Global outlook – 11th Nov, 2008

Crude continued to dwindle on persistent concerns about curbed demand in a slowing economy as global equities slumped and a stronger dollar added pressure. Crude futures tested below $59 per barrel even after a fresh indication from OPEC of another output cut if prices keep falling. One piece of negative news, such as demand destruction in International Energy Agency report being even worse than expected, or the pull from the large open interest on the $50 puts on the expiring (on Monday) December options and the bottom could fall out. Economic gloom overpowered financial markets again sending global equities and commodities lower. OPEC may cut oil output by another 1 million barrels per day when it meets next month, an OPEC source from one of the group's core members. China's October crude oil imports rose 28.2% from a year ago, fastest since July 2007 and the third-highest daily rate on record, amid a slump in oil prices.

Gold tumbled in the face of a stronger dollar, weaker crude oil and liquidation pressure because of a still-tight credit market. Gold hurt by a higher dollar as a deteriorating global economy and weaker equities cut investor risk appetite. It's difficult to sustain a gold rally until interbank lending improves and liquidation of assets, including gold reduced and dragged down by weaker crude oil that dropped below $60 per barrel on recession worries. Furthermore gold bullion sales by UBS to India increased sharply in the past two weeks, and India's local gold premium suggests demand is strong.

Copper lost more than 7% as demand worries resurfaced; pressuring prices back down to levels seen before Monday's Chinese economic stimulus plan was announced. The euphoria surrounding China's launch of a $600 billion economic stimulus package to shore up its slowing growth fades. China's 4 trillion Yuan ($586 billion) stimulus plan will only have a gradual effect on the country's base metals industry, according to the vice president of the state-controlled China Nonferrous Metals Industry Association. Negative sentiment toward global growth and commodity demand keep the bears fully in control of industrial commodity markets for the foreseeable future. Copper's bearish momentum deepens despite positive trade data from China, the world's leading metals consumer. China's imports of unwrought copper and semi-finished copper products surged to 231,212 tonnes in October, versus September's 213,782 tonnes. Fears of waning demand reflected in steady inventory builds in London Metal Exchange-registered warehouses.

Indian rupee closed at its lowest in a week as a sharp fall in the domestic equity market raised concerns of more foreigners repatriating funds, pressuring the currency lower. Importers were there in the market but most of the demand was from the FIIs. Foreign institutional investors have bought shares worth $500 million in November, but have been net sellers of $12.6 billion so far in 2008.

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