Healing Hands From China Print E-mail

ONG Focus - Insights

Written by Oil N' Gold | Mon Nov 10 08 06:39 ET

Today, the world's focus has shifted to China as this biggest contributor to economic growth and the second largest consumer of oil announced a $586B stimulus plan to sustain the nation's economy. Stock and commodity prices rallied. WTI crude oil's December contract rose 5% to as high as 64.3 before pulling back to 63.71 in European morning. Although the black gold has staged a 7% rebound from 59.97 low, we continue to hold a cautious view until we see a break of 71.77 which would indicate a short-term low has been formed. China said yesterday that it will spend around $586B through 2010 on housing and infrastructure. This is expected to spur demand on iron ore, crude oil and copper. The plan represented about 80% of government spending last year. Such extra spending may increase the nation's economic growth by 2% in 2009 On the supply side, top exporter Saudi Arabia planned to cut December supplies to Asian countries, including S. Korea and Japan, by 5%. In the meantime, Russia will also join the OPEC in cutting output. In fact, shipments from Russia have fallen 25% this month. Stocks in Asia and Europe also rose in response to China's stimulus. The MSCI AP Index surged 3.1% to 89.96. The Shanghai Composite Index rose 7.3% and Japan's Nikkei 225 Index rose 5.81%. In European morning, shares also opened higher with FTSE gained 3.3%, CAC and DAX also added 3.5% and 3.54%, respectively. Gold extended last Friday's strength and rose to 750.1, brought by oil's rally and dollar's weakness. Near term outlook for gold and other metals turned more positive as China announced a hefty rescue package. While we do not rule out the possibility for the December contract price to rise to 814.4 (100% projection of the rise from 681 to 778.3 measured from 717.7), only a break of 822.5 (previous support-turned-resistance) would give us a first signal that recent fall may have ended. Otherwise, resumption of decline would bring weakness to 717.1 and then re-test of 681. As investors increased risk appetite, we saw selling pressure in USD. Sterling rose to as high as 1.5885 against the greenback, before pulling back to 1.5722 after a lower-than expected UK PPI data. Euro also gained 1.26% against USD to trade above 1.28 today. Weakness in the dollar was probably due to the pursuit of high-yield investment and expectation that the FED will cut interest rate in the coming FOMB meeting. According to COT report, speculative long positions last week outnumbered short positions by 68 195 contracts. Net long positions fell by 13% from a week earlier. Gold in the SPDR Gold Trust held steady at 749.2 metric tons on November. Platinum rose 3.9% to 884.9 Monday. Apart from the plan in China, Australia announced tariff cut of 5% on automotive industry as well as capital injection of $4.3 billion from 2011 to 2020 on development of environmentally friendly cars. We have in our weekly report recommending a buy on the futures because we think the metal was oversold after automakers announced poor 3Q earning results last week. Moreover, automotive industry may recover after financial assistance from different countries including the US and Australia.