October 2009

Crude Oil Unwinds Early Gains as OPEC President Warns of Potential Production Increase

Commodities – Energy

Crude Oil Unwinds Early Gains as OPEC President Warns of Potential Production Increase

Crude Oil (WTI) -  $80.05  //  -$0.45  //  -0.56%

Crude is attempting once again to reverse its most consistent and aggressive bull trends since early June. Volatility was stoked through the morning with a hearty round of asset-specific event risk as well as a notable turn in underlying sentiment. The lower boundary on the steady, rising trend channel that began back on October 8th (or it could be argued back on September 25th) was overrun this morning concurrent with the Dow Jones Industrial Average’s tumble to its lowest levels since the 14th and the dollar’s biggest rally since August 7th. Investor confidence may just now be easing; but the fundamentals behind the unquestioning advance have deteriorated for some time. Expectations for growth were clearly padded by speculative demand for quick returns. Today’s pull back is certainly not confirmation for a major turning point; but it is a first step towards such a move. And, considering the aggressive pace of oil’s appreciation over the past week, a significant retracement is reasonable even under staid otherwise conditions.

For crude specifically, the fundamental supply-and-demand backdrop could easily justify prices considerably lower. This past week’s Energy Department numbers have confirmed a significant glut of fuel inventories that won’t be easily absorbed with consumption not keeping pace with economists’ and market participants’ estimations for economic activity. Today, OPEC President Jose Maria Botelho de Vasconcelos said the oligopoly may increase production targets at its next meeting on December 22nd should prices climb above $75 per barrel. The official went on suggest a $75 level was ‘acceptable;’ but should oil near the $100 mark, it would make a supply boost inevitable. IEA Chief Economist Fatih Birol considered inflated prices a significant risk and considered taxing costs “a significant risk to recovery efforts.” United Arab Emirates Oil Minister Mohamed al-Hamli offered his own opinion of what was factors were elevating prices. He said current levels were a mixture of both “speculation: and “signs of recovery,” but he considered a wait-and-see approach the most prudent going forward. The UAE official would further project an increase in demand of 700,000 barrels per day next year. Finally, the Emancipation of the Niger Delta group called a cease-fire after talks with Nigerian President Umaru Yar’Adua bore fruit. This should help stabilize production from this region – though it is otherwise responsible for a small percentage of global output.

Commodities – Metals

Gold Threatens to Break Congestion as the Dollar Rallies and Risk Appetite Falters

Spot Gold  -  $1050.77 //  -$4.63  //  -0.44%

Like equities, the dollar and the energy complex; gold was tempting a meaningful reversal from its recently-set record highs. Since spot hit $1,070.80 back on the 14th of the month, subsequent peaks for this precious metal have developed lower and lower. However, through these lower highs, the overall bullish bias was maintained. In today’s session however, the congestion of the past three weeks was finally overwhelmed. A reversal at these levels could easily lead gain momentum owing to profit taking from speculative interests. The COT data from this past Friday offered very early signs of just such a move with noncommercial net longs falling 1.5 percent in the week through October 20th from a record high. At the same time, the SPDR Gold Trust – the world’s largest – reported once again increase in its holdings. With speculative interests at the heart of price action, not even an early morning advance in copper to a 13-mongh high following the first reported increase in Chinese imports of the metal in three months could muster a reasonable defense. Looking ahead, options expiration could offer volatility tomorrow and Thursday’s US 3Q GDP release could delay bigger shifts. In the meantime, risk appetite is in control.

Spot Silver  -  $17.52  //  -$0.17  //  -0.96%

Silver marked its worst daily performance since August 17th today. As with gold and other capital markets, the primary driver for price action was risk appetite. After two weeks of congestion, a break to the downside can rouse concerns that profits that late-in-the-rally paper profits could be lost in a deep retracement – in turn feeding a reversal. However, as long as sentiment doesn’t suffer a deep retracement, this precious metal could hold up relatively well (at least compared to the more expensive members of its class); because the investment in this physical asset is far more affordable. Referring to some of the largest funds backed by silver, iShares Silver Trust at 8,612.57 tons through Oct 23rd and ETF Securities reported its holdings of the metal rose 1 percent to a record 21.054 ounces on Friday.

-Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

European Stocks Plummet in Final Hour as Dollar Recovers

Europe Session Key Developments

•    Crude Collapses in Final Hour of Trading
•    Financials Fall on Dilution Concern
•    German Confidence Unexpectedly Declines

European markets tumbled in the final hour of trading to losses of more than one percent as strengthening in the US dollar, along with lower oil prices, led to selling pressure across the board. Weakness was felt most in the financial sector, as traders sold banks on concerns that dilution will be used to exit government backed programs, as well as to make balance sheets more favorable. Chief among the news included Dutch banking giant ING group announcing its intent to split from the insurance business, along with a hefty €7.5 billion rights issue. Meanwhile in the UK, rumor circulated that Lloyds will present an 11.5 billion pound rights offer, along with plans to try to convert £11B of debt to equity. Other Financials suffering included a downgrade to HSBC by Citigroup to “hold,” while in the US, regional banks SunTrust and Fifth Third were downloaded by Richard Bove on concerns they may not profit until 2011. Data affecting the trade today proved minimal, while the only significant news proved to be grim as German consumer confidence unexpectedly fell for the first time since September 2008. Having rallied sharply off their lows, along with a further upshot since July, equities may indeed be seeing a pullback even as earnings reports have generally been well received. At the same time, top-line growth remains clouded by uncertainty and it remains to be seen whether consumers’ spending habits return to previous levels. Despite recent selling pressures, corrections in the near-term may be minimal at best given the breadth of confidence and sidelined liquidity ready for opportunistic buying.

FTSE 100                      5,191.74                   -50.83               -0.97%
Stocks in the UK fell the least of the five majors while most stocks declined and only one sector advanced. Declines in the financial sector led losers as Lloyds fell 7.16% on word the firm may dilute shareholders, while Royal Bank of Scotland fell 5.65%. A drop in commodities in the final hour of trading led to losses in the mining space which are likely to continue to drag the index if dollar strength continues. Ultimately, confidence in British equities remains higher than elsewhere in Europe as the prospects for a prolonged quantitative easing effort by the MPC could support against further downside. Overall, the index appears to be forming a top just below 5300. Consolidation continues.

CAC 40                     3,744.45                   -63.79                 -1.68%
French equities fell more than one percent as declines were noted in across all sectors while only four of forty stocks gained. As was the case in other European nations, Financials shed the most with a drop of 3.32% as dilution fears spread across the sector. Credit Agricole saw its shares fall 4.77% as the firm denied a rumor that it may merge with insurance group Groupama. Three other large firms fell more than four percent while the index moved to the lowest level in more than two weeks.

DAX                         5,642.16                    -98.09             -1.71%
Stocks in Germany fell nearly the most of the five majors as all sectors fell while only one firm in the 30 stock index advanced. Declines proved largest in Financials, while three other sectors saw losses of more than two percent. Allianz and DeutscheBank dropped the most at more than four percent, while losses in consumer services were also large as GfK reported a surprise drop in consumer confidence. Overall, the fall today put the contraction from recent highs at over four percent as the index approaches the lowest levels in nearly a month.

IBEX 35                     11,622.60                   -117.20                -1.00%
Weakness in the Financial sector caused a minimal fall in the Spanish index as investors perceived Banco Bilbao and Banco Santander as in a stronger position than most of their European counterparts. The index fell just one percent, while continuing to remain in a tight ban between 11,500 and 12,000. Overall, all but two stocks posted lower, while industrials saw the largest fall at 1.97%.

FTSE MIB                        23,001.56                    -419.00                  -1.79%
Italian equities fell the most of the five majors as losses were noted in an overwhelming majority of stocks, with financials leading losses as Intesa SanPaolo dropped 3.12% while UniCredit fell 2.01%. Other large movers included a decline of 5.15% in jeweler Bulgari, along with a 1.81% dip in automaker Fiat. From a larger standpoint, the index has fallen more than six percent from its peak, with decline stretching for the fifth consecutive session. A correction appears to be in place; however, the index may find support at the recent low at 22,500.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

Stocks in Asia/Pacific Mixed on Monday, Japan’s Prime Minister Holds Caution Outlook

Asia Session Key Developments

• Australian Producer Prices Mark Slowest Growth on Record
• Japan Prime Minister Yukio Hatoyama Says Economic Recovery is Unpredictable

