November 2009

US Markets Close Higher Following Ease of Concern in Dubai

U.S. Session Key Developments

•    Commodities Rise as Dollar Weakens
•    Dollar Strengthens into Close
•    Indicators Post Mostly Higher

US equities ended the session near the highs of the day to help stocks close stronger on the month. The Dow rose 6.51% in November while the S&P500 edged up 5.74% along with a nearly five percent rise in the NASDAQ composite. The major focus of trading today included investors remaining rattled over risks with Dubai World’s debt delay plan. While this may have affected sentiment, US financials are less exposed than European counterparts and did not suffer declines similar to European bourses. Risk appetite appears to be returning back to the marketplace as dollar weakness resumed while commodity prices saw further escalation. Meanwhile, event releases played a positive role as Chicago and Milwaukee PMI surveys came in higher than the previous month, along with a rise in the Dallas Feb Manufacturing Activity indicator. Also affecting the mood were results of Thanksgiving ‘Black Friday’ sales, which included higher turnout while consumers spent less than the previous year. The National Federation of Retailers remains committed to its expectation for lower sales in this holiday season, and consumer spending remains a weak point in the economic recovery. Ultimately, the fundamental picture for stocks remains rosy. Lack of action by the Federal Reserve, and a clear unwillingness to change its tone on monetary policy, will continue to play into dollar weakness. Consequently, further upside in asset prices may stimulate a false sense of confidence in consumers and spark resurgence in spending. While this is hardly a perfect solution, this policy seems to be having some effect as the economy grew in the third quarter and is expected to continue to expand into 2010.

DJIA 30                      10,464.40                   +30.69               +0.29%
Trading in the Dow led to a higher close as the Financial sector rallied 2.19% while all other sectors posted little change. Major movers on the day included JPMorgan Chase, Bank of America and American Express higher by more than two percent each. Ultimately the index gained the most of the three majors this month as large firms in the index fare well from dollar weakness.

S&P 500                    1,110.63                   +4.98                 +0.45%
Stocks on the broader S&P500 closed higher by nearly half of one percent as the financial sector rallied 2.7% similar to that of the Dow Jones. US banks have lower exposure to the Dubai problems, and weakness seen in the past week has been viewed as a buying opportunity. Despite this, nearly half of stocks fell today as lingering concerns remain as to the strength of the economic rebound.

NASDAQ                         2,176.05                    +6.87             +0.32%
Trading in the tech-heavy NASDAQ led to a gain of one-third of one percent, while the index remains the most dominant since the start of the year with a gain of 36%. Five of ten sectors gained with financials leading at a move of 1.95% while nearly as many stocks fell for those that rose. Shares of online retailer Amazon rose 3.17% to lead the market higher as ‘Cyber Monday’ sales will boost revenue. Of the ten largest firms, four posted declines with just one firm seeing a move of one percent or more in either direction, a clear sign that caution endures.

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

European Markets Fall on Dubai Risk despite Improving Domestic Fundamentals

Europe Session Key Developments

•    Indicators Fail to Lift Sentiment
•    Financials Face Exposure to Dubai Risk
•    Commodities Rise as Dollar Weakens

European markets slumped more than one percent as traders sold most stocks in favor of profit taking as November came to a close. Overall the month proved favorable for most markets as the British FTSE climbed 4% while French and German markets marked gains as well. The Italian index ended the month lower as concern in the financial sector led the heavily-weighted index into the red. Session trading today included news of European bank exposure to Dubai World’s possible default on upcoming debt, while improving indicators and commodity prices failed to lift sentiment. Oil had traded slightly higher as equities ended the session, while event releases signaled a vibrant economic rebound. Global news included India’s GDP growing faster-than-expected in the third quarter, while domestic indicators showed British mortgage approvals continuing to climb. At the same time, cracks appear to be emerging as confidence fell in November, along with a drop in consumer credit as lending and credit remains restrictive. Also on the docket was Euro-Zone CPI, which came in positive for the first time since April, a positive development, but one which may force the ECB to make earlier decisions to pull back monetary easing efforts. Ultimately, investors remain rattled by developments in Dubai, and confidence remains weak. Spending by consumers may not increase significantly, if at all, this holiday season, and much of the gains in financial stocks appears to be priced in.

