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PARIS: Vintage cars pass by the Concorde square yesterday, during a parade as part of the fifth summer edition of the “Traversee de Paris Estivale” (“Summer Paris Crossing”), the largest gathering of classic vehicles in the French capital streets. — AFP French consumer morale weaker than expected PARIS: French consumer confidence fell unexpectedly in July to its lowest level since February in the face of growing fears about unemployment as a slew of companies unveil plans for major layoffs, a survey showed. The INSEE official statistics office said that its consumer confidence index fell to 87 in July from 89 a month earlier. The June figure was also revised down from 90 originally. The reading, well below the longterm average of 100, fell short of expectations in a Reuters poll of 16 economists which had indicated an average forecast of 90. The survey showed that a rash of headlines about factory closures and surging unemployment were taking their toll on consumer morale with the proportion of households reporting it to be a concern at the highest level since June 2010. The number of households expecting their personal finances to get tighter in the months ahead worsened while the number expecting their economic situation to get tougher rose the most since November 2007. France’s new Socialist government has made fighting unemployment a top priority but is struggling to halt a wave of layoffs in the face of a deteriorating economic outlook. The nation’s biggest carmaker PSA Peugeot Citroen announced plans this month to cut 8,000 jobs in France and companies such as Air France, Alcatel Lucent and Sanofi also have job cuts in the works. Unions have warned that up to 75,000 job cuts could be forthcoming as companies, many of which withheld plans to reduce their workforce until after elections in May and June, cut capacity in the face of a European downturn. The jobless total rose in June for the 14th month running to hit its highest level in nearly 13 years, according to labour ministry data on Wednesday. The consumer confidence figures bode ill for June consumer spending data due on Tuesday, with economists forecasting an increase of 0.6 percent on average over the month. —Reuters Empty stomachs in N Korea as Kim eyes fiscal changes SEOUL: Talk that North Korea’s young leader plans to reform the broken economy is already having an impact. It’s helping send rice prices even further out of the reach of most families in one of the world’s most under-fed societies. Seo Jae-pyoung, a defector who now lives in South Korea, spoke this week to a friend in the secretive North who had furtively called him by mobile phone from a mountain-side to plead for cash to be smuggled across to help. “He couldn’t cope with the high prices, saying rice prices had shot up ... and he is running out of money,” Seo told Reuters. “It shows that the economic situation is seriously worsening...I feel that...(it) has already reached the critical point and (leader Kim Jong-un) may know that without reform or openness, the regime is not going to last long.” One of the reasons he and others gave for the price increase was rice hoarding by middlemen hoping that talk of reform would materialise into a chance to turn a profit. A source with ties to North Korea and its chief backer, China, told Reuters last week that the North is gearing up to experiment with economic reforms. Evidence is hard to come by in the almost hermetically sealed and suspicious state, where casual contact with outsiders can mean imprisonment. And because it usually takes defectors many months to make their way out of the North to a country where they can speak openly, information can be out of date. But some of the defectors Reuters spoke to in Seoul said they were in clandestine contact with people inside the North. Reuters also spoke to foreigners who had gone to North Korea in recent months under government-sponsored visits. The overall impression was that in the about seven months Kim Jong-un has been in office, there have been few tangible changes inside a country which is now, since Myanmar’s decision to open up, Asia’s last pariah state. “I’ve not heard anything to suggest any improvement for the rank and file there. And in some sectors, things continue to slide,” said one Christian activist with Helping Hands Korea, which works with refugees fleeing the North. Kim, thought to be in his late 20s, is the third generation of a family dynasty that has ruled North Korea since its founding. He took over when his father Kim Jong-il died in December. With international sanctions over weapons programmes, and the insistence of the Kims on food and resources going to the military first, the general population has been on the edge of starvation for decades. Startling The effects of such prolonged meagre diets is one of the startling images of North Korea, making the chubby leader Kim stand out even more against his subjects. “What’s strikingly obvious is peoples’ stunted growth, they’re all very short for their age,” said