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Commodities Sold as Risk Appetite Unravels

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Commodity prices are trading broadly lower in European hours as risk appetite continues to unravel, with growth-sensitive crude oil and copper prices following stocks lower while safe-haven flow buoy the US Dollar, applying de-facto downward pressure on gold and silver.

China revealed a disappointing industrial production figures overnight while an updated set of economic growth projections from the European Commission reinforced yesterday’s ECB monthly report. The Commission slashed bets on economic growth but upgraded the outlook for inflation in 2012 and 2013, hinting that the ECB will not be quick to offer stimulus even as slump deepens. News that JPMorgan suffered a hefty $2 billion trading loss in synthetic credit securities that proved to be riskier than expected compounded the dour mood.

Looking ahead, S&P 500 stock index futures are pointing sharply lower ahead of the opening bell on Wall Street, pointing to more of the same as North American markets come online. The US economic data set may offer a bit of a countervailing force however. April’s PPI report is expected to show core wholesale inflation – a measure excluding volatile energy and food prices – slowed to 2.8 percent, the weakest reading since September. Traders may interpret abating pipeline price pressure as giving the Federal Reserve more room for a QE3 program, boosting risk appetite. A pullback in the University of Michigan consumer confidence gauge – the first in nine months – could reinforce such logic.


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