FTSE 100                      5,190.68                   -55.05               -1.05%
British stocks ended lower by more than one percent as losses reverberated across all sectors while nearly 85% of stocks fell. Leading the decline were losses in Financials and Oil & Gas, including a market leading drop of 5.89% in Lloyds and a 1.58% dip in British Petroleum. Other major movers included Royal Bank of Scotland and insurer L & G, both down 4.45% as financials fell on concern Dubai World may default on debt. Ultimately British stocks ended the month strong with a gain of nearly 4% as higher commodity prices helped to boost raw material producers, a large component of the benchmark index.

CAC 40                     3,680.15                  -41.30                 -1.11%
French equities fell more than one percent with losses across the board in all but three stocks. Major laggers included networking technology firm Alcatel-Lucent down 3.49% along with a 2.92% drop in tiremaker Michelin. Other large losers included oil company Total and drug maker Sanofi-Aventis down more than one percent each.

DAX                         5,625.95                  -59.66              -1.05%
German stocks fell in line with other European bourses as all but three stocks closed lower. Losses ranged as high as a 2.05% drop in Consumer Goods as automakers Daimler and BMW tumbled 2.6% while Volkswagen fell 4.83% with no firm specific news driving the trade. Ultimately equities ended November higher with a move of just under four percent while failing to surpass highs set in mid-October. A recovery in global trade, evident in the Baltic Dry Index, has cooled since mid-November but remains on track to end the year with sharp improvement.

IBEX 35                     11,644.70                   -132.10                -1.12%
Stocks in Spain fell more than one percent with 80% of stocks down while only Consumer Services posted a gain. Leading the losses was the financial sector, down 1.42% as concerns of possible default by Dubai World rattled markets. Spain’s three largest firms led markets lower with banks Santander and Bilbao down more than one percent each.

FTSE MIB                        21,928.16                    -277.12                  -1.25%
Italy’s benchmark index closed the lowest of the five majors while also closing November as the only index of the five majors that was down in the month. The FTSEMIB remains well above the low set on Friday, at under 21,400, but further concerns in the financial sector could set the stage for more downside in the heavily-financial weighted index.

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

Stocks in Asia/Pacific Surge Higher as United Arab Emirates Pledges to Support Banking Industry

Asia Session Key Developments

• Australia Business Inventories Unexpectedly Rise in Third Quarter
• Japan Industrial Outputs Expand for Eighth Month in October
• BOJ’s Shirakawa Says the Central Bank’s Assessment Remains Unchanged

The Asian equities market soared on Monday as the United Arab Emirates pledged to support the banking sector, with the central bank announcing that banks will be able to borrow at a half a percentage point above the three-month benchmark interest rate.  At the same time, the economic docket showed industrial outputs in Japan advanced for an 8^th successive month in October as production increase 0.5% from the previous month versus expectations for a 2.5% rise, while the annualized rate slipped 15.1% from the previous year, which exceeded expectations for a 13.4% decline in production. Meanwhile, Bank of Japan Governor Masakki Shirakawa pledged to take action “decisively” to ensure economic stability. Shirakawa said that the central bank will monitor the yen’s impact on the overall economy, and went onto say that the BOJ’s assessment of the economy remains unchanged. In Australia, the TD securities inflation index jumped 0.3% in November, while a separate report showed business inventories unexpectedly rose 0.8% in the third quarter after contracting 3.1% during the previous period, and the Reserve Bank of Australia is widely anticipated to hike the benchmark interest rate by 25bp to 3.75% as the $1T economy skirts the global recession.

