Softening commodity fundamentals. Markets for the week ending 22-August

Update: Markets/Indicators
- US PPI came out at 1.2% in July vs consensus of 0.6%.
- European stocks declined on concerns that financial firms will post more losses and reports signaled faster than expected forecast inflation
- July 2008 Housing starts at 965K (lowest since March 2001), this is 11% below July and 59% below the peak of January 2006 (2.292 million)

Commodities
- Softening of oil market fundamentals, seen since the start of the year, are finally being reflected in prices.
- A deteriorating economic outlook is leading to lower demand, and the performance of non-OPEC supply is improving
- OPEC further revised down its estimates for oil consumption in 2009. It had previously suggested that 2009 would be the first year in which demand for OPEC oil fell since 2002, leading some to suggest that it may trim production in its September meeting.

However, Oil rose to $120 on 21-Aug driven by political tensions that Russia was infuriated by US and EU's response on Georgia and has ordered oil exports to be reduced

Recap of economic developments so far:
- Downturn driven by asset deflation and deleveraging in the banking and household sectors
- Bank asset growth has stalled or fallen, with limited access to dearer credit
- Political economy swinging towards more government intervention
- Losses on traditional assets such as mortgages, credit cards, consumer and corporate loans yet to be taken
- Global economy could be in recession by 2009 with little material economic recovery until after 2010
- Next focus would be on consumer-led global economic weakness

Eric Tan, London