one humanitarian worker who visited the North earlier this year. “There’s always going to be a food shortage, The problem is, what they can produce, the best always goes to the best (top of society).” That elite refers especially to the military, estimated at 1.2 million out of a population of 25 million. According to North Korean defectors who still keep in touch with family and friends and Daily NK, which monitors conditions in the reclusive state, the price of 1 kg (2.2 pounds) of rice in the market was estimated to be at least one month’s salary. But that, said one defector, is meaningless because the cash-starved state, the main employer, rarely pays salaries. “Even if you are employed by the state, you do business in the market. If you are an office worker, you do business in the market in the afternoon ... There’s no way other than this to make it there,” said the woman, in her 30s, who asked not to be identified because she feared reprisals against family members still in the North. She fled the North late last year. “Basically, many people are doing restaurant business or selling things on credit and pay off credits later. There is a huge gap between the rich and the poor. Pyongyang has enough supplies but other areas fall short. So it is completely up to an individual’s effort. If you try hard to make money, you can survive. But if you don’t, you struggle,” she said. She and other defectors said the authorities had been tightening their watch on the border with China, about the only route for escape. The dangers of crossing the border are compounded by the very high risk of being sent back to the North by Chinese authorities to face imprisonment or even execution. Fear of reform North Korea has dabbled with reforms over the years but never stuck to them, forced to rely increasingly on China to prop up a rusting industry and broken infrastructure. Most recently, in 2009, it orchestrated the re-denomination of the currency, a move deemed so catastrophic that the official who initiated it was reportedly executed. None of the defectors Reuters spoke to believed the leadership would dare allow reforms that damage its grip. Some thought the Pyongyang elite had been scared by the disastrous 2009 experiment. Analysts say this fear of reform explains why the Kim dynasty has stuck so rigidly with a system that ensured the country was excluded from any benefit of being at the centre of the world’s most rapidly growing region-China, Japan and South Korea. While their economies have surged, North Korea’s has shrunk. Once wealthier than the South, its economy is now less than three percent of South Korea’s. Its population is half the size. “I think even if it loosens up, it would only be partial. If it fully opens, the regime will collapse. People began to not trust the regime after the currency reform in 2009,” said the woman defector who said she fled because she could no longer tolerate the constraints on her life. Kim Yong-hwa, a defector who heads the NK Refugees Human Rights Association on Korea, was equally dismissive. “Is North Korea is planning to reform and open up? I thinkthe foreign press is over-reacting. The only thing Kim Jong-il left to Kim Jong-un is debt. He has no funds to run the regime.” — Reuters business NEW DELHI: Despite a slowing economy India will likely keep interest rates on hold this week as worries mount that a truant monsoon could drive up food costs and stoke still-high inflation, analysts forecast. Reserve Bank of India (RBI), the central bank, made a half-percentage-point cut in April to jump-start Asia’s third-largest economy following an aggressive rate-hiking cycle that reduced inflation from double-digits. But since then, the bank has been holding back on easing monetary policy amid fears about the impact on the cost of living of a possible drought and the lack of decisive steps by the government to curb a gaping fiscal deficit. “With below-normal monsoons and little (reform) policy action out of Delhi, the central bank is likely to keep rates unchanged” at its meeting tomorrow, said Leif Eskesen, HSBC’s chief India economist. Wholesale inflation stands at 7.25 percent-far above the bank’s comfort level of five to six percent-while the consumer price index, which covers a smaller band of goods, is at 10.02 percent. “Unless the bank sees a trend that inflation is actually coming down, I don’t see the RBI reducing interest rates,” Deepak Parekh, chairman of leading bank HDFC, told shareholders. Central bankers have reason to worry about rising prices with memories still fresh of India’s severe 2009 drought that sent food prices soaring and fuelled overall inflation, analysts say. Also, Prime Minister Manmohan Singh’s Congress party-led government has not made any significant strides toward scaling back hefty subsidies on food, fuel and fertilisers and cutting its sizeable fiscal deficit, analysts note. The bank is “waiting for heavy rain and a drizzle of (economic) reform” before it reduces rates, Eskesen said. Heavy government subsidies are pumping too much money into