27/07/2015: Market Update – Investors shy away from Commodities, whilst Greece settled…for now
Last week was a poor one for financial markets which culminated with Chinese Shanghai Composite Index falling over 8% on Friday. This rout was reflected significantly in the commodities markets, with the crude oil benchmark reaching $54 and gold quickly approaching $1,000/oz t, currently trading at $1,100/oz t, its lowest level since 2010. The weakening of the commodities market pulled down mining and oil stocks, in the UK the FTSE 100 was left down nearly 3% by the end of the week.
There is very little support for commodity markets currently, with few analysts or managers seeing good reasons to buy in at the current level, along with the perceived risks. Rising interest rates in the US will reduce investors desire to hold gold and other commodities, and the expected supply of oil from Iran has continued to weigh on the market. Whilst the supply/ demand issues will likely resolve themselves in the medium to long term, commodities remain a volatile market in the short term.
The situation in Europe on the other hand, appears to have been resolved for now, with the significant negotiations now completed, and Greece now funded for the next three years. For the longer term there will be important negotiations over whether to give Greece a “haircut” on their outstanding debt and if the agreed economic reforms are implemented.
UK retail sales came out on Thursday and showed that volumes had unexpectedly dipped in June. However, looking over the quarter and year, the data still remained strong.
The Federal Reserve is due to make its US interest rate announcement on Wednesday. The announcement will be closely watched as a gauge as to when rates will be increased, which is expected to be later this year.