Oil prices rebounded sharply in NY session although there were few pleasant surprises in the inventory report. We believe the rally was driven by short-covering and strength in Wall Street. DJIA and S&P 500 jumped +1.37% and +1.49% respectively due to stronger-than-expected US data. These upstaged sovereign woes in peripheral European economies and tensions on the Korean peninsula. The front-month contract for WTI crude oil rose to as high as 84.2 before settling at 83.86, up +3.21%. Fuel prices also soared with heating oil and gasoline gaining +3.37% and +3.72% respectively.
Precious metals' performance was mixed with gold dipping to 1373, down -0.33%, at close, silver and platinum fluctuated but ended the day flat while palladium edged higher but remained below 700. Slump in the euro and strength in the US dollar against major currencies triggered selling pressure in precious metals.
The market was thrilled as initial jobless claims plunged -34K to 407K in the week ended November 20, marking the lowest level since July 19, 2008. The 4-week moving average also fell -8K to 436K, the lowest level since August 30. The sharp fall last week indicates that initial claims have broken below the range of 450-490K. However, we expect a sustainable fall below 400K is needed to show that payrolls are on a sustainable upward trend. The University of Michigan Confidence Index was revised up, by +2.3 points, to 71.6, the highest level since June, in November while the 'current condition' and 'expectations' indices were also revised higher. Separately, Personal income and spending also climbed last month. These suggest consumers are more confident with the economic outlook and they are willing to spend more.
While investors chose to focus on the strong data, there were also disappointments. Durable goods orders contracted -3.3% m/m in October, compared with consensus of a flat reading and an upwardly revised +5% gain in September. Excluding transportations, sales fell -2.7% m/m in October while September's reading was revised higher to +1.3%. Concerning the housing market, new home sales surprising fell to 283K units, down -8.1% m/m and -28.5% y/y, in October. House price index also contracted -0.7% m/m in September after rising -0.4% a month ago. We would need to keep monitoring these data. If the labor market really improves sustainably, further declines in home sales and durable goods orders would be limited.
Sovereign concerns in Ireland have not got any better. Irish 5Y CDS even after the government announced austere measures to cut budget deficits. The government aims to reduce budget deficits to 4% of GDP by 2014 from a projected 12% this year by cutting spending by about 20% and raising taxes over the next 4 years. The government also forecasts the economy to grow by an average of +2.7% annually over the next 4 years. Despite stringent measures, investors double about execution after Greece's experience.
Euro's slump for a 3rd straight day has inevitably affected gold price. However, we believe, should problems in peripheral European economies deteriorate further, gold would rise in tandem with USD as investors seek safe-haven assets desparately.