the system and are undermining monetary authorities’ anti-inflation battle, the bank maintains. But the government is caught in a vicious circle as it attempts to reduce subsidy spending while the economy is losing steam. The economy grew at 5.3 percent between January and March-its weakest quarterly pace in nine years-and latest economic numbers have been discouraging. Industrial production was up a paltry 2.4 percent in May. There are big divisions about spending cutbacks among the ruling centre-left coalition’s members who fear voter anger. There is also discord over proposed reforms such as allowing entry of foreign supermarket chains-seen by economists as a vital step in removing bottlenecks in India’s antiquated foodsupply chain and reducing food inflation. Singh, who unleashed India’s first wave of economic reforms, said this month he wants to restore the economy’s “animal spirit”. But coalition divisions have “again brought an air of uncertainty to the flexibility (Singh) has on revving up the pace of reforms”, said Ajay Bodke, investment strategist at Indian brokerage Prabhudas Lilladher. Minister Manmohan Singh is likely to hold off on widely anticipated fuel subsidy and retail reforms because of renewed opposition from party colleagues and coalition allies, leaving budget targets in tatters and rattling investors. Members of Singh’s Congress Party and senior government officials told Reuters that no movement was expected until at least the second week of September, despite market expectations of an announcement this week or the next. The Indian rupee fell for a fourth successive session on Wednesday on growing worries of dithering on policy reform. Despite consultations with partners and state governments, it was not clear how Singh would be able to build a consensus on opening the $450 billion retail sector to foreign supermarkets like Wal-Mart Stores or on increasing fuel prices. “Such an announcement will not be made unless a political consensus is reached,” one party leader said. A senior civil servant with knowledge of the reform agenda said “efforts are on” to allay fears of coalition allies and party members. He declined to give a timetable for implementing the policies. A month-long session of parliament starts on Aug. 8. While the government does not need parliamentary approval for the reforms, many Congress politicians said the party would find it hard to stomach protests from allies and the opposition. Singh took over the finance ministry portfolio after Pranab Mukherjee resigned in June to contest and later win election to the largely ceremonial role of the nation’s president. The architect of India’s initial economic reforms in the 1990s, Singh has promised to revive the “animal spirit” of the economy and many investors had expected him to move in the period between Mukherjee’s election on July 19 and the opening of what is dubbed as the monsoon session of parliament. Changing rules to allow multi-brand foreign retailers to operate in India was expected to be the first major announcement. But that plan hit fresh opposition from the Samajwadi (Socialist) Party, a Congress ally. “We urge the government not to open up the retail trade to FDI (foreign direct investment) any further,” Samajwadi leader Mulayam Singh Yadav and communist party leaders told Singh in a letter on Saturday that predicted News in brief MONDAY, JULY 30, 2012 India is likely to keep rates on hold: Analysts India seen holding back on reforms Feared Putin lieutenant making major of Rosneft MOSCOW: The man regarded as President Vladimir Putin’s most mighty lieutenant may now be just three months away from cobbling together the world’s biggest publiclytraded oil company for the Russian state. The last piece of the puzzle for Igor Sechin- Rosneft chief and long-time surveyor of Russia’s globe-topping energy sector-would be clinching a deal to acquire British group BP’s troubled half of its TNK-BP venture in Siberia. But some see the rapid rise of Rosneft as part of a mad scramble in Russia by both the state and private players to pool resources as they seek to replace dwindling Soviet-era field output with the promise of untapped Arctic oil. This consolidation “is based on the need to Russian Deputy Prime Minister in charge of energy Igor Sechin substitute inexpensive onshore oil and gas sites with far more expensive ones located offshore and in other remote locations,” said Renaissance Capital analyst Ildar Davletshin. The unquestioned leader and instigator of this drive is Sechin-a quiet man with a past in Portuguese-speaking Africa that some link to Soviet military intelligence. His precise biography details have never been publicly confirmed. “If he takes something on, you can be sure that the job gets done,” Putin said of his fellow Saint Petersburg native in March. “This is very important for the executive.” Russia’s steely ruler followed those rare words of praise by sending the 51-year-old to the day-to-day running of the company he massive job losses. Shares of retailers fell as much as 7 percent after the contents