Nikkei 225                          9,345.55

The Japanese equity markets pushed higher on Monday to post the steepest climb since August 24^th, leading the Nikkei 225 to advance 264.03 points (2.91%) and close at 9,345.55. All 10 components traded higher on the day, with financials gaining 5.38% to lead the advance, followed by a 3.77% rise in basic materials.  Shares of Fujitsu soared 6.20% as Japan’s weekly PC sales in the week ending November 15^th jumped 14.4% versus a year ago, while Mizuho Financial Group surged 9.46% as investors expect financial institutions in the region to have limited exposure to Dubai World. At the same time, Mitsubishi UFJ financial Group, Japan’s largest bank by market value pushed 8.56% higher as the company announced that it will raise up to 1.055T yen in a share sale to boost its capital in anticipation of stricter global regulation, while Sumitomo Corp advanced 4.68% after Credit Suisse raised its rating on the firm to “outperform” from “neutral.”

Hang Seng                        22,821.50

Hong Kong shares closed to the upside on Monday, leading the benchmark equity index to surge 687.00 points (3.25%) and end the trade at 21,821.50 as all 9 components traded higher on the day. Shares of Cosco Pacific added 5.88% as Donghai Securities raised the company’s stock from “outer perform” to “add,” while Bank of China rallied 5.81% after announcing that the firm does not have any exposure to Dubai World. At the same time, Wharf Holdings rose 4.24% as the company won a bid for two pieces of land in Hangzhou, Zhejian Province for a total of RMB 2.94 billion, while Cathay Pacific Airways pushed 2.64% higher as global international air travel gained 0.5% in October, according to the International Air Transport Association.

S&P/ASX 200 Index           4,701.30

Stocks in Australia traded higher on Monday, leading the S&P/ASX 200 to rise 129.20 points (2.83%) and close at 4,701.30, with all 10 components pusher higher on the day. Shares of OZ Minerals rallied 3.39% as the firm looks to secure a joint venture with IMX Resources to increase exploration in South Australia, while Fortescue Metals Group, Australia’s third-biggest iron ore producer added 4.99% due to Deutsche Bank AG raising the company’s stock rating  from “sell” to “hold.” Meanwhile, Caltex Australia Limited pushed 6.11% higher on renewed hopes that it’s a$300 million proposal to purchase Exxon Mobil’s Australian filing stations will get approval from regulators, while Australia & New Zealand Banking Group advanced 4.53% after stating that the firm will not face any “material” losses if Dubai World defaults on its loans.

Notable Asian Session Event Risk / Economic Releases

Oil Backtracks on Bearish Breakout, Metals Hint Downside

Commodities – Energy

Oil Backtracks on Bearish Breakout But Downside Still Favored

Crude Oil (WTI)       $76.28       +$0.23       +0.30%
Oil seemed to have broken lower beyond support a falling channel that had contained prices since late October amid widespread selling of risky assets as news emerged that Dubai World may head into default. However, prices quickly rebounded as the UAE signaled support for both local and foreign banking institutions. Still, near-term technical positioning looks to favor the downside with prices at resistance marked by the top of a minor falling channel. A move below $74 would help to confirm a meaningful reversal. The US data docket offers only minor event risk with Chicago PMI and the Dallas Fed’s gauge of manufacturing activity set to hit the tape. Stocks are down in Europe and equity index futures are trading lower ahead of the opening bell on Wall St, bolstering the bearish scenario as crude continues to trade close with the broad outlook for risky assets.

Commodities – Metals

Metals Appear to Have Broken Decisively Lower – Will it Last?

Gold       $1170.43       -$7.20       -0.61%
Gold seems to have broken lower out of a rising channel that had guided prices since mid-October with prices now re-resting this level on the upside as resistance. If the downside should remain the path of least resistance as volumes rebuild following the thanksgiving holiday, the next significant support lines up at $1152. Fundamentally, broad trends in risk appetite and the outlook for the US Dollar remain key, which at present seems to hinge on what investors perceive to the likely fallout from a default for Dubai World.