Stocks in Asia/Pacific were mixed on Monday, while Japanese stocks advanced for the second day led by better-than-expected earnings reports among automakers and consumer companies, while commodity prices continued to lose ground to weigh on the markets.  Meanwhile, Japan’s Prime Minister Yukio Hatoyama said the economic recovery is unpredictable and held a weakened outlook for the labor market as businesses continue to scale back on production and employment, and pledged to support economic activity as policy makers continue to see a risk for a protracted recovery. At the same time, the economic docket showed producer price in Australia increased 0.1% in the third quarter amid expectations of 0.3% rise, while the annualized rate slipped to 0.2% from 2.1% in the three-months through June, and the slump in price growth may hamper the prospects for a rate hike as policy makers hold a dovish outlook for near-term inflation.

Nikkei 225                          10,362.62

The Japanese equities market traded higher for a second day on Monday, with the Nikkei 225 gaining 79.63 points (0.77%) to close at 10,362.62, led by a 1.64% rise in consumer goods. Shares of Chiyoda Corp plunged 12.56% to mark its largest decline since November of 2008 as the company lowered its full-year net income outlook by 60% because of project delays, while Nippon Express climbed 10.40% to post the sharpest rise since January of 2000 subsequent to the company slashing its stake in the Japan Post Holding venture. Merrill Lynch & Co also aided to the rise of Nippon on Monday as they raised the rating of Nippon Express from “underperform” to “neutral.” At the same time Honda Motors advanced 3.39% after the Nikkei English news said the firm will spend more than JPY 10B to increase production of motorcycles and scooters by 20% in Indonesia, while Kawasaki Heavy Industries surged 4.35% as the Nikkei newspaper said the firm will receive licensing fees from a China-based company that uses its technology, who recently won a JPY 600B bid for high-speed railcars.

Hang Seng

Closed in observance of the Cheung Yeung Festival

S&P/ASX 200 Index           4,830.30

Stocks in Australia traded lower on Monday on the back of lower commodity prices, causing the S&P/ASX 200 to fall 29.10 points (0.60%) to end at 4,830.30, with technology shedding 2.63% to lead the decline. Shares of Woodside Petroleum dropped 1.83% as oil prices weakened for the third day paired, with the Royal Bank of Scotland cutting the stock rating from “hold” to sell, while Australand Property Group increased 4.55% as the firm held an improved outlook for 2009 operating profits . Meanwhile, Billabong International slipped 4.37% after Goldman Sachs cut the rating on the stock from “hold” to “buy,” while Felix Resources advanced 4.00% after Australia’s Foreign Investment Review Board approved Yanzhou Coal Mining’s bid for the firm.

Notable Asian Session Event Risk / Economic Releases

Oil Slips Below $80, Metals Consolidate in Familiar Ranges

Commodities – Energy

Crude Slips Below Key $80 Level, Outlook Still Linked Risk Trends

Crude Oil (WTI)       $79.93       -$0.57       -0.71%
Crude prices slipped below the key $80 level, and from a technical perspective, the door is now open for a move to test support just above the $78 mark. The fundamental picture looks supportive of further losses: the Baker Hughes measure of rigs operating in the US rose to the highest since March last week while crude inventories have been trending steadily higher since June, pointing to abundant supply and that should be weighing on prices. However, broad trends in risk appetite across the capital markets’ landscape has proven to be a far more important driver of the WTI contract, so traders will be paying close attention to third-quarter earnings reports from German pharmaceutical giant Merck KGaA and US telecommunications powerhouse Verizon Communications. US equity index futures are trading 0.3% higher ahead of the opening bell in Europe, suggesting risky assets may continue to advance and hinting that crude may not remain below $80 for too much longer.

Commodities – Metals

Gold, Silver Look to Equities and the Dollar for Direction Cues

Gold       $1055.70       +$0.35       +0.03%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite. To that effect, the aforementioned earnings reports will probably be of greatest interest in the day ahead. Technically, prices continue to consolidate in the familiar $1045 – $1068 range, with minor support at a rising trend line just above $1050.

