Sydney, 6 September 2010

ANZ Commodity Weekly: Commodities jumped this week buoyed by macro data that surprised on the upside. Initially, bearish FOMC minutes pointed towards increased downside risk to the growth outlook, which weighed on sentiment for the closely correlated equity/commodity markets. The same report also showed reluctance from the Federal Reserve to expand quantitative easing, which also led investors to return to safe-haven investments (benefiting gold). Meanwhile, the recent influx of softer US state manufacturing and weekly jobless claims, suggested weaker key ISM and payrolls data later in the week – lending further support to the market bears.

However, the key macro data releases painted a very different picture. There was improved manufacturing performance in China in August, followed by US ISM data that beat forecasts and buoyed equities. US payrolls data on Friday also surprised on the upside – although payrolls fell 54k, the market was expecting a much greater fall of 105k. The bullish data carried most markets out of the red by the end of the week.

Wheat and corn were the best performers. Analyst downgrades of US corn yields contributed to price gains in that market. Meanwhile, Russia's announcement it would extend its ban on wheat exports until after the 2011 harvest (towards end of the year) buoyed wheat prices.

Freight rates also rose last week, posting a strong 42% increase in August. Capesize freight prices outperformed panamax rates last week, as iron ore and coal activity improved. Iron ore prices posted minor gains, as the firmer China manufacturing data countered ongoing concerns over the lack of steel mill buying interest, pushing prices up. Australian coal prices gained for the third consecutive week, amid expectations that Japanese term contracts starting from October are likely to settle higher than current spot levels.

Oil prices were choppy as investors responded to the flood of mixed US data. Oil demand continued to be worrying, as government data showed crude and products’ inventories soaring to 1.14bn bbls, the highest level since 1990, when the government started the series. The easing threat of Hurricane Earl on oil refineries (accounting for 7% of total US output) took the weather premium out of the market – but the bad weather still contributed to worries over reduced holiday driving and fuel demand.

Ends --