Silver       $18.17        -$0.13       -0.72%
From a technical perspective, silver looks very similar to its more expensive counterpart. Prices have broken below a rising channel set from early November and are now re-testing that juncture to the upside. Continued downside sees near-term support at $17.77. As with gold, the broad trends in risk and the US Dollar are key on the fundamental side of things.

U.S. Stocks Fall in Shortened Trading Day

U.S. Session Key Developments

•    Commodities Fall, Dollar Shows Strength
•    Concerns Over Dubai Diminish Risk Appetite

U.S. equities followed the downward global trend as investors retreated risk on concerns over Dubai’s attempt to reschedule its debt.  The MSCI World Index fell 2.3 percent in the last two days as Dubai World attempts to extend the maturities of some of its $59 billion of liabilities.  Financials stocks took the biggest hit as banks in the MSCI World Index fell 2.4 percent yesterday, followed by JPMorgan and Bank of America losing over 2 percent each in today’s U.S. session.  Overall, investors showed a clear aversion to risk over the last two days and commodities were sold off in addition to stocks.  Crude oil traded down $1.91 to $76.05, while gold plummeted to $1133 in the morning before gaining back much of the loss to close at $1175.  Investors moved their money towards safety, pushing up U.S. Treasurys and the Dollar Index which rose back above 75 during intraday trading.  The U.S. stock exchanges closed three hours early, after 4.5 billion shares were traded, the least since December 26.  Looking forward to next week, key economic data released will include ISM Manufacturing, housing data, and jobs data.  The unemployment rate for November will be released on Friday and is expected to remain unchanged at 10.2 percent.

DJIA 30                      10,309.92                   -154.48               -1.48%
The Dow Jones Industrial Average fell over a percent as all thirty stocks in the index closed lower on the day.  Investors showed concern over the economic recovery and pulled money out of riskier, speculative assets such as commodities driving energy stocks and basic materials lower by 2 percent each.  Caterpillar and Alcoa fell over 2 percent each while General Electric lost just over a percent.

S&P 500                          1,091.49                        -19.14                -1.72%
The broader S&P500 index closed lower today as each of its sectors were in the red.  The financial sector was the worst performer, down 2.72 percent on concern over Dubai debt exposure.  U.S. stocks pared declines, however, after bank analyst Richard Bove said that American lenders have “minimal” exposure to Dubai.  By the end of the day, all but four of the S&P’s 500 stocks fell on the day.

NASDAQ                         2,138.44                      -37.61               -1.73%
Trading in the tech-heavy NASDAQ led to the largest decline of the three indices as its technology stocks fell over 1.7 percent.  Research In Motion and Oracle fell over 2 percent each, while Microsoft, Apple, and Google each dropped over 1 percent.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Gold Suffers its Worst Tumble since January as Demand for Safety Clearly Favors the Dollar

North American Commodity Update

Commodities – Energy

Oil Slowly Recover from its Sharpest Plunge in Seven Months

Crude Oil (WTI) -  $75.72  //  -$2.24 //  -2.87%

The US-based NYMEX exchanged was closed Thursday for the Thanksgiving holiday, preventing the world’s most heavily traded crude futures contract from responding to the global shockwave that was sparked by a potential sovereign ‘credit event’ that threatened the stability that has established itself this year. On Friday’s open, the market immediately went to work adjusting the active oil contract to reflect its fair value; and by the early European session, prices were as far down as 7.1 percent (the biggest drop since April 20th) from Wednesday’s close. This reaction is to be expected not only because of the irregular liquidity conditions and the volatility it generates; but also because of this commodity’s association to risk appetite. Through the most of this year, a demand to diversify funds into those assets that would produce a higher yield or merely showed a potential for capital appreciation found crude a receptive investment. However, confidence in crude had already begun to wane prior to this shock; so the response from price would find even more leverage. Heading into the US session, we see oil starting to recover its footing and trade back within the range developed over the past month. The commodity will likely see its correlation to the US dollar tighten over the next few active trading days as the weight of risk trends takes time to wear off.

