NEW YORK: Commodity markets were beset by a nearly unprecedented onslaught of investor selling on Thursday, May 5 as modest early profit-taking on mounting economic worries snowballed into one of the worst days on record.
In a slide reminiscent of the steep sell-offs in the wake of the 2008 financial crisis, Brent crude oil dived a record $12 a barrel, natural gas dropped over 7 percent and silver, whose earlier losses were a catalyst for the slide, slumped by nearly $5, its biggest one-day dive since 1980.
The 19-commodity Reuters-Jefferies CRB index .CRB wiped out more than two-thirds of its gains so far this year, shedding 5 percent on the day, its fifth biggest fall ever. The intensity of the decline helped the U.S. dollar to its biggest rise since November, but only vaguely weighed on stocks.
Few traders were ready to call the end to a long bull cycle in commodities, particularly given the fact that none of this week's economic indicators had fundamentally altered the outlook. But many said more losses could follow in markets that by many accounts had gone too far, too fast.
"There's a lot of tourists in our markets that have piled in at the wrong level. Now there's liquidation by commodity trading advisors," said Tony Hall, chief investment officer at UK-based hedge fund Duet Commodities.
"Is it possible that it could go lower? Absolutely. I think there are some commodities that have supportive fundamentals and others that don't and have been artificially inflated."
As the day wore on, oil prices took the lead, diving repeatedly through key sell-stop points and making it difficult to attribute the losses to weak U.S. jobless figures or hints that Europe may not raise rates quite as quickly as thought.
Oil traders expressed shock at the relentless nature of the selling. Prices have been under pressure all week but on Thursday the bulls capitulated.
Brent dropped a record $12 a barrel to below $110, while U.S. crude fell below $100 a barrel for the first time since March, likely relieving pressure on President Barack Obama to take action to tame nearly $4 gasoline prices.
"It's a bloodbath out there, just red across the screens," said Sean McGillivray, vice president and fund manager at Great Pacific Wealth Management in Grants Pass, Oregon.
"We're seeing some of the speculative length get pushed out of the market, especially following the jump in unemployment claims and the stronger dollar."
Unrest in North Africa and the Middle East has encouraged investors into oil since the start of this year, with Brent surging to a 2-1/2 year peak of $127 a barrel last month. But with hedge funds placing a record number of bets on higher U.S. crude prices as of last week, many were warning the market was starting to look lop-sided.
Precious metals paced the rout, with silver dropping over 8 percent after another rise in trading margins, shaking more speculators out of the market. The white metal hit an all-time high near $50 an ounce last Thursday but is now on course for its steepest weekly fall in almost 30 years, down 25 percent since Monday. Gold fell 2.6 percent.
DOLLAR - DEAD-CAT BOUNCE?
The U.S. dollar .DXY rose 1.5 percent against a basket of currencies after the European Central Bank signaled it was unlikely to raise rates next month. The dollar hit its lowest level since July 2008 early this week.
A weak dollar and loose U.S. monetary policy have helped boost many commodities priced in the greenback to multi-year peaks in recent months, although on Thursday many traders said it was unwinding in commodities that aided the dollar.
McGillivray at Great Pacific Wealth said he saw the rise in the dollar on Thursday as a "dead-cat bounce" that might reverse if the slowing pace of the economic recovery triggers another round of financial stimulus from the Federal Reserve.
The number of Americans filing for jobless aid rose to an eight-month high last week and productivity growth slowed in the first quarter, clouding the outlook for an economy that is struggling to gain speed.
The potentially bullish impact of a weaker dollar on commodities can be offset by the link to stalling growth in the world's largest economy.
Analysts at Goldman Sachs, who last month said the rally was starting to look overdone, said the impact of higher commodity prices was starting to affect the U.S. economy.
"We've seen the market as vulnerable to a correction, and the sell-off today is consistent with that view," said David Greely, head of energy research at the bank.
"Concerns about the impact of higher prices on the economy and demand for commodities are now feeding through. The (oil) market focus has now definitely shifted from geopolitical concerns to the demand side."
Economists have said the economy can cope with oil prices at current levels. However, the market sell-off has gained momentum on anecdotal evidence and popular perceptions that pump prices around $4 a gallon in the world's biggest oil user have begun to change U.S. driving -- and spending -- habits.
LME copper shed 3.3 percent to $8,820.20 a ton and touched a 2011 low of $8,744,25 a ton. Tin was the biggest loser of the industrial metals, shedding more than 7 percent to $28,500 a ton at one point.
"It's a broad-based, risk-off selling momentum that has gathered pace," Barclays Capital analyst Gayle Berry said.
Cocoa gave up 4.6 percent as investors liquidated long positions and U.S. coffee futures that touched a near record high two days ago fell 2.1 percent.
