Forex - Euro slips to session lows vs. dollar after U.S. data

nvesting.com - The euro slid to session lows against the dollar on Tuesday after data showing an uptick in U.S. underlying inflation and a strong increase in new home sales bolstered the outlook for higher U.S. interest rates.

EUR/USD was down 0.34% to 1.0908, retreating from session highs of 1.1028.

The greenback strengthened after official figures on Tuesday showed that U.S. consumer prices rose 0.2% in February, in line with market expectations, rebounding after a 0.7% decline in January.

On a year-over-year basis the U.S. consumer price index was flat after slipping 0.2% in January.

The report showed that gasoline prices rose 2.4%, the largest increase since December 2013, snapping seven months of declines.

Core inflation, which excludes food and energy costs ticked up 0.2% in February after a similar gain in January. Core inflation was up 1.7% from the same month last year, the largest increase since November.

The uptick in underlying inflation indicated that the Fed would still have leeway to tighten monetary policy even with inflation running below target.

San Francisco Fed President John Williams said Tuesday that the bank should start raising rates earlier and added that the fall in energy prices and the stronger dollar would only have a short term impact on inflation.

The dollar has weakened since the Fed indicated last week that it may raise interest rates more gradually than markets had expected.

Separate reports showed that sales of new homes in the U.S. surged in February, while manufacturing activity expanded this month.

New home sales jumped 7.8% to an annual unit rate of 539,000 last month, the highest level since February 2008 the Commerce Department said.

The preliminary reading of the U.S. manufacturing purchasing managers' index rose to 55.3 this month, the highest level since October, from 55.1 in February.

The euro strengthened against the dollar earlier in the day, rising above the 1.10 level after data showing the economic recovery in the euro area gained traction last month, with private sector activity expanding at a faster-than-expected rate.

The euro area composite PMI, which measures activity in the manufacturing and services sectors, rose to 46-month high of 54.1 in March from 53.3 in February.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last up 0.38% to 97.56, up from session lows of 96.58.

Goldman Sees New Commodity Cycle as Shale Oil Spurs U.S. Growth

The commodities cycle that sent prices rising almost fourfold over 10 years is reversing and will eventually drive raw materials into a structural bear market, Goldman Sachs Group Inc. (GS) said. Growth in shale oil output will keep U.S. energy prices low, reinforcing economic growth and leading to more tapering of government stimulus, the bank said in a report dated yesterday. That will cut raw-material demand in emerging markets and lead to weakened currencies that will encourage more production. The new cycle is the opposite of the “

super cycle” that ran from 2002 through 2011, Goldman said. “I can’t tell you about one commodity out there that has a bullish supply-side story,” Jeffrey Currie, head of commodities research at Goldman, said at the company’s investor conference in London today. “A decade of higher commodity prices generated a supply response.” Commodities posted the first annual drop in five years in 2013 as supply exceeded demand for corn to sugar to nickel and investors lost faith in precious metals as a store of value amid signs that economies are improving. As higher prices spurred miners and farmers to boost production at time when China’s economic growth slowed, Citigroup Inc. said the “super cycle” of gains has ended. “The rotation away from emerging markets and towards developed market demand as well as the supply increase, particularly the U.S. shale revolution, are creating a new commodity cycle,” Currie said in the report. “On net, this new commodity cycle eventually suggests a structural bear market in commodities, but we believe that is still in the distant future.” Weakening Currencies The new cycle will lead emerging market nations to increase production to raise cash to make up for weakening currencies, which will further weaken prices and reinforce the U.S. recovery, Goldman said. A “structural” bear market is only in the future because of transportation, processing and distribution bottlenecks, Goldman said. Surging U.S. oil output is largely trapped in the country and copper smelters are failing to process rising supplies from mines, according to the report. Commodity cycles last about 25 to 30 years, with the first half spent on building production capacity to meet demand and the next 10 to 15 years spent on building capacity to consume, Currie said. Returns in the last 10 to 15 years will be positive for industries such as petrochemicals, he said. Precious Metals The Standard & Poor’s Enhanced Commodity Index will fall 3 percent in the next 12 months, with precious metals dropping 15 percent on top of last year’s 30 percent decline and agriculture falling 11 percent after sliding 18 percent in 2013, Goldman said. Industrial metals are forecast to decrease 5 percent and livestock 3 percent, according to the report. Energy will lose 1 percent, after gaining 5.6 percent in 2013, the bank said. Gold prices will fall to $1,050 an ounce in 12 months from $1,246 an ounce now, while copper will be at $6,200 a metric ton from $7,283 a ton now as the market moves into surplus, the bank said. A record soybean crop in South America will send prices to $9.50 a bushel from $12.7325 a bushel now. While Brent will be at $100 a barrel in 12 months and West Texas Intermediate oil at $90 a barrel, price risk is “skewed to the downside,” Currie said in the report. Uncertainty about oil supplies due to geopolitical risks in Libya and South Sudan means the bank is neutral commodities over the next three months, with prices forecast to return 3 percent in the period. 