of the letter were made public. Singh had introduced the retail plan last year but quickly abandoned it after protests in parliament and on the street. The plan to reduce subsidies on diesel, kerosene and cooking gas, that are aimed at India’s poor and rural majority, also looks in trouble because crop yields and farm incomes could be affected this year by poor rains. Most Indians work in agriculture and political parties are loathe to hurt their pockets, especially since inflation has run at over 7 percent for two years. Singh’s office said this week that the rains in the June-September monsoon season that irrigate 55 percent of India’s farmlands were likely to be below average. The season accounts for 75 percent of the country’s annual rainfall and half of that is usually delivered in June and July. The oil ministry indicated this week that diesel prices wouldn’t be raised before September, and unlikely to cover the subsidy, putting more pressure on the budget. Already spent A senior finance ministry official told Reuters delays to reforms, especially raising heavily-subsidised fuel prices, meant India would struggle to meet the fiscal deficit target of 5.1 percent of the budget, or $91.4 billion. The government has already spent most of the $7.6 billion set aside for fuel subsidies in the 2012-13 fiscal year. To make matters worse, demand for diesel is expected to rise as farmers try to cope with poor monsoon rains by pumping more from wells. Subdued tax income and hiccups in plans to sell stakes in state-run companies are adding to pressure on the budget and subsidies for food are also rising, leading the government to mull asking for $5 billion-$7 billion beyond budgeted subsidy spending, the official said.— Agencies AHMEDABAD: An Indian farmer sprays fertilizer in a paddy field. Indian farmers are desperately waiting for the long-delayed monsoon, the annual rains that replenish rivers and quench crops to keep this agricultural nation of 1.2 billion fed through the year. — AP had already overseen as energy sector tsar during the Putin’s 2008-2012 spell as premier. Rosneft’s unlikely emergence began a decade ago when it first hoovered up the prized pieces of Yukos-a private firm that was not only the country’s largest but whose owner Mikhail Khodorkovsky openly fought with the state. Khodorkovsky is now in jail on tax and fraud charges while Yukos exists only on paper. Its owners still blame Sechin of masterminding a dubious campaign as a top member of Putin’s administration to get Rosneft better control of oil. Rosneft now has some of the world’s largest proven reserves but is still suffering from lagging production. One recent state study said output may actually start falling across Russia by 2025 unless action is taken fast. The firm’s response has been rapid and transformational for Sechin’s image abroad. Three huge Arctic deals with world majors in the past year have seen Putin’s favourite turn into the pointman for oil executives in the West. Yet Rosneft’s prospects of becoming established as a bigger producer than ExxonMobil depend largely on what happens should it forge an alliance with the same tycoons who had served as BP’s acrimonious partners since 2003. The Alfa Access Renova (AAR) billionaires were being treated with open disdain by some Rosneft insiders during a 2011 meeting that came just days after the group managed to block Rosneft’s initial Arctic tie-up with BPa deal masterminded by Sechin. One unnamed AAR shareholder assured Russian media this week that “I don’t see a big problem if BP decides to sell its stake in TNK-BP to Rosneft.” To which UBS Investment Research responded that “while AAR is willing to accept Rosneft as a partner in TNK-BP, it is unclear at this stage whether Rosneft sees AAR as a long-term shareholder in the company.” The tycoons have entered their own talks to buy out BP. But they would just as easily sell their stake instead in exchange for the British group’s shares and cash-a deal that would make a Rosneft-BP alliance complete. Yet no deal seems certain while some question the wisdom of Rosneft-its debt at $25 billion and no big cash project on hand besides the backup it gets from the stategoing after a BP stake estimated at around $30 billion. — AFP Hungarian PM blames EU for economic crisis BUDAPEST: Hungarian Prime Minister Victor Orban lashed out at the European Union for failing to solve the bloc’s economic crisis on Saturday, a day after calling for a new economic system. “It must be said: The crisis is in fact Brussels’ crisis,” Orban told several thousand supporters during a visit to the prominent Hungarian minority in neighbouring Romania. “Brussels is the main obstacle to finding ways to resolve the economic problems,” the conservative Hungarian premier said in Baile Tusnad, 230 kilometres (145 miles) north of the Romanian capital Bucharest. “Brussels wastes weeks defining the size of chicken cages, forcing farmers to put toys in pigsties, worrying that the peace of a goose’s soul is an important European issue while hundreds of thousands of