Oil prices rebounded sharply as risk appetite returned amid renewed speculations for Fed's QE and smaller-than-expected increase in crude stockpile. The WTI contract for November delivery, expired yesterday, rose +2.87% to settle at 81.77 while the new front-month contract (December) surged +2.97% to close at 82.54. Resumption of USD's long-term downtrend helped pushing commodities higher. The benchmark contract for gold rebounded and finished the day at 1344.2, up +.0.61%. Today in Asia, commodities eased a bit as China's GDP growth slowed in 3Q10.
According to the Beige Book covering the period from September to early October, economic activity 'continued to rise, albeit at a moderate pace'. The Fed said that 8 (such as San Francisco and Chicago) out of the 12 districts surveyed reported some form of growth. Philadelphia and Richmond said their economies were 'mixed' while Cleveland's situation 'held steady' and the Atlanta district 'remained slow'. While the overall tone of this report is similar to that in the past few months, we did see some encouragements as the reference of 'widespread signs of a deceleration' was eliminated. Yet the market continued to view the report as further evidence of dismal economic growth and an indication that further easing is needed.
The rally in Wall Street signaled market sentiment has remained bullish. As driven by strong reported from Boeing, Blackrock and Yahoo, DJIA and S&P 500 soared +1.2% and +1.1% respectively. Strength in equities usually means higher oil prices.
The market appears to have digested China's surprising rate hike. While the rate rise reduced risk and weighed on commodity prices, economists expect at most 1 more rate hike will be seen for the rest of the year as inflation in China has almost peaked. Therefore, the impact on commodities should not be too much. The Chinese government reported that GDP expanded +9.6% y/y in 3Q10, the smallest growth in a year, while CPI surged +3.6% in September, the fastest pace in 23 months. While the rate hike is used as a means to curb inflation, the tightening suggests that the government is pleased with the pace of growth as it withdraws stimulus measures implemented in 2008.