The U.S. dollar and prices of Treasuries declined on Friday after government data showed consumers spent more than economists expected last month, triggering speculation about the outlook for interest rates. (Reuters)
Oil prices saw their sharpest drop in two years, shedding more than $2 a barrel as mild US weather led consumers to use less petrol and heating oil. (BBC News)
Oil prices started to climb on Friday, on speculation that oil cartel Opec could cut output in coming weeks. (BBC News)
Commodities reflect the strength of the US (about 27% of the global economy) and European economy (about 25% of the world economy).
The US economy slowed down in the second half of 2006, commodities declined, including gold and crude oil, and the bond market strengthened.
Commodities and short-term interest rates (they have the same cyclical turning points as shown in my presentation posted on http://www.peterdag.com/) will rise if the economy gains more momentum. Their rise will be accompanied by a weaker bond market.
On the other hand, if the economy slows down under the weight of the housing sector debacle and credit crunch caused by lenders’ tightening action, you can rest assured commodities and short-term interest rates will head down, and the bond market will strengthen.
My point: cartels create volatility. They do not control the cyclical trend of commodities and interest rates. This point has also been made in a study of the Federal Reserve of San Francisco long time ago.
George Dagnino
aka Peter Dag
http://www.peterdag.com/
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