Silver       $17.70       +$0.02       +0.08%
As with gold, silver continues to consolidate and will look to risk trends as the catalyst for directional momentum. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

Gold Ends the Week in Congestion as Risk Appetite Struggles to Advance

Commodities – Energy

Crude Oil Closes a Fourth Week of Gains at 12 Month Highs

Crude Oil (WTI) -  $80.86  //  -$0.33  //  -0.41%

Week-over-week, oil has offered another strong performance. The key commodity has closed its fourth consecutive bullish week, extending the initial surge sparked last week, pushing to new 12-month highs. Taking a more granular approach to the market’s health however, doubts and suspicions have started to bear down on the steady rally. We can see the hesitation in carry prices to new highs with the past two days worth of price action where congestion below the recent high of $82 and the trend low $80. A break is inevitable; but direction is up in the air.

The fundamental bearing on the oil has not been very clear lately. If underlying supply and demand were the only facet of price determination, crude would likely have collapse these past two weeks rather than rally to new highs. This past week’s US Energy Department inventory figures reveal the glut of supply that has refiners reducing imports. Through the week ending October 16th, crude stockpiles rose 1.31 million barrel to 339.1 million – 9.4 percent above the average levels for this period over the past five years. Further down the refinement line, gasoline supplies unexpectedly contracted 2.3 million barrels to 8.95 million; yet supplies are still significantly higher than the five year average. If demand were robust enough to absorb excess inventories while production levels continued unchanged, there would be a reasonable argument to be made for further appreciation. However, demand for fuel actually dropped 1.4 percent last week and consumption has largely struggled to recover despite the consensus that an economic recovery is underway.

So, while supply and demand imbalances will be a background concern, the true catalyst for price action will almost certainly be investors’ taste for risk and the pace of the US dollar. With the broader market recovery, confidence has led funds not only to yield bearing assets but also to those that can only provide capital gains. An optimistic outlook for steadily advancing markets is the foundation to stability. Should risk appetite falter, profit taking and a fundamental equilibrium set well below current price would act to accelerate crude’s plunge.

Commodities – Metals

Gold Ends the Week in Congestion as Risk Appetite Struggles to Advance

Spot Gold  -  $1055.40 //  $2.00  //  0.19%

Gold may have closed its fourth consecutive weekly advance; but the pace on the rally to record highs has certainly cooled. The commodity has yet to significantly retrace its surge over the past two weeks and yet neither have we seen a new record high after the $1,070.80 benchmark was set back on the 14th. A steady, rising trend channel calls up congestion at the end of a very prominent bull run. This is the same general chart pattern that can be seen in the Dow Jones Industrial Average and (the inverse of) the US dollar. From this, it is clear that all three are responding to the same driver: sentiment. Should optimism give way, the lack of any yield income to offset the potential capital losses will mean a sharp correction through profit taking. At these levels, demand is largely speculative. According to the COT figures, commercial positioning is 383,718 short contracts to 86,225 long. In contrast, non-commercial long positions have hit a record high of 286,864 contracts.

Spot Silver  -  $17.69  //  $0.02  //  0.11%

Congestion in silver prices is as absolute as it is for gold. However, in contrast to its more expensive counterpart, positioning in silver is not pushing an extreme. Commitment of Traders statistics show net non-commercial interest actually slipped from last week’s 15-month high. On the other hand, net commercial positioning of 66,004 shorts marks the most extreme differential since the week ending July 25th, 2008. Among the largest silver-based ETF’s, the iShares Silver Trust’s holdings were unchanged for yet another session at 8,612.57 metric tons while ETF Securities reported assets rose 0.5% to a record 6,625 metric tons.

Stocks Fall for First Time in Three Weeks as House Prices Declined

U.S. Session Key Developments

•    Dollar Weakness Buoys Commodities
•    Earnings and Fundamental Data Lifts Sentiment

Trading in the Dow and S&P today led to a drop of more than one percent while the NASDAQ fell slightly, buoyed on by strong results from Amazon and Microsoft. Factors affecting the move included lower commodity prices while the greenback recovered from its recent low. The initial move into the red came on the heels of a record rise in existing home sales. The figure rose 9.4% in September to the highest in more than two years. While that in itself appears to be good news, a deeper look showed house prices continued to fall for the third consecutive month.  Mortgage rates at the lowest levels in many months, along with government incentives set to end in November, likely caused the large spike, and many be followed through by weakness in the sector. Helping to keep the NASDAQ losses to a minimum were strong sales of the Kindle unit at online-retailer Amazon, along with a lower-than-expected fall in Microsoft profits as the firm succeeded in cost cutting efforts. The index may be further supported ahead as the release of Windows 7, Microsoft’s latest operating system, is likely to raise demand for other technology firms. Ultimately, further weakness in the US dollar will make domestic players more competitive, while also lifting equities and commodity prices as a function of relative purchasing power. Carry trades on the dollar appear to be an effective strategy in the near-term and further weakness seems almost imminent as the nation continues to devalue its significant debt load. Consequently, equities appear poised for further upside, while corrections are likely to be minimal at best as high confidence and sidelined liquidity quickly fills the gaps.

