By Sumit Roy
Soy and gold advance, but the big pullback in palladium and copper is a worrying sign.
Commodities were split down the middle this week as soybeans, natural gas and gold rallied, while palladium, wheat and copper plunged. At the same time, stock markets rallied about 1 percent, as measured by the S&P 500. The stock index is now up about 2.9 percent year-to-date.
The Federal Reserve and Greece dominated headlines this week, with the former supporting markets and the latter pressuring markets.
On Wednesday, the Fed concluded its monetary policy meeting for June with a relatively dovish statement. The central bank kept its benchmark overnight interest rate at zero, while commenting that it would like to see "further improvement in the labor market" before changing policy.
Separate forecasts on interest rates from Fed officials indicated that most members see rates ending the year at 0.625 percent, the same as the previous forecast from March. That forecast implies that the Fed will hike rates two times this year, perhaps starting with the meeting in September.
Meanwhile, the Greece debt saga dragged on this week as the country's government and its creditors exchanged barbs over which side is to blame for the impasse in reaching a deal. Without a compromise, Greece faces the prospect of default and an exit from the eurozone at the end of the month. Eurozone officials are scheduled to hold an emergency meeting on Monday to discuss the situation.
Taking a look at this week's economic data, the Bureau of Labor Statistics reported on Thursday that the Consumer Price Index in the U.S. climbed 0.4 percent in May, while the core CPI (which excludes food and energy) only grew by 0.1 percent. On a year-over-year basis, the headline CPI was flat and the core CPI was up by 1.7 percent.
Finally, the Commerce Department said housing starts fell by 11.1 percent to 1,036,000 units annualized in May after surging 22.1 percent in April. At the same time, building permits jumped 11.8 percent to 1,275,000 units annualized, the highest level since 2007.
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Gold pushed back into the green for the year with a solid rally this week, the majority of gains coming on Thursday after the U.S. dollar hit a one-month low. The yellow metal has yet to garner significant safe-haven buying due to the Greece saga as traders speculate that a deal may be clinched in the coming days.
Without a big shock in Greece, gold is unlikely to rally much more from here. The Fed still remains on track to hike interest rates in September, and there is not much to drive the metal, aside from day-to-date fluctuations in the dollar.
Meanwhile, platinum and palladium sagged to their lowest levels of the year this week amid concerns about demand in Europe and China. The short-term technicals point to lower prices for the pair.
Crude oil bounced around this week, ultimately ending in the red. Both Brent and WTI remain in tight trading ranges for now.
Wednesday's data from the Energy Information Administration didn't offer any new clues on the supply and demand outlook. U.S. inventories fell modestly, but production remained near 40-year peaks.
- The grain complex was split, with soybeans and corn putting in gains and wheat putting in a loss.
"Wet weather has delayed the winter wheat harvest, which potentially delays or prevents the planting of some double-crop soybean acreage," Societe Generale analyst Christopher Narayanan explained.
Copper plummeted to the lowest level since March this week, as traders fretted about China after the country's stock market had its worst week in seven years.
With copper pulling back significantly, along with platinum and palladium, it raises some alarm about the health of the global economy. The next layer of support for the red metal lies at the January low near $2.45/lb
- Natural gas edged slightly higher on the week. Though Thursday's reported inventory injection of 89 billion cubic feet was at the lower end of estimates, traders brushed it off. They were more concerned with the forward weather forecasts, which showed moderating temperatures following the recent heat wave that hit much of the U.S.