Source : bloomberg.com 

Barrick Thornton Weighs Return to Gold Hedge

Four years after Barrick Gold Corp. (ABX) stopped hedging bullion sales, its next chairman, John Thornton, says the practice makes sense and is worth considering. Thornton, a former Goldman Sachs Group Inc. president and currently Barrick’s co-chairman, spoke yesterday after the world’s biggest producer of the metal announced he would succeed Chairman Peter Munk next year. Barrick spent at least $5.6 billion in 2009 to get out of fixed-price sales contracts as it bet on rising gold prices. The metal is heading for its first annual drop in

13 years, having declined 27 percent so far in 2013. That slump has helped to erode earnings and prompted gold producers to take at least $26 billion of writedowns this year, “As an outsider, I always thought it made great sense to hedge,” Thornton told reporters at Barrick’s Toronto headquarters. “I can’t understand for the life of me why that wouldn’t be an active topic that you would be carefully following at all times.” Once a strategy used by Barrick and other major gold producers such as AngloGold Ashanti Ltd., hedging fell out of favor in the past decade as companies found themselves locked into lower prices as gold rose. Producers de-hedged 8.16 million ounces in 2009, according to a report from London-based researcher GFMS Ltd. the following year. Ballooning Costs “The smart companies are going to be the ones that use put options or enter into forward contracts for a portion of their current year’s production to guarantee that production, to guarantee that cash flow,” Goldsmith said by phone. Gold for immediate delivery dropped 1.4 percent to $1,226.64 an ounce at 9:07 p.m. in London. Barrick fell 2 percent to C$16.39 at the close in Toronto, extending its decline this year to 53 percent. Barrick has endured 18 months of turmoil. In addition to the gold-price drop that spurred $8.7 billion of writedowns, it fired its chief executive officer last year after a disastrous copper acquisition and revealed ballooning costs at its biggest construction project, the Pascua-Lama mine in the Andes. Current CEO Jamie Sokalsky has sold three Australian mines this year and has put others under review as the company faced criticism from shareholders to cut costs and increase cash flow. New Directors As well as announcing that Munk, 86, will retire at its next annual shareholders meeting, Barrick said yesterday it’s nominating four new independent directors and adopting a new executive-compensation plan. It also said James Gowans will start as chief operating officer in January. Canada’s biggest pension funds wanted new independent board members and said Barrick should consider replacing directors who had been there longer than 20 years and were close to Munk, two investors briefed on the matter said in September. An $11.9 million signing bonus for Thorntonstarting as co-chairman was described by Canada’s six largest pension fund managers in April as a “troubling precedent.” The independent directors nominated by Barrick are Ned Goodman, CEO of Dundee Corp., a holding company with investments in precious metals and other assets; Nancy Lockhart, a former chief administrative officer of Frum Development Group; David Naylor, a former University of Toronto president; and Ernie Thrasher, founder of Xcoal Energy & Resources LLC, a coal-trading firm. Chinese Partnership Directors Howard Beck and former Canadian Prime Minister Brian Mulroney won’t stand for re-election at the shareholders meeting, Barrick said. “We’re encouraged by the steps the company seems to be taking to enhance the role of independent directors,” said Maxime Chagnon, a spokesman for Caisse de Depot de Placement du Quebec, Canada’s second-biggest pension fund and one of the investors that criticized executive pay at Barrick as excessive. Goodman’s nomination was welcomed by Robert Gill in Toronto who helps manage C$8 billion including Barrick shares at Aston Hill Financial Inc. “He brings instant credibility in a very important circle of Barrick shareholders, the institutional investors who are informed,” Gill said yesterday by phone. Thornton, 59, said yesterday he’s seeking to form a partnership with Chinese companies with a view to possible cooperation on mining projects in the future. Other Minerals Thornton has connections to China, which was where he headed to in 2003 after departing Goldman. He helped establish a business leadership program at Beijing’s Tsinghua University and is a member of China Investment Corp.’s international advisory board. “China will in fact be at the center of just about everything, certainly the world’s economic growth and the world’s commodities,” he said. While Barrick’s priority is to improve its gold operations, it also has the ability to be a “world-leading company” in other minerals, according to Thornton. “That’s the kind of journey that I feel we’re on,” he said. “And when I look out over the next two decades, that’s where I’d like Barrick to go.” 

Source : bloomberg.com

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