Global weakness to curb commodity prices

NEW YORK/LONDON – The developed world is still caught in a low growth environment. However, with interest rates at record lows and the risk-free rate of return at an even absurdly low level, stocks are being bid up by investors.

Wall Street climbed to a 4-month high on Thursday and it appears as though the summer consolidation is over. The rally in US stocks is due to the improvement in the nation’s housing market and investors are anticipating further monetary easing.

Turning to commodities, it is notable that the sector has been rallying on the hopes of fresh stimulus. However, given the weakness in the global economy, a sustainable advance in industrial commodities looks dim.

Commodity markets closed out a languid summer week with mostly minor gains on Friday as talk of releasing strategic reserves dampened oil’s recent rally while violence in South Africa drove platinum sharply higher for a second day.

With overall trading about a third less than usual due to the August lull, commodities such as copper, corn and gold showed little inclination to break out of recent ranges, instead drifting sideways as dealers await news on everything from Fed policy to eurozone bail-outs to the health of US crops.

The 19-commodity Thomson Reuters-Jefferies CRB index rose for a fourth day on Friday, gaining 0.36 percent to push into the black for the week. But the index has struggled to regain its momentum of July, when the onset of a US drought and sanctions on Iran drove a 14 percent rally in four weeks.

Corn prices in Chicago ended almost unchanged on Friday, failing to test last week’s peak as traders reckon that record prices will reduce consumption. Copper, which gained 1.1 percent, still hovers near this year’s lows as downbeat data from China threatens demand from the top user.

Other risk markets gained from apparent support from German Chancellor Angela Merkel for European Central Bank intervention to help calm the euro zone’s debt troubles, as well as data showing consumer sentiment rose to its highest in three months. The S&P 500 closed within a hair of a four-year high.

But many traders appeared to be holding fire ahead of key events in the coming weeks, including Federal Reserve Chairman Ben Benarnke’s annual speech in Jackson Hole in late August, as well as a Sept. 12 court ruling on the euro zone rescue fund.

Brent October crude fell $1.56, or 1.4 percent, to settle at $113.71 a barrel on talk of a possible release of US strategic petroleum reserves and expectations that North Sea output will rebound after maintenance in September.

Oil declined after a source told Reuters Thursday the White House was “dusting off old plans” for a potential release of strategic oil stocks. – Agencies