Hurricane Gustav had more of an impact in its death than in its assault on the US Gulf Coast and the various oil producing, refining and distribution facilities.

As it faded oil and commodity prices slumped, falling throughout the northern day’s trading to end around 5% or nearly $US6 down at $US109.71. It fell under the $US109 level at one stage, the lowest it’s been for more than five months.

Oil closed at around $US115.46 a barrel in New York on Friday before the holiday long weekend. At one stage overnight the price was down around $US105 a barrel.

Copper plunged as well, losing nearly 11 US cents a pound in New York to close at $US3.28 a pound while gold fell by around $US24 to $US810 an ounce.

The Australian dollar weakened, falling to a day’s low of 82.70 US cents, that’s also the lowest for around a year. It then recovered back over 83 US cents, to close at 83.78 US cents.

While that followed the Reserve Bank’s 0.25% rate cut yesterday, it wasn’t the major reason. The rate cut had been expected and was in the price of the currency: it was the sharp drop in oil, copper and other commodities that hit commodity-based currencies including the Aussie overnight.

The futures prices for wheat, corn and soybeans all fell sharply as well as Gustav faded.

It was a significant slump across the board for commodity prices. Metals in London, led by lead also fell sharply.

Wall Street went whoopee at first as oil plunged, sending the market up close to 2% or around 200 points for the Dow, before some hard heads reminded people of the slowdown in the global economy: the market finished in the negative.

And it was a gloomy assessment of the current state of the world’s major economies that helped ended the whoopee over oil prices.

The Organisation for Economic Cooperation and Development warned that overall, “the picture for the major economies is of a particularly weak second half”.

It saw a growth uptick for the US, but the eurozone and UK economies will “barely creep forward” in the second half of this year.

The OECD suggested that global financial turmoil might be entering a “new phase” with the stream of bad news reported by banks now reflecting generally economic weakness rather than direct effects of the credit squeeze.

The OECD revised up significantly its forecast for US growth this year, after significantly stronger-than-expected second quarter data. It expected 1.8% growth, compared with its previous forecast of 1.2%.

But surveys out yesterday showed a sharper than expected fall in US construction spending and a contraction in manufacturing, led by a drop in forward orders, employment and inventories. Exports were up and inflation eased.

The OECD gave itself an out by warning that there was a lot of uncertainty about how quickly the effects of the US fiscal stimulus package would fade.

The OECD was worried about inflation in Europe and overnight those concerns were given some additional impetus with news that producer prices in the 15 country eurozone rose 1.1% in July, compared with 1% in June. That made for an annual rate of 9% (not much different to the US) in the year to July.

European retail sales fell 2.1% in July compared with July 2007, after a record 3.1% drop in June.

That won’t be enough to get the ECB to cut rates tomorrow night, while the Bank of England’s next move is unclear, despite the overwhelming weight of gloomy news about the British economy.

A desperate Labour Government has attempted to boost the sinking housing sector by significantly expanding the stamp duty exemption on house purchases of homes worth up to 175,000 pounds from 125,000 pounds. It will cost near $A2 billion in a budget already heavily in deficit.

Money will also go to helping people avoid repossession (nearly $A400 million). But the British pound continued its worst fall in 16 years.

Peter Fray

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