ForexSpace.com - A number of commodities surged Monday morning, on the news that Spanish banks are set to receive a EUR100bn bailout. Oil and copper have headlined the commodity ascent, with oil rising by over $2 and copper posting its biggest rally in over two months on investor hunger for riskier assets.

The impressive gains garnered by Brent oil reversed months of downward movement, thanks mainly to ongoing euro zone strife and the threat of increased supply and weakening demand. The crude rally mirrored that of the single currency, which rose after the 17-nation euro zone agreed to lend Spain up to 100 billion euros to rescue its battered banks.

Chinese data supports gains

Gains on commodities charts were also supported by the release of data from China which showed the nation’s imports of commodities including copper, crude oil and iron ore rose in May, defying expectations for a fall. Despite disappointing growth and manufacturing data from China in recent months, these latest figures suggest that demand from the world's dominant commodity buyer remains firm.

Chinese data released on Sunday showed the country's copper imports rose nearly 12 percent from April to 419,741 tonnes, prompting optimism from many speculators. "China's data over the weekend was very encouraging, defying the naysayer”, said Orient Futures Derivatives department director Andy Du. “Chinese copper demand is still lackluster but China does need imports and after running down inventories for some time, consumers have to import and restock."

Three-month copper rose roughly 2 percent on the London Metal to $7,439 a tonne Monday morning.

Watch grain

According to a top analyst at a forex broker in the US, grains are a hot commodity at the moment. “Watch grains”, the analyst said. “There have been gains across the board but grain is still poised for one big rally”. Soy and corn prices have already risen to multi-week highs, with wheat prices on the increase ahead of the U.S. Department of Agriculture’s monthly supply-demand report on Tuesday. 

The U.S. produced 38 percent of the world's corn last year, making it the both world's largest corn producing nation and the largest exporter of the grain. China currently stands as the world’s largest consumer of grain, with today’s positive data from the nation adding further to the potential for continued grain gains.

Short-lived success?

While commodities continue to strengthen, the EUR/USD has taken a plunge after rising an initial 125 pips Monday morning. After the markets enjoyed an initial boost, momentum has slowed as it has become more apparent that the proposed EUR100bn deal will do little more than provide a temporary fix.

Spanish shares remain high, but are not nearly as strong as first thing this morning, when they jumped close to 6 percent. The IBEX index is now up 2.5 percent, while yields on 10-year government bonds have gone back above 6 percent.

Concerns amongst top forex broker analysts and retail traders alike now linger over the details of the bailout package which would –in any case – only have the potential to prop up the nation’s failing banks. “As for the detail”, asks Neal Kimberley (pictured), fx analyst with Thomson Reuters. “Where’s the money coming from?  EFSF or ESM?  If the latter, does that mean private sector holders of Spanish paper are now subordinated to the senior creditor status of the ESM?   If so, would you wish to keep holding or buy more?

“And if 100bn euros is dispensed, how much is left for any further rescues?   What if the market moves on to Italy where it is already clear that Mr Monti’s political honeymoon is long over? The lesson of the 1992-93 ERM crisis is that the market does not stop”, he reminded us.

“While I understand the kneejerk rise in the euro on Monday in Asia, I think it might be short-lived”. Turning to live forex charts, Kimberley adds: “My instinct is that 1.2440 is a more realistic level for the EUR/USD than the current 1.26”

Sarah Cox, Staff Writer