That said, Asian markets have responded positively to news of the better US retail sales and reports that the IMF is prepared to loan Italy EUR600 bln to help it refinance debt rollovers. Equities and most commodities are trading higher across the region as the new week starts. Whether that optimism can last will also be partly determined by this week's busy schedule of economic updates. The report of higher US retail sales in the post-Thanksgiving weekend is a cause for optimism that the economy remains in good health. More important data points will come later this week with the monthly manufacturing activity indicators across all economies. Friday this week brings the monthly US nonfarm payroll report, the most eagerly anticipated data point of each month.
ETF fund investors and hedge funds have, however, significantly raised their bets that gold will soon rally from the slump of recent months and push again to the $2,000/oz level. ETF gold funds now hold a record 2,350.8 tonnes of physical gold. Data from the Commodity Futures Trading Commission shows that hedge funds have been raising net long positions for the past four weeks, a similar event to that which preceded the previous rally in gold this year. Net long positions in the futures market are 34% higher today than was the case in mid-October. The price of gold fell 2.1% last week, to end at $1,688.5/oz, as traders prefer to focus on the dollar as the haven asset for now. The yellow metal's price is better this morning, trading 1.5% higher in early Asia trade at $1,709.9/oz. Polymetal International and Highland Gold Mining are our two preferred plays in the gold sector.
In Russia, domestic news flow remains of secondary importance. The macro indicators, e.g. last week's inflation report, continue to show a relatively favorable position for the economy. While helping asset prices perform relatively better than most emerging market peers, they are insufficient to allow absolute gains. The MICEX Index fell 3.4% last week, i.e. relatively better than the 6.1% loss for the MSCI EM Index, and the ruble, although down 2.4% against the dollar last week, was better off than most other free-floating EM currencies. The Czech koruna and Polish zloty fell 2% apiece and the Swedish krona fell 1.2% on Friday alone.
The relatively good oil price performance (Brent fell only 1% last week while industrial metals and global equity markets fell by an average of almost 5%) is partly due to a still tight supply-demand balance and also because of the escalating violence ahead of Monday's Egyptian election. How that moves forward from here will remain a factor in the oil market over the short term, at least. Brent crude finished Friday at $106.4/bbl and is at $107.48/bbl in Asia trade this morning.
Chris Weafer, Chief strategist Troika Dialogue
