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Morning markets: commodity price correction slows - for now

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The storm in commodities markets - which sent oil down 10% in the last session, silver down 13%, gave the CRB index its fifth-worst day ever, etc – showed signs of lower wind speeds on Friday.

At least for now, with many investors appearing to wait for the next round of US jobs data, due later on Friday, for a cue as the direction.

New York

crude

was down, but by a more modest 0.9%, to $98.93 a barrel as of 07:20 GMT (08:20 UK time), with Brent crude easing 0.5%.

And while some commodities did show heavy losses –

rubber

plunged 6.9% to 360.00 yen a kilogramme in Toyko for the benchmark October contract – this was down to catch-up after Japanese markets were closed for holidays.

(Tokyo's Nikkei share index fell 1.5%, having dipped 2% earlier on.)

Currency factor

One factor which turned in investors' favour was the

dollar

which, having rebounded strongly in the last session, gave back some of its gains, easing 0.2% against a basket of currencies, and so making dollar-denominated assets more competitive as exports.

Still, only a few agricultural commodity futures managed to ride this tailwind to actually post early gains.

Cotton

added 0.3% to 122.50 cents a pound in New York, for the new crop December contract, despite further losses for the fibre on China's Zhengzhou exchange.

For most crops, it was more a matter of a slowdown in the pace of declines, at least for now, to, for the most part, percentages at or below 1%.

Demand concerns

After all, the rationale for the sell-off was still there.

"After driving prices higher for much of 2011, investors now fear that high prices will lower the demand for commodities," Ker Chung Yang at Phillip Futures said.

China, India, Vietnam, Philippines and Malaysia, among others, have raised interest rates to fight inflation, on which commodity prices are a big factor.

"We are concerned that the monetary tightening from various Asian countries could curb the demand on commodities in the short term," Mr Ker said.

Chart pointers

And bullish technical patterns have been ruined too.

"The charts continue to look negative with the recent price action suggesting more downside potential until this wave of long liquidation is completed," Dave Lehl at Benson Quinn Commodities said.

One knock-on effect on commodity markets of selling is to beget more selling in, for example, taking prices below key technical pointers, such as moving averages, which investors use as gauges of future movements.

New York

cocoa's

near-5% slump in the last session, for instance, took it down "through the 50-day moving average like butter", Mike Mawdsley at Market 1 said, adding that this move "looks bearish".

The $7 battleground

Among grains,

corn

for July delivery having already broken through all its major moving averages bar the 100-day one, at $6.90 ½ a bushel.

The contract is also facing a tussle to retain the psychologically important $7-a-bushel market, which it was winning in early deals, down 1.0% at $7.01 ½ a bushel.

(The December lot was down further, 1.4% at $6.46 ¾ a bushel, but still holding above its 100-day moving average, at just below $6 a bushel, and 50-day at $6.26 ½ a bushel.)

The $7-a-bushel market is key for the expiring May contract too, with the lot already setting a record for a near-term contract by closing over this level for five successive weeks. Can it make it six?

"A close over $7.00 for the week is vital," Mr Mawdsley said. The contract was at $7.01 ¾ a bushel, down 0.5%.

'Irreversible damage'

Among fundamentals, the Wheat Quality Council overnight revealed an estimate of 37.4 bushels per acre for Kansas

wheat

, the lowest in five years, but a figure above market expectations.

High expectations for abandonment, however, depressed the production estimate in America's biggest wheat state to 256.7m bushels, the smallest since 1996, and below analysts' forecasts.

Chicago wheat did better than corn, but only just, falling 0.8% to $7.47 ¾ a bushel for July delivery.

While weather outlooks remain worrying, including in France, where Agritel noted that "irreversible damage is observed in several regions, especially on shallow soils", that speculation of an imminent return by Russia to exports, or at least of a bumper crop this year, refuse to go away.

Soybeans

were doing the best of Chicago's big three, easing 0.2% to $13.19 ½ a bushel for July, but a strength reflecting in part only corn's weakness, and the unwinding of "long corn, short soybean" spreads.

By Agrimoney.com

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