New homes starts rose, thanks to a rise in the number of new apartments and units started. But the more important new single family house starts figures tumbled to a new low, while US consumer confidence dropped to a 28 year low. That sent the US dollar lower. That saw investors sell the dollar on expectations that there would be another cut in interest rates.
But seeing how the Fed and its senior officers are out 'jawboning' investors on the importance of inflation, and are again due to make a number of high profile speeches this week, the expectations about interest rates were a wrong conclusion by investors in the greenback on Friday. US bond markets seem to think that rates are going to remain on hold, with the next move possibly up at some not too distant (but not too close) date.
In the meantime commodity prices will be reacting to movements in the US dollar, high profile forecasts like the one Friday from Goldman Sachs (which raised its forecast for 2008 oil prices to $US141 a barrel) and on speculation Chinese diesel purchases will strain supplies. Goldman lifted its oil price estimate for the second half of this year to $US141 a barrel, from $US107, citing fears about supply constraints.
Some analysts reckon China will be forced to increase imports of fuels like diesel and naphtha to generate power after last Monday's powerful earthquake in Sichuan which has so far killed more than 30,000 people and damaged a number of dams and hydroelectric plants. Oil prices edged up 0.3% last week, a big slowdown from the 8% rise the week before.
The market has to full digest the impact of the news that Saudi Arabia will boost production by 300,000 barrels a day from next month. It's not known if this will add to total output or help cover the shortfalls from Mexico, Venezuela, Nigeria and Russia where output is falling in all four countries because of old fields and underinvestment.
Goldman Sachs forecast that the main US marker crude, West Texas Intermediate will rise to $US135.30 in the third quarter and $US145.60 in the fourth quarter of this year, and the price will then rise further in 2009, averaging $US148 a barrel.
Also adding to the mix for oil was confirmation that the US Energy Department won't increase deliveries of oil to the US Strategic Petroleum Reserve. This was after the US Congress, in an effort to respond to record energy prices, voted to suspend deliveries through to the end of the year if oil stays above $US75 a barrel. Regular petrol prices averaged a record $US3.787 a gallon on Friday. Meanwhile gold had its best rise in 10 weeks on the oil price move and the weakness in the US dollar.
But seeing these factors have been around for most of the past 10 weeks, it's hard to work out why they had the impact they did on trading sentiment on Friday: except to say that the move downwards in the US dollar was probably enough to convince nervy punters that the chances of a rebound against the euro is pretty remote for a few days.
The US dollar's rise against the euro is now less than 3% since the all time low last month: that's down from 8% 10 days or so ago. June gold futures jumped almost $US20 or 2.3% on Friday, to $US899.90 an ounce on Comex. The metal was up 1.6% for the week (it was down before Friday's move) and 7.4% for the year. July silver futures rose 27.5USc to $US16.96 an ounce: the price was up 0.3% and is 14% up in the year so far.
And agriculturals continued to be volatile, rising or falling fairly rapidly as the usual reports about US growing conditions and plantings dominated the news. Soybeans rose to a three-week high in Chicago on Friday as farmers in Argentina extended protests that have disrupted shipments, spurring higher demand for US supplies. Farmer leaders in Argentina plan to strike for at least another six days after the government failed to resume talks on export taxes.
July soybean futures rose 30.5USc, or 2.3% Friday to $US13.78 a bushel on the Chicago Board of Trade and finished up 1.5%, so Friday's rise was the big move on the day. Wheat had its second up day in a row for some weeks on Friday after prices fell to the lowest in Chicago since August. Before Thursday's rise, prices had plunged 43% from a record in February. Pakistan and Bangladesh were reported to be looking for 350,000 tonnes of grain on Friday.
July wheat in Chicago rose 4USc to $US7.755 a bushel after rising 8c the day before. The price touched $US7.4825 Thursday, the lowest for a most-active contract since late last August. But wheat was still off 3.6% over the week: prices are still up 56% over the past year. They peaked at a record $US13.495 on February 27. Official figures show that advance sales of US supplies since last June 1 are 41% ahead of the previous shipping year. Actual shipments have climbed 45%.
Meanwhile the quiet rally in tin prices may be running out of puff. Three month tin on the London Metal Exchange has risen 53% so far this year and reached a record $US25,500 a tonne on Thursday. LME stocks of tin are down 35% this year, adding to two consecutive annual declines. Inventories are now equal to about 7 days of global demand, in a situation that's eerily like the very tight supply situation in nickel in the first half of last year.
China is the world's largest producer of the metal and traders in London now expect Chinese exports to increase from now to take advantage of the premium in world prices compared to domestic prices. That's expected to see stocks swell and end the price rally. Spot tin was around $US 25,200 on the LME on Friday; in China it's about $US22,750, including taxes.
Copper prices rose more than 2.3% on Friday, or 8.8 USc a pound to close at $US3.8265 a pound on Comex. Copper rose by just over 4% last week for a second solid week. And zinc and aluminium prices rose in London on fears that Chinese production of both metals would be hit by the earthquake in Sichuan. According to reports from China, the quake has hit as much as 350,000 tonnes of zinc smelting capacity in Sichuan and neighboring provinces, as well as affecting transport and power supplies. Zinc rose or 2% on the LME on Friday to $US2,365 a tonne, up 9.6% over the week. Aluminium was firmer, as was lead and nickel.
