On Sunday, Atlanta Fed President Lockhart said that, at least as far as he is concerned, he is taking a wait-and-see attitude on the US’ economic expansion levels before concluding that his institution has made a decision on how and when to “exit stage-left” from its hitherto accommodative monetary stance. Fed Chairman Bernanke is expected to possibly chime in on the topic in a speech due later today. Markets are still looking for any clues as to the possible timing of the Fed’s turning off the spigot of spiked punch that has filled many a sector’s bowl over recent months and years.
There has been no waiting for further clues on the inflation front by other central banks, however. India’s RBI is continuing to battle price increases, and will very likely continue to do more of the same, especially in the wake of April’s inflation data (an 8.66% in the wholesale price index and a 9.1% rate of inflation). The eighth interest rate hike in a year now looms as a near-certainty in India. Ditto, over in Europe, where the rate of inflation accelerated to its fastest level in 2.5 years (to 2.8%) and is now pressuring the ECB to hike its key rates once again, come June. Last night, Chinese stocks fell for the third time in four days, on the back of apprehensions that the PBOC will likely also continue to tighten in the wake of unwelcome inflation figures. Slowing growth certainly plays on the minds of commodity players. At the end of the day, the Fed will not likely permit US inflation rates to get out of hand either, and thus, speculation about timing notwithstanding, the process of tightening will get underway in the US as well.
The emergence of this potential pivot point in the interest rate environment (and investment cycle) presents daunting issues to retail commodities’ investors. Marketwatch’s Chuck Jaffe (who, by the way still sees scope for the maintenance of a core position in commodities) notes that “this is the time in investment cycles where fund investors typically make their biggest mistakes. Unlike the sharpies who are in early on market moves, most buyers were late to decide that they needed more exposure to commodities than they might get through their ordinary fund. In fact, they were content until they saw the oversized gains commodities were putting up. At that point, they decided it was time to make an allocation decision.”
As trading action got underway in New York this morning, the commodities’ sector was still exhibiting some weakness and a predilection for selling among players, despite a largely dormant US dollar (parked at the 75.75 area on the trade-weighted index). Crude oil was off by about 1% and was trading at very near the $98.75 per barrel level at last check.
Silver continued to lead the metals’ complex to lower ground, losing about 2.2% or nearly $0.90 and trading at $34.49 at opening time after having touched $33.85 in overnight trading overseas. The white metal is now beneath its 100-day moving average at $34.85 and might be slowly (or not so slowly, on certain days) aiming for the 200-day one at the $29.32 level, a number at or near which analysts expect support to hopefully emerge. That level would be 58% off the pinnacle recorded at $50.35 not too long ago…