citizens lose their jobs, watch their financial system collapse and feel it is getting harder and harder to survive,” he added. There are no “European recipes” to manage the debt crisis, Orban charged. He has repeatedly clashed with European Union officials owing to moves that would stem Hungarian media freedoms, stack members of his rightwing Fidesz party in key institutions and undermine the national central bank. On Friday the outspoken Hungarian leader told entrepreneurs in Budapest: “We hope that it will not be necessary to introduce a new system to replace democracy, but we need new economic systems and new ideas.” Greek steel workers end nine-month strike ATHENS: The union at one of Greece’s main steel plants has decided to end its nine-month strike, state television reported. Workers are expected to return Monday to the Hellenic Halyvourgia plant at Aspropyrgos west of Athens, where police have clashed with striking workers in recent weeks. The workers first downed tools last October, protesting lay-offs as well as cuts in working hours and in pay to 500 euros ($615) per month that were imposed amid Greece’s deep economic crisis. At a union meeting with 150 workers reported present, 107 voted to end the protest, while 14 voted against and 29 abstained. They agreed to return to work as long as police forces now guarding the plant leave the premises. Last week, police intervened following a court order and opened the gates of the factory, meeting resistance from a group of strikers while others wanted to return to work. Some protesters were detained and later released, now awaiting trial, charged with breaching a court order that had outlawed the strike weeks ago. The government said it had acted upon the wishes of the workers, while the radical left main opposition party Syriza and the Communist Party condemned the police action.
Y ou 24 business MONDAY, JULY 30, 2012 Brazil’s Rousseff pledges more economic stimulus Everyday tasks the new frontier in service jobs can hire Sara Fisher to straighten up your room. You can hire Amber Leigh Salisbury to straighten out your love life. And why stop there? You can call Deneane Maldonado when your child needs minding and Dennis Freeman when you want to improve your child’s mind. Of course, you could also do all those things yourself. But if you hire someone, you can save time, avoid stress, make your life less cluttered - and maybe even better. By the way, you’ll also be fanning a series of small, glowing embers amid the ashes of the job market. Many American families are juggling an array of tasks every day. And they are increasingly hiring people and companies to do what they can’t do - or don’t want to. “I am sure that the market is growing,” said Freeman, owner of In-Home Tutors Atlanta, which sends tutors to client homes. “On a good week, I pay about 100 tutors, who are working with maybe 150 students. People have a lot on their plates.” The trend accelerated after the recession, starting in late 2007, cast millions of workers into unemployment. The lackluster recovery beginning in 2009 has not created enough jobs to pull all those people back onto payrolls. The result has been a huge supply of potential entrepreneurs. Many of them have started offering services - from dog-walker to rent-a-friend. Sue Cleere, for example, started She’s Wired LLC after being laid off by WebMD in late 2008, just as the economy was falling off a cliff. She installs technology, fixes problems and teaches her clients how to get the most out of their devices. “They are not necessarily tech people, but they want the latest technology,” she said. “They are always looking for the next thing.” Right now, Cleere said, she has enough business Stimulus to focus on ports, airports, railroads, roads to consider taking on an employee or even franchising what she does in different cities. Many of her clients are themselves entrepreneurs who are running small businesses. The trend extends through all sorts of personal needs, according to sociologist Arlie Russell Hochschild, author of a new book, “The Outsourced Self.” “Every stage of life has its corresponding market service,” she wrote. “I interviewed love coaches and wedding planners, birth surrogates and parenting counselors, paid friends and mourners-for-hire.” Hochschild discounts narrow economic explanations. The trend, she argued in a recent email, has been caused by a conjunction of factors: growth in the two-job family, decline of community services and rising demand as more for-profit businesses get contracts to run public institutions like prisons, schools and parks. “What comes out as an economic ‘demand’ is a result, I’d argue, of a modern-day ‘perfect storm,’ “ she said. “So if we’re privatizing public life, the thinking is, why not privatize private life?” Are these “outsourced” services just marginal jobs at the edge of the economy that will never amount to much? E.J. Reedy, a research fellow at the Kauffman Foundation, which studies entrepreneurship, predicted that some will be able to “scale,” or expand to provide the