Friday, February 11, 2011

World stocks rallied and oil prices fell on Friday after Egyptian President Hosni Mubarak stepped down

World stocks rallied and oil prices fell on Friday after Egyptian President Hosni Mubarak stepped down, bowing to escalating pressure from the military and protesters.

Prices of gold and U.S. Treasury bonds partly erased early gains as Mubarak’s departure partially revived investors’ appetite for risk. The U.S. dollar briefly pared gains, but remained strong against a basket of major currencies.

“It looks like the stock market is taking the news well,” said Gary Thayer, chief macro strategist with Wells Fargo in St. Louis.

“One thing that has weighed on investor sentiment is that the price of oil would go up in the case of political turmoil, and Mubarak’s leaving reduces that possibility.”

Key U.S. stock indexes opened lower on concerns about the continuous unrest in Egypt, a longtime U.S. ally in the Middle East. On Thursday, Mubarak disappointed protesters and investors by holding on to power.

Equities rose later as news of his resignation was announced by the Egyptian vice president on television.
The Dow Jones industrial average was up 15.67 points, or 0.13%, at 12,244.96, while the Standard & Poor’s 500 Index gained 3.39 points, or 0.26%, to 1,325.26.

The Nasdaq Composite Index added 5.29 points, or 0.19%, at 2,795.74.

In Europe, the FTSEurofirst 300 index of top shares gained 0.5%. MSCI’s benchmark All-Country World Index rose 0.18%.

U.S. crude oil prices fell 30 cents, or 0.35%, to US$86.43 per barrel, while spot gold prices erased part of its gains, but were still up 0.19% at US$1,364.00.

U.S. Treasury prices also shed some gains, but the benchmark 10-year notes were still up 22/32 in price, with the yield at 3.6194%.


CANADIAN DOLLAR UP

The Canadian dollar hit a session high against the U.S. currency on Friday following a report that Egypt’s president was stepping down after demonstrations against his rule. The currency rose as high as $0.9881 to the U.S. dollar, or $1.0120, then pared gains as the price of oil dropped on the news.

BRENT ABOVE US$101

Brent oil prices rose above US$101 a barrel on Friday after Egypt’s President Hosni Mubarak refused to step down, but later pared gains as a stronger dollar sapped buying interest for commodities.

A U.S. official said he believed that Mubarak has left Cairo and arrived at the Egyptian resort of Sharm el-Sheikh as angry protestors marched on the presidential palace.

ICE Brent crude futures rose by 62 cents to US$101.49 a barrel by 1545 GMT while U.S. crude futures were down 33 cents at US$86.40 a barrel. Brent touched a day’s peak of US$102.03.

This left the spread between the two benchmarks at around US$15 a barrel, but down from a record high above US$16 in the previous session.

“There was no fresh upside ground on Egypt, the dollar strengthened and there is a realisation that oil supplies are not immediately threatened,” said Michael Fitpatrick, editor of the industry newsletter the Energy Overview in New York.

The dollar index rose by around 0.2%, making dollar-denominated commodities more expensive for other buyers.

Analysts at Commerzbank said that prices, especially Brent, contained a risk premium because of the unrest in Egypt.

“The market is very, very nervous about Egypt…The level of fear in the financial market is influenced by events in Egypt. It remains the most dynamic issue,” said the bank’s senior commodities analyst Eugen Weinberg.

Egypt is not a major oil producer and it consumes about as much as it pumps. However, investors worry more about the prospect of severed oil flows along a strategic pipeline and the Suez Canal, which together amount to around 2.5 million barrels per day (bpd) of crude oil.

Traders are expected to watch closely for any sign that protests in oil producing nations Iran and Algeria planned for the next week could develop into broader popular movements resembling those in Egypt.

MARKET JITTERS

Trading has been unusually volatile in the past two trading sessions as investors have grappled with the significance of conflicting geopolitical signals in the Arab world.

A market rumour that King Abdullah of top oil producer Saudi Arabia was seriously ill or may even have died stoked a rally on ICE Brent futures but prices quickly pared gains after Saudi sources dismissed the talk.

Many analysts expect prices to remain volatile.

“It will stay jittery on Egypt concerns,” said analyst Andrey Kryuchenkov of VTB Capital.

Oil prices have largely ignored news that the Organization of Petroleum Exporting Countries has boosted oil output to a two-year high to help cool the price rally above US$100 a barrel.

EGYPT 5-YEAR CDS FALL

The cost of insuring Egyptian sovereign debt against default or restructuring for five years fell 25 basis points late Friday after Egypt’s vice-president announced on state television that President Hosni Mubarak was to step down.

Five-year credit defaults swaps for Egypt were quoted at 315 bps, compared to 380 bps earlier in the day and 340 bps at Thursday’s close, data monitor Markit said.

Egyptian five-year CDS, which traded at about 240 bps at the start of the year, hit a 2011 peak of 432 bps on Jan 31.

COPPER, ALUMINIUM UP
Copper turned positive on Friday after Hosni Mubarak stepped down as Egypt’s president, as a resolution of the country’s political crisis boosted investors’ risk appetite, but concerns about Chinese demand capped gains.

Copper for three-months delivery on the London Metal Exchange ended at US$9,961 a tonne from a close of US$9,951 on Thursday.

“Copper sold off early today on concerns over the situation in Egypt but then news that Mubarak left Cairo and stepped down pushed prices up,” MF Global energy and metals analyst Edward Meir said.

Mubarak handed over to the army, ending three decades of autocratic rule, and bowing to escalating pressure from the military and protesters demanding he goes. But worries about the demand outlook in China lingered after the world’s top copper consumer on Tuesday raised interest rates to mop up cash from its fast-growing economy in order to rein in inflation.

“There are concerns that higher interest rates will soon be coming,” RBS global head of commodity and strategy Nick Moore said. “People were expecting that the Chinese would come back from the New Year holiday with a voracious appetite but they haven’t.”

Copper struck a record high of US$10,160 a tonne on Monday on the back of concerns about supply, as well as improving economic data that bode well for demand.

Tin earlier struck a record high of US$31,800 a tonne.

It finished at US$31,775 from US$31,500 at Thursday’s close.

“If you take a view for the next few months, sentiment is still very positive,” Daniel Briesemann, an analyst at Commerzbank, said of copper. “The major driver is supply constraints…,” he said “…with tin as well.”

Stocks of copper in LME warehouses fell 225 tonnes to 396,725 tonnes, but a recent trend of rising stocks has raised some concerns about the demand outlook.

Underscoring these worries, Shanghai copper stocks rose nearly 10,000 tonnes to 144,197 tonnes.

Aluminium finished at US$2,496 a tonne from US$2,537.

Stocks of the metal used in transport and packaging fell 2,325 tonnes but were just 41,300 tonnes off a record high of 4,640,750 tonnes hit on Jan. 20, 2010.

Vast amounts of the metal used in transport and packaging have been tied up under cheap rent and financing deals, where metal holders profit if prices rise faster than storage costs.

“More is going to come in, much more,” said RBC Capital’s Alex Heath. “Metal is locked up in deals.

These deals can exist within exchange warehousing systems, or off exchange, in which case the metal is not visible to the market.

“If you’re a physical producer or a merchant then you’re rubbing your hands with glee,” Heath added. “The price has been defended very effectively by this financial mechanism.”
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