To: Broken_Clock who wrote (44638 ) 11/6/1999 3:34:00 PM From: Alex Read Replies (1) | Respond to of 116762
Global prices to rise on wave of US optimism By BRIAN HALE NEW YORK, FRIDAY Saturday 6 November 1999 Expectations of another upward wave in global commodity prices have gathered strength in the United States as interest-rate fears subside and economists swing back to rosier forecasts for world economic growth. Most commodity prices ticked upwards again yesterday, led by a jump in oil prices to $US23 a barrel after Venezuela's oil minister said Organisation of Petroleum Exporting Countries and non-OPEC oil producers may extend their pledge to cut production beyond next March . So far, the first result of the growing optimism has been a further fall in bond prices and another strong rise in the Nasdaq Composite Index yesterday, which advanced 27 points to 3056.11 (its fifth consecutive record close), even though the key October job numbers were due to be released overnight. These could dampen the optimism, but Wall Street believes that the next US Federal Reserve interest-rate hike will be the last in the current round as there are signs that the US economy is slowing. This is likely to forestall interest-rate increases by other central banks around the world and remove potential threats to global economic recovery. There were two more rate hikes yesterday - a 25-basis-point increase by the Bank of England, taking short-term rates to 5.5 per cent, and an aggressive 50-basis-point hike by the European Central Bank, which took short rates to 3 per cent. The optimism has dropped yields on the benchmark US 30-year Treasury bond over the past week or so from 6.4 per cent to 6.09 per cent, a level not seen since the end of September. It has also narrowed the spread between short and long-term bond yields and widened the spread between Treasury bond yields and non-Treasury bond yields. Federal funds futures are also said to be now factoring in a less-than-50-per-cent chance of a rate increase this month, which is markedly down from the 75-per-cent chance the market was attaching to a rate hike less than two weeks ago. Commodity prices so far have been a little slower to react, although stronger base-metal prices pushed Australian resource stocks higher in recent days and, in the US, the Commodity Research Bureau index rose again yesterday. Conversely, the CRB raw industrial index also hit a new high during the week. Researchers at The Bank Credit Analyst yesterday said the high "underscores that a slow-moving bull market is unfolding". "The rally had been lead by base metals, which is typical of most cycles. More recently, however, the "other" raw materials component in the overall CRB raw industrials index has gained momentum and risen above its 40-week moving average, signalling that the bull market is broadening," added the BCA. The BCA analysts said the CRB raw industrials index's short-term momentum had stopped rising, but this did not herald a correction because the previous major bull market in 1994 also witnessed a prolonged period where momentum appeared to have reached a plateau, yet prices moved steadily higher. "In 1994, cyclical momentum (the 52-week measure) continued to rise, signalling that the bull market would persist. Conclusion: higher prices loom on a cyclical basis, until momentum diverges in a significant way and/or the 52-week rate of change reaches overbought levels (which is a long way off given that it is only now up to neutral levels)," said the BCA. The research group also said that the brighter outlook for world growth combined with the weaker US dollar augured further rises for commodities. "Commodities tend to climb the most rapidly when world growth is accelerating and the US dollar is weak. Such a combination occurred in 1986-88 and, to a lesser extent, in 1994-95," said the BCA. "Recently, the trade-weighted dollar has softened, underscoring that a solid rebound in industrial commodity prices should unfold, with the magnitude of the rise dependent on whether producers avoid flooding the market with supply as demand recovers."theage.com.au