DJIA 30                      9,972.18                   -109.13               -1.08%
The Dow closed lower this week by less than one percent as the index appears to be consolidating near recent highs. Following a peak on Wednesday, equities have see-sawed between gains and losses as all stocks in the composite fell, with the exception of a 5.38% jump in Microsoft on account of its smaller-than-expected drop in earnings. Falling the most, meanwhile, was credit card company American Express, which fell more than five percent on lower revenues despite higher-than-expected profit. The company went further with comments on expectations for lower loan losses ahead, along with increasing volume of spending. Despite this enthusiasm, investors seem to find little reason for stocks, already near recent highs, to climb further.

S&P 500                    1076.60                   -13.31                 -1.22%
Trading on the S&P led to a decline of more than one percent as all sectors fell while losers outnumbered winners by a ratio of 9-to-1. Falling the most were the Oil & Gas and Basic Materials sectors, down more than two percent each as commodity prices fell in the wake of a stronger dollar and a weak UK GDP report.

NASDAQ                         2,154.47                    -10.82             -0.50%
The tech-heavy NASDAQ suffered a minimal decline as nine of ten sectors fell while Consumer Services were up along with over 25% of the 2783 stocks tracked by the index. Ultimately, strength in services and slight decline in Technology limited weakness of more than two percent in Telecom and Oil & Gas. Individual movers today included Microsoft, the largest firm on the index, up 5.38% on strong earnings, while Amazon rallied to an all-time high with a 26.8% gain on sales of its Kindle unit. Ultimately the tech sector remains well positioned for recovery with pent up demand likely to aid in demand while the release of Microsoft’s Windows 7 operating system may also lift the sales of many firms in the computing space.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

European Stocks Fall as Contraction Continues in the UK

Europe Session Key Developments

•    Commodities Remain Strong Despite Greenback Gains
•    Fundamentals Indicate Growth While UK GDP Disappoints
•    Earnings Reports Continue to Raise Optimism

European Markets fell today in all but the U.K. FTSE as Britain’s stalled retail sales, and surprise contraction in the third quarter, raised optimism that quantitative easing may be extended further in the next MPC meeting. Elsewhere in Europe, German IFO data showed improvement while failing to meet a high mark set by investors, while PMI showed acceleration in growth. Despite the divergence in fundamentals that seem to favor mainland Europe, stocks in Britain traded opposite to the news as further British action could bode well for domestic firms, while higher commodities early in the session helped to lift miners and oil producers. Elsewhere, Earnings reports affecting today’s trading session included strong results from Microsoft and Amazon, two of the largest firms in the internet/technology space. Having rallied sharply off their lows, along with a further upshot since July, equities may indeed be seeing a pullback even as earnings reports have proven favorable for profits. At the same time, top-line growth remains sketchy and it remains to be seen whether consumers’ spending habits return to previous levels. Despite recent selling pressures, corrections in the near-term may be minimal at best given the breadth of confidence and sidelined liquidity ready for opportunistic buying.

FTSE 100                      5,242.57                   +35.21               +0.68%
Stocks in the UK diverged from mainland Europe as most sectors advanced with Basic Materials and Technology up more than two percent each. Overall two-thirds of stocks rose as optimism increased in the UK despite retail spending remaining stagnant and contraction in GDP for the third-quarter. The hope on the part of investors appears to be speculation that the Bank of England may extend its quantitative easing efforts, which would consequently boost the economy going forward. MPC members have spoken confidently on the success of the initiatives, and further action could lead to even more of a boost to housing and lending.

CAC 40                     3,808.24                   -12.61                 -0.33%
French equities fell slightly as all sectors fell, with the exception of a one percent rise in Financials as BNP Paribas gained 2.09%. Other major firms saw mixed performance with oil company Total and utility EDF down less than one percent, while banks advanced on news from BNP Paribas that its €4.3B equity offering received demand of 2.5 times the shares offered. Overall, the index ended lower on the week by less than one percent as stocks consolidate near recent highs.