same services to more customers by hiring more employees. Some services have already made the jump to a larger scale, creating many jobs. Nanny Poppinz Inc. - a project that Deneane Maldonado started two decades ago when she was a stay-athome mother - now has more than 3,000 nannies placed in metro Atlanta. A database with tens of thousands of names lets the company find nannies who fit client requests, she said. —MCT ATLANTA: Certified professional organizer Sara Fisher organizes paperwork at a client’s home. — MCT LONDON: Brazilian President Dilma Rousseff said on Friday her government will unveil more measures to stimulate the economy in the next few months, including investments in ports, airports, railroads and highways. Speaking to reporters in London, where she is attending the opening of the Olympic games, Rousseff also said Brazil’s economy will grow at a faster rate in coming months, despite the impact of the global economic crisis. “We will move forward with our counter-cyclical program in August and September,” she said, referring to the slew of stimulus measures Brazil has deployed since the beginning of the year, such as tax breaks to stimulate consumer demand. The government does not rule out additional tax breaks, but the focus now seems to be on tackling the so-called “Brazil cost” - the mix of logistical bottlenecks, high taxes and other costs that make Brazil one of the world’s most expensive places to do business. “We’re very worried about the country’s cost,” Rousseff said, citing plans to reduce electricity costs by lowering taxes for energy utilities. Brazil, which will host the World Cup in 2014 and the Olympics two years later, has been struggling to improve and expand its infrastructure as its economy grinds to a near halt. After strong growth of 7.5 percent in 2010, the economy grew by just 2.7 percent in 2011. This year, economists are forecasting growth of as low as 1.5 percent. Rousseff said additional stimulus measures will not compromise Brazil’s fiscal stability, even as some economists warn the country may miss this year’s primary surplus target - a measure of revenues left over at yearend that excludes debt payments. “We surely are on a path to stability. We will do all of that while maintaining our fiscal strength, inflation under control and keeping our social policies,” she said. — Reuters Agriculture sector down on profit-making WEEKLY COMMODITIES UPDATE By Ole S Hansen T he president of the European Central Bank, Mario Draghi, reacted to the continuing deteriorating outlook for Europe and rise in borrowing costs for some euro-zone countries by saying that the ECB was “ready to do whatever it takes”. This resembled the now famous Jackson Hole speech by the US Fed’s chairman in 2010, when he signalled the introduction of QE1 later that year. The market took the comment by Draghi as a sign that the ECB will intervene to buy sovereign bonds issued by Spain and Italy, which both have seen borrowing costs reach levels where a bailout could become necessary. The euro jumped from a two-year low and the dollar weakness generally helped commodities move higher as well. The chance, however, that this risk-on rally in currency markets turns out to another one of a relative short duration is very high, given the current north/south divide within Europe as to what can and will be done to save the Euro in its current set-up. In a change from recent weeks, the agriculture sector saw the weakest performance during the past week, as both the grains and soft sub-sectors suffered losses above four percent on the back of profit taking following a dramatic rally recently. US weather forecasters now sees the chance of rain to reach drought-stricken parts of the country but the risk - particularly for corn - is that it is too little too late. Precious metals were the best performers, not least helped by a weaker dollar, with gold taking the lead after moving above previous levels of resistance at $1,610. Oil markets finding support The strong rally in oil markets - which was kicked off in late June by geo-political concerns regarding Syria, Iran and most recently Iraq, together with lost supplies from a Norwegian oil strike - seems to have run out of steam as the macroeconomic sentiment continues to deteriorate. The sanctions against Iran have proved very effective so far and exports from the country with nuclear aspirations have slowed to a trickle, removing an amount equal to what was lost during the Libyan conflict in 2011. The escalating tensions in Syria and worrying signs that it could spill over into Iraq have also unnerved the oil markets. All in all, this leaves the global oil market with less supply at a time of seasonal peak demand, and it has helped the price of Brent crude, the global benchmark for more than 50 percent of physical transactions, to recover almost half of its March to June sell-off. The rally has primarily been supportive for Brent crude as the tightness from lost Norwegian production and geo-political worries impacts this global benchmark the most. The front