While you were sleeping: US dollar hits commodities

Tuesday 24th November 2015

Gains in the US dollar amid bets on a Federal Reserve interest rate increase in December pushed commodities including copper and gold lower.

The strong greenback is hitting commodities denominated in it. Copper dropped below US$4,500 a metric ton for the first time since 2009.

The likelihood of higher Fed rates by year-end is 74 percent, futures show, up from 50 percent at the end of October, according to Bloomberg.

"The biggest factor here is the dollar," Hans van Cleef a senior energy economist at ABN Amro in Amsterdam, told Reuters. "It is having an impact on all major commodities at the moment."

Oil, however, bucked the trend, rising after Saudi Arabia reiterated its willingness to work with OPEC and other oil producing countries to stabilise prices.

"The Saudis' past promises on working for price stability has led to nothing, so it wasn't surprising there was as much disbelief as initial excitement over today's announcement," John Kilduff, partner at New York energy hedge fund Again Capital, told Reuters. "But all said, they are the biggest movers in OPEC, so their statement is having a positive impact."

Wall Street moved higher. In New York trading at about 12.55pm, the Dow Jones industrial average inched 0.02 percent higher. At about 12.40pm trading, the Standard & Poor’s 500 Index added 0.1 percent, while the Nasdaq Composite Index rose 0.2 percent.

Shares of Tyson Foods rallied, last up 10.2 percent, after the company posted sales that exceeded expectations.

The latest data underpinned the view that the US housing industry is improving. A National Association of Realtors report showed US existing home sales dropped 3.4 percent to an annual rate of 5.36 million units in October, down from 5.55 million units in September.

"This is the same pattern of tight inventory and low first-time buyers that we've seen for several years now," Stephen Phillips, president of Berkshire Hathaway HomeServices in Irvine, California, told Reuters. "We're up nicely on units and price from a year ago, so the market is in good position to improve steadily from here."

In the Dow, gains in shares of Coca-Cola and those of Home Depot, last trading 1.5 percent and 1.4 percent higher respectively, outweighed declines in shares of Pfizer and those of Apple, last down 2 percent and 0.9 percent respectively.

Shares of Pfizer slid after the company said it agreed to merge with Allergan in a deal worth US$160 billion, moving its headquarters to Ireland.

“The lure of tax advantages from a Dublin head office has been a significant factor in driving this deal,” John Colley, a professor at Warwick Business School, in central England, who studies large-scale mergers, told Bloomberg. “The threat of succumbing to US tax rates has meant that Pfizer has been desperate for a deal outside the US.”

In Europe, the Stoxx 600 Index ended the session with a 0.4 percent decline from the previous close. Germany’s DAX Index slipped 0.3 percent, France’s CAC 40 Index fell 0.4 percent, while the UK’s FTSE 100 Index dropped 0.5 percent.

BusinessDesk.co.nz

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