Market for week ending 30th May 08

Been meaning to start somewhere to share information I've collected from various sources and decided this might just be the start of my feeble blogging attempt. This is "my take on the market".


European Inflation accelerated faster than economists forecast this month as oil prices jumped to a record. The inflation rate in the euro area rose to 3.6 percent, matching a 16-year high, from 3.3 percent in April. Economists had forecast a 3.5 percent rate.

U.S. Consumer Spending Slowed: Increased 0.2 Percent in April as compared to 0.4 percent increase in March - a sign the biggest part of the economy may be faltering.
Higher fuel costs, smaller wage gains and lower home values have shaken Americans' confidence, raising the odds that spending will keep slowing. Government tax rebates may only provide a temporary boost to economic growth in coming months. Incomes grew 0.2 percent, bolstered in part by the government's tax rebates

U.K. consumer confidence dropped in May to the lowest level since Margaret Thatcher was ousted from office in 1990, as people became more pessimistic that the economy will slip into a recession

Retail sales in Germany, Europe's largest economy, unexpectedly dropped for a second consecutive month in April as faster inflation left consumers with less money.

Commodities-wise
- Slump in oil spurred declines in other raw materials. Crude oil lost 3.6 percent this week on signs record prices will slow economic growth.
- Gold headed for its first weekly drop in four in London as oil fell and the dollar rose, curbing the metal's appeal as a hedge against inflation and declines in the U.S. currency.
- Corn heading for the first monthly drop since August, on speculation a stronger dollar and lower energy costs will reduce demand.
- Tin headed for its steepest weekly drop since August in London after stockpiles expanded and investors judged that a record reached this month didn't reflect the outlook for demand.
- Copper rose 0.8 percent, to $7,950 a ton, rebounding from two-month low. Market expectation for softness in copper prices has been realized and view dips below $8,000 a ton as a buying opportunity given tightening concentrate supply
Overall: The dollar's rally has dampened market sentiment for grains and other commodities

Hot off the press:
Billionaire investor George Soros is to tell US lawmakers that "a bubble in the making" is under way in oil and other commodities.
Recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble.
Commodity index buying is eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987.

Implications
With financial institutions piling in on one side of the market, they have sufficient weight to unbalance it. So, if the trend was reversed and the institutions as a group headed for the exit as they did in 1987 there would be an unwelcomed crash.

Eric Tan, London