US$2,822 a week earlier.

Sugar Prices fell on the back of favourable growing conditions in Brazil, with additional pressure from the rising US currency.

"Evidently, the market is focusing more at present on the somewhat better growth conditions for sugar cane in Brazil in the wake of recent rainfall and on the strong US dollar," said Commerzbank analysts.

By Friday on LIFFE, the price of a tonne of white sugar for delivery in March reversed to US$417.50 from US$420.40 a week earlier.

On ICE Futures US, the price of unrefined sugar for March eased to 15.96 US cents a pound from 15.99 US cents a week earlier.

Futures pushed lower on optimism over output from Brazil.

"The Arabica coffee price fell . . . after a US Department of Agriculture attache upwardly revised his estimate for this year's Brazilian coffee crop by 1.7 million to 51.2 million bags," said Commerzbank analysts.

By Friday on ICE Futures US, Arabica for delivery in March stood at 188.85 US cents a pound (195.80 cents one week earlier). On LIFFE, Robusta for January slid to US$2,070 a tonne (US$2,083). a week earlier.

Kuala Lumpur rubber prices fell on the back of rising regional currencies. The Malaysian Rubber Board's benchmark SMR20 declined to 153.30 US cents a kilo from 155.20 US cents the previous week. AFP