DAX                         5,740.25                    -22.68             -0.39%
Stocks in Germany closed mostly lower while nearly half of equities traded posted gains. Movement proved minimal on the day as gains were limited to less than 2% while losses at two firms were in excess slightly of two percent. Overall German data kept declines to a minimum the IFO showed improvement in business climate and rising expectations.

IBEX 35                     11,739.80                   -88.80                -0.75%
Spanish stocks closed lower by nearly one percent as all sectors fell while losses were noted in 30 of the 35 stocks traded. On the whole, the IBEX35 remains the highest performer on the year-to-date of the five majors. The losses this week are minimal and the index has remained in a tight range between 11,500 and 12,000 since mid-September. Consolidation appears to be a prime focus, while higher lows suggest overall sentiment remains strong.

FTSE MIB                        23,420.56                    -392.85                  -1.65%
Italian equities fell the most of the five majors as losses were noted in an overwhelming majority of stocks, while some major firms, such as automaker Fiat, advanced considerably. Italy’s largest bank, UniCredit, fell the most at 4.97% as the company stated on October 21 that its interest margin would fall, while comments by the CEO that loan-loss provisions peaking in 2009 have been seen with skepticism by investors. Other major firms seeing weakness included STMicroelectronics, down 3.11% on news of a cut to “sell” at Royal Bank of Scotland.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

Stocks in Asia/Pacific Advance on Higher Earnings, China’s Fan Gang Says Government Should Maintain Stimulus

Asia Session Key Developments

• Australian Export Prices Tumble Lower in Third Quarter
• China Central Bank Advisor Fan Gang Urges Government to Maintain Stimulus

Stocks in the Asia/Pacific advanced on Friday as better-than-expected earnings boosted investor sentiment, while China’s central bank advisor Fan Gang said that the government should maintain the expansion in fiscal policy over the following year to foster “a full recovery in 2011.” As a result, shares in Hong Kong advanced for the third consecutive week to mark its highest close since August 1, 2008, and is up 99% from the March low. Meanwhile, the economic docket reinforced a weakening outlook for inflation in Australia as export prices plunged 9.6% in the third quarter, led by a 34% in coal prices, while import prices slipped 3.0% from the three-months through June.

Nikkei 225                          10,282.99

The Japanese equities market traded higher on Friday after tumbling lower this week amid higher earnings report, with the Nikkei 225 gaining 15.82 points (0.15%) to close at 10,282.99, led by a 0.45% rise in industrials. Shares of Japan Airlines Corp slid 7.38% after the Nikkei newspaper stated lenders are pushing the firm to buy back as much as 99% of its common shares as a part of its restructuring plan, while Kirin Holdings climbed 5.49% after an executive at the firm said it may merge with Suntory as early as next year. Meanwhile, Daiwa House Industry Co rose 3.72% as the company’s first-half net income more than doubled forecasts, while Mitsui Engineer & Shipbuilding Co gaining 4.35% after the company raised its full-year net income forecast by 22%.

Hang Seng                        22,589.73

Hong Kong shares strengthened on Friday as central bank advisor Fan Gang said the government should continue to support the economy to foster a “full recovery in 2011,” and led the Hang Send index to advance 379.21 points (1.71%) to close at 22,589.73, with 7 of the 8 components trading higher on the day. Oil & gas rallied 4.08% to lead the rise, with basic materials advancing 2.77%, while consumer goods tumbled 1.31% to taper the upturn. Shares of China Life Insurance surged 5.74% following the comments from Mr. Gang, with Cnooc advancing 5.39%, while China Petroleum & Chemicals and Aluminum Corp of China rallied 2.53% and 2.10% respectively on the back of higher commodity prices. At the same time, the Bank of China gained 1.75% as China eases rules on bank holdings of sub debt, while Li & Fung weakened for a second consecutive day and shed another 1.31% as the company announced it will acquire Wear Me Apparel for up to $401.8 million.

