Crude and Copper Slide as Emerging Market Jitters Sink Risk Appetite

February 3, 2014

London (Feb 3)   Crude oil slumped on Friday in a move mirrored in risk assets like the SPX500 as traders sought safety in Treasuries and the US Dollar. Newswires attributed the broad-based risk aversion to ongoing jitters surrounding emerging markets, as well as the Federal Reserve’s recent decision to continue tapering their asset purchase program.

An upside surprise to upcoming US ISM Manufacturing figures may help the oil price to recover based on the bullish implications for the US economy. However, a better-than-expected print would also likely firm Fed policy expectations, which could spark another bout of risk aversion and weigh on the WTI contract.

If we see investor sentiment sour further, it is likely that increased safe-haven demand for US Treasuries would lead to further declines for US 10 year. This in turn would lower the opportunity cost of holding gold, and may benefit the precious metal. Indeed gold has rallied in recent weeks as its negative correlation with US 10 year yields has continued to strengthen.

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