month futures spread between WTI and Brent crude has as a consequence widened by USD 5 dollars since the oil prices reached the low point on June 21. Following the strong rally since mid-June, Brent crude has now settled into a 102 to 108 trading range while trying to decipher which leg to stand on. Geopolitical tensions and the chance of renewed quantitative measurements in Europe and potentially the US leaves the market supported despite weak macroeconomic conditions across many different economies. Economic data from China has improved slightly recently, but at the same time oil imports in June were down 12 percent from May, which could signal that the rush to fill commercial and strategic reserves have begun to slow as they fill up. The building and filling of strategic storage facilities has been a Chinese aspiration, in order to bring its forward cover closer to 90 days which is what OECD nations generally have. Speculative investors who got badly burned during the June slump on overextended long positions have only slowly begun to rebuild long exposure, following sharp reductions in net-long positioning in both WTI and brent crude. This could indicate some hesitancy in getting too bullish at this stage, with higher prices from current levels not being justified, while support towards 100 dollar equally should contain any sell-offs until the market works out whether slowing demand from weaker economic activity or the risk to supplies carries the greatest risk. Hot weather supports natural gas - for how long? The dynamics in the US gas market have changed over the last couple of months as the heat wave across the country have significantly helped to reduce the overhang of natural gas held in underground storage facilities. As the chart shows the current surplus inventory over the five year average have now shrunk from 60 percent in March to just 16 percent today. The demand for gas has been strong enough to push the Aug12/Sep12 futures contract spread into backwardation (August price higher than September) which is a relatively unusual event this time of year but which also reflects the fact that demand for gas has generally been rising as the low prices during the early months of 2012 saw power generators replace coal with gas. The summer related peak in demand generally occurs within the next couple of weeks and as demand begins to slow, with another few months still to go before winter heating demand begins to exceed injections, storage levels can still climb towards and above the record high of 3,852 billion cubic feet from November 2011 and on that basis further advances much above $3 will begin to find some resistance. Gold back above 1600 - looking for momentum The yellow metal has taken a small initial step in its attempt to break out of the relatively tight trading range which has prevailed for several months this week. Spurred on strength against other currencies than the dollar, not least the euro combined with signs of renewed safe-haven interest it broke above previous resistance at 1,610. Whether this will be enough to drive it higher at this stage remains to be seen, as many view the recent dollar weakness as temporary and once the speculative overhang of long dollar positions has been removed renewed headwind from a strengthening dollar will make further advances difficult. Hedge funds and other large investors are still holding a relatively small net-long gold position while ETP investors have scaled back their holdings from a recent record of 2,413 metric tons to 2,396 currently. The threat by Moody’s, the credit rating agency, might downgrade core European economies should support gold, as there are increasingly few quality investments available to the global investors looking to a safe place to put their cash. While these all offer some level of support to gold, the main driver for a move higher will be the emergence of momentum in the market, something that has not been seen for months. Whether this require a break above the June high at 1,641 or the 200 day moving average at 1,655 remains to be seen but at least for now gold has a fighting chance of that happening providing 1,600 holds up against any downside selling attempts. US crops desperate for a drink The price of key US crops finally succumbed to some selling this week following one of the strongest rallies in recent memory, which resulted in the price of both soybeans and corn reaching new record highs. The selling was triggered by weather forecaster who predicted that some rain would finally hit some of the drought stricken areas of the US Midwest, bringing some temporary relief, and causing some selling by money managers who had been scrambling to build long exposure as prices surged higher. Further dry and hot weather is however expected for next week, and while corn crops in many areas are beyond repair, soybeans could still benefit from rain. This helps to explain why corn has been the relative better performer during the recent setback as the chart below highlights.
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