S&P/ASX 200 Index           4,859.40

Stocks in Australia advanced on the back of higher commodity prices, pushing the ASX 46.60 points (0.97%) higher to end at 4,859.40, with consumer services rising 2.05% to lead the rally. Shares of Elders LTD, the world’s largest wool broker, soared 7.89% as Deutsch Bank AG raised the firms rating from “hold” to “buy,” while Macquarie Infrastructure slid 7.14% after Ontario Teachers’ Pension Plan sold its stake in the firm. At the same time, Wesfarmers Limited climbed 6.88% on better-than-expected sales results, while Austar United Communications gained 1.50% after the Sydney Morning Herald said that the firm is planning a A$200M bond issuance to transfer funds to its stakeholders.

Notable Asian Session Event Risk / Economic Releases

Crude and Metal Prices Consolidate, Risk Trends Remain Top Catalyst

Commodities – Energy

Crude Prices Consolidate, Risk Trends Remain Top Catalyst

Crude Oil (WTI)       $81.30       +$0.09       +0.11%
Crude prices have done little over the past 24 hours, consolidating the previous day’s gains above the $80 level. The fundamental docket is relatively uneventful, with only the Baker Hughes metric of on-line US oil rigs set for release. This leaves price action at the mercy of the US Dollar and the broad trajectory of risk sentiment once again. On that front, US Existing Home Sales data for September as well as third-quarter earnings reports from Microsoft Corp and Honeywell International will be significant. For the time being, futures on the top US equity indexes are in positive territory, suggesting the path of least resistance is higher for risky assets (stocks, commodities, high-yielding currencies) and lower for the battered greenback.

Commodities – Metals

Gold, Silver Look to Equities and the Dollar for Direction Cues

Gold       $1061.19       +$0.95       +0.08%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite. US equities have been the pacesetter in that regard and there is little reason to think that this will change. Indeed, commodities generally ignored comments from Chinese central bank adviser Fan Gang who said the government should keep fiscal stimulus in place for another year to allow for a “full recovery in 2011”, which one supposes would translate into optimism about demand for raw materials. To that effect, earnings from Microsoft and Honeywell International are the most likely catalysts. Technically, prices remain confined to a range roughly defined between $1045 and $1068.

Silver       $17.68       +$0.02       +0.14%
As with gold, silver continues to consolidate and will look to risk trends to give prices impetus for directional momentum. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

U.S. Equities Climb Back Towards Yearly Highs

U.S. Session Key Developments

•   Earnings continued to impress as companies from Travelers to McDonald’s beat expectations.
• Equities rebound from early losses due to rise in initial jobless claims.

U.S. equities posted their first gain in three days as better-than-estimated earnings from AT&T, Travelers, and McDonald’s increased investors’ confidence that the U.S. is emerging from its deep recession.  Travelers rallied 6.8% after its statement that quarterly net income quadrupled to $935 million and its operating income beat estimates.  The S&P’s financial sector, a guage of 79 banks, insurers and investment firms added 2.3% to lead all industries.  Large-cap firms McDonalds and AT&T added 2.3% and 1.2% respectively as each posted better-than expected earnings showing some improvements in the consumer sector.  Investors have gained confidence in U.S. equities in the month of October thanks to 79% of reporting S&P companies have beaten earnings expectations, the highest amount since 1993.  This positive earnings data helped the U.S. benchmark indexes rebound from its early losses today after a Labor Department report showed initial applications for jobless benefits rose to 531,000 last week, higher than analyst estimates.

DJIA 30                      10,081.31                   +131.95               +1.33%
The Dow Jones Industrial Average roared back to regain nearly all of its losses from the last two sessions.  The index was led by Travelers, which posted a 7.66% gain after better-than-expected earnings and a boost to its dividend.  Other stocks propping up the index included American Express and 3M Co. which both increased by over 3%.  In fact, all but five of the Dow’s thirty-two stocks gained during the trading day.

S&P 500                    1,092.91                          +11.51                 -1.06%
The S&P traded up to its highest valuation in five years during the session today as better-than-expected earnings drove stocks higher.  S&P stocks are currently trading near 21 times the reported operating profits of its companies, twice as high as March valuations.  The New York Times had the biggest gain on the index, adding 22%, after it announced that third quarter profit excluding some items rose 16 cents per share compared to expectations for a loss of 1 cent.

NASDAQ                         2,165.29                    +14.56                +0.68%
The Nasdaq gained as its technology portion, which makes up much of the index, gained 0.61% on the day.

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