U.S. grain and soybean futures joined in the rout, but from a distances. Chicago Board of Trade May corn lost 3 percent to $7.05 a bushel and CBOT May soybeans fell 2.3 percent to $13.19-3/4 a bushel. - Reuters
In a slide reminiscent of the steep sell-offs in the wake of the 2008 financial crisis, Brent crude oil dived a record $12 a barrel, natural gas dropped over 7 percent and silver, whose earlier losses were a catalyst for the slide, slumped by nearly $5, its biggest one-day dive since 1980.
The 19-commodity Reuters-Jefferies CRB index .CRB wiped out more than two-thirds of its gains so far this year, shedding 5 percent on the day, its fifth biggest fall ever. The intensity of the decline helped the U.S. dollar to its biggest rise since November, but only vaguely weighed on stocks.
Few traders were ready to call the end to a long bull cycle in commodities, particularly given the fact that none of this week's economic indicators had fundamentally altered the outlook. But many said more losses could follow in markets that by many accounts had gone too far, too fast.
"There's a lot of tourists in our markets that have piled in at the wrong level. Now there's liquidation by commodity trading advisors," said Tony Hall, chief investment officer at UK-based hedge fund Duet Commodities.
"Is it possible that it could go lower? Absolutely. I think there are some commodities that have supportive fundamentals and others that don't and have been artificially inflated."
As the day wore on, oil prices took the lead, diving repeatedly through key sell-stop points and making it difficult to attribute the losses to weak U.S. jobless figures or hints that Europe may not raise rates quite as quickly as thought.
Oil traders expressed shock at the relentless nature of the selling. Prices have been under pressure all week but on Thursday the bulls capitulated.
Brent dropped a record $12 a barrel to below $110, while U.S. crude fell below $100 a barrel for the first time since March, likely relieving pressure on President Barack Obama to take action to tame nearly $4 gasoline prices.
"It's a bloodbath out there, just red across the screens," said Sean McGillivray, vice president and fund manager at Great Pacific Wealth Management in Grants Pass, Oregon.
"We're seeing some of the speculative length get pushed out of the market, especially following the jump in unemployment claims and the stronger dollar."
Unrest in North Africa and the Middle East has encouraged investors into oil since the start of this year, with Brent surging to a 2-1/2 year peak of $127 a barrel last month. But with hedge funds placing a record number of bets on higher U.S. crude prices as of last week, many were warning the market was starting to look lop-sided.
Precious metals paced the rout, with silver dropping over 8 percent after another rise in trading margins, shaking more speculators out of the market. The white metal hit an all-time high near $50 an ounce last Thursday but is now on course for its steepest weekly fall in almost 30 years, down 25 percent since Monday. Gold fell 2.6 percent.
DOLLAR - DEAD-CAT BOUNCE?
The U.S. dollar .DXY rose 1.5 percent against a basket of currencies after the European Central Bank signaled it was unlikely to raise rates next month. The dollar hit its lowest level since July 2008 early this week.
A weak dollar and loose U.S. monetary policy have helped boost many commodities priced in the greenback to multi-year peaks in recent months, although on Thursday many traders said it was unwinding in commodities that aided the dollar.
McGillivray at Great Pacific Wealth said he saw the rise in the dollar on Thursday as a "dead-cat bounce" that might reverse if the slowing pace of the economic recovery triggers another round of financial stimulus from the Federal Reserve.
The number of Americans filing for jobless aid rose to an eight-month high last week and productivity growth slowed in the first quarter, clouding the outlook for an economy that is struggling to gain speed.
The potentially bullish impact of a weaker dollar on commodities can be offset by the link to stalling growth in the world's largest economy.
Analysts at Goldman Sachs, who last month said the rally was starting to look overdone, said the impact of higher commodity prices was starting to affect the U.S. economy.
"We've seen the market as vulnerable to a correction, and the sell-off today is consistent with that view," said David Greely, head of energy research at the bank.
"Concerns about the impact of higher prices on the economy and demand for commodities are now feeding through. The (oil) market focus has now definitely shifted from geopolitical concerns to the demand side."
Economists have said the economy can cope with oil prices at current levels. However, the market sell-off has gained momentum on anecdotal evidence and popular perceptions that pump prices around $4 a gallon in the world's biggest oil user have begun to change U.S. driving -- and spending -- habits.
LME copper shed 3.3 percent to $8,820.20 a ton and touched a 2011 low of $8,744,25 a ton. Tin was the biggest loser of the industrial metals, shedding more than 7 percent to $28,500 a ton at one point.
"It's a broad-based, risk-off selling momentum that has gathered pace," Barclays Capital analyst Gayle Berry said.
Cocoa gave up 4.6 percent as investors liquidated long positions and U.S. coffee futures that touched a near record high two days ago fell 2.1 percent.
U.S. grain and soybean futures joined in the rout, but from a distances. Chicago Board of Trade May corn lost 3 percent to $7.05 a bushel and CBOT May soybeans fell 2.3 percent to $13.19-3/4 a bushel. - Reuters
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