Oil, Gold Rise On Iran Fears
U.S. 10-year Treasury yields fell to their lowest levels since
March as investors continue to bet that the Fed will not raise rates in
September. The CPI and PPI reports last week both showed a U.S. economy
that is slowing with little inflation, curbing the necessity for the Fed to
intervene by raising interest rates. Two housing reports this week are
expected to bolster this sentiment, which would drive rates lower and yields
higher. Some investors are expecting a pullback of some sort to occur, as
price looks to be overbought and ahead of itself. However, there seems to
be widespread sentiment that the Fed could be done with its tightening cycle for
the rest of the year.
The US dollar fell hard against the euro today, and also
against the British pound and Swiss franc. With numerous reports pointing
to a slowing economy, the U.S. dollar looks to be in trouble against many major
currencies, most notably the yen and the euro. The dollar is down 8%
against the euro and 2% against the yen for the year. Both the ECB and BoJ
are expected to raise rates before the year is out, which is also adding to the
mounting pressure against the dollar.
Crude oil futures rose 1.8% to close at $72.45 after Iran said
it would continue to defy a United Nations resolution to cease uranium
enrichment. Iran has until the end of the month to accept the offer, which
the country has repeatedly made clear it has no intentions of doing so.
Escalating tensions in the entire Middle East region have placed strain on
investors, who fear that a major war could lead Iran to remove its supply of
crude to the world. Currently about a 1/5 of the world’s crude supply runs
past Iran, and the country has often used this fact to its geopolitical
advantage. Natural gas fell 1.5%, the seventh drop in a row, on continued
moderate weather in the U.S. Midwest.
Gold rose 2.2% to closet at $635.20 an ounce after Iran
announced its decision to reject the U.N. resolution against uranium enrichment.
Gold and oil have been trading side-by-side over the last few weeks, as concerns
about energy supply fuel demand for the safe-haven metal. Copper rose 2.3%
after Chilean miners at the world’s largest copper mine rejected the latest
offer to come back to work.
The softs traded higher today across the board. Coffee
rose 3.6% after an unexpected decline in inventories in Vietnam spurred supply
fears. Orange juice rose 2.4% and cocoa rose 0.14%.
Grains rose across the board. Corn rose 0.6%, wheat rose
0.3%, soy rose 0.2% and wheat rose 0.3%.
Meats traded higher across the board. Cattle rose nearly
1% and porkbellies rose 0.4%.
John Patrick Lee