Commodity gauge drops to 1999-lows, euro slips again

The Bloomberg Commodity index plumbed a 16-year low on Monday even as oil futures bounced back on a statement from the Saudi cabinet saying the country stood ready to use all measures to keep the market stable.

"Volatility has a tendency to increase near the top or bottom of major market moves, and the continued drive being seen in copper and oil prices are indicative of such an environment. [...] But the meltdown being seen in these markets doesn´t yet appear close to being over," Daily FX said on Monday.

As of 16:39, front month Brent crude futures were 1.1% higher at $45.15 per barrel in ICE trading after nearing two-and-a-half month lows earlier in the day.

Venezulean oil minister Eulogio del Pino said on Sunday the Organisation for Petroleum Exporting Countries could not allow a price-war to continue developing in crude markets.

Yuan weakness could exceed expectations

On Thursday and Friday of last week, Goldman Sachs and Bank of America-Merrill Lynch both flagged the risk of a larger than expected depreciation in the Chinese Yuan next year, which could weigh on commodity prices.

Bank of America-Merrill Lynch said it expected the Chinese yuan to depreciate next year to reach 6.90 versus the Greenback, adding to the selling pressure on the commodity space.

In parallel, if Brent crude oil prices dropped to $30 per barrel the rate at which the Oil Kingdom’s FX reserves were drained could accelerate to $18bn a month, weighing on the currency.

“In our view, it is unlikely that Saudi leaders would want to exacerbate the on-going reserve drain by pushing Brent prices below $40/bbl. After all, pressure will quickly build on the riyal's 30-year peg to the USD if oil prices keep falling below the current levels," BofA-Merril Lynch said in its report.

The Bloomberg Commodity index was 0.1% lower at 81.32 as of 16:20. As of 16:35, three-month copper futures were down 2.9% to $4,478.0 per metric tonne in LME trading.

Euro slips lower, watch market liquidity Credit Suisse cautions

Over in FX markets, euro/dollar was down by 0.35% to 1.0604. In a note sent to clients on Monday, Credit Suisse said if the European Central Bank wanted to surprise markets then the most likely instrument would be a larger than expected cut in its deposit rate, in order to weaken the currency.

As market liquidity dries up don´t expect a quiet end to the year, the Swiss broker said.

Longer-term government bond yields were slightly higher, with that on the benchmark 10-year Gilt up by one basis point to 1.88%.

The yield on similarly-dated US Treasury notes were flat at 2.26%.

In the equity space, US equities were holding slightly higher thanks to strength in Amazon and Google, reflecting how 'narrow' the advances were, according to Goldman Sachs.