Looking ahead to next week, the market will also turn its attention back onto supply-and-demand fundamentals. This past week, the Department of Energy’s inventory numbers set crude stores at a four-week high and 7.8 percent above the five-year average. Distillates are a staggering 26 percent above their own mean. On the other side of such abnormally high levels of supply; demand remains reserved by a slow recovery in business and consumer spending. This is an imbalance that will not be easily remedied by a single storm or a few producers that reduce output. A meaningful shift in the fundamental profile for value will have to come through a clear and steady revival in those areas of growth are responsible for consumption, a world-wide reduction on output or a combination of both. Considering the dependency that many producers place upon this natural resource though, demand is the only realistic equalizer.

Commodities – Metals

Gold Suffers its Worst Tumble since January as Demand for Safety Clearly Favors the Dollar

Spot Gold  -  $1,176.30 //  -$12.08  // -1.02%

Gold has been weighed as a safe haven and the precious metal was found wanting. One of the commodity’s primary roles in the financial markets is a harbor for capital. However, the speculative interest that has built up over the past three to six months has clearly altered the perception of stability and value behind the metal. After Dubai’s request for a delay on its debt repayments sent waves of credit crisis panic throughout the market, investment capital was quickly transferred to those corners of the market where the development of another Lehman Brothers-level catastrophe wouldn’t wipe out a majority of the floating wealth in the market. Already pushing record highs and doing so with high levels of volatility, gold wouldn’t represent a realistic haven. What’s more, considering the commodity is denominated in dollars, the bearish response would garner even greater amplitude as traders sought the safety of the world’s most liquid currency and the Treasuries that back it. This volatile day has already started to level out; but the dramatic correction today will nonetheless leave a stain that will act as a warning to just how quickly this popular asset can correct under unfavorable conditions.

Spot Silver  -  $18.33  //  -$0.34  //  -1.79%

Intraday, spot silver was suffering from its sharpest decline since August 17th. Down 5.2 percent at one point, the commodity was threatening to revive direction (with an unfavorable bearing) that has been absent for the past eight active trading sessions. However, the late-session reversal is bringing the market back into alignment and could allow the metal a fresh start on Monday. Considering volume on the active futures contract is at its lowest level in over a month (the lingering effects of the US Thanksgiving holiday), we have yet to see how the broader market will respond to the threat of another financial crisis when liquidity is topped off.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

Stocks in Asia/Pacific Tumble as the Yen Trades at a 14-Year High Against the U.S. Dollar

Asia Session Key Developments

• Japan Finance Minister Fujii Closely Watching FX Market
• BOJ Minutes: Loan Program Could Be Extended

The Asian equities market plummeted on Thursday ahead of the Thanksgiving holiday in the U.S. as the dollar tumbled to a 14-year low against the yen amid speculation that interest rates in the world’s largest economy will remain low for some time. Meanwhile, during the BOJ minutes, Finance Minister Hirohisa Fujii reiterated his support for a strong U.S. dollar and said the government is monitoring the foreign exchange market “very closely” as the marked appreciation in the Japanese yen hampers the prospects for a sustainable recovery. At the same time, Mr. Fujii stated that the central bank may take action on abnormal currency moves, and pledged to “take appropriate actions” to stem the downside risks for growth and inflation. Meanwhile, the economic docket in Australia, showed business investment unexpectedly fell 3.9% in the third-quarter after rising 2.1% during the previous three-month period, and firms may continue to keep a lid on spending throughout the remainder of the year as global trade conditions remain subdued.

Nikkei 225                          9,383.24

The Japanese equity markets pushed lower on Thursday as the dollar fell to a 14-year low against the Japanese yen, leading the Nikkei 225 to decline 58.40 points (0.62%) and close at 9,383.24. Technology slid 1.61% to lead the advance, followed by a 1.20% fall in consumer goods, while consumer services climbed 1.14% to taper the decline. Shares of Asahi Glass plunged 7.86% as the firm filed to auction JPY 45B in three-year and JPY 45B in five-year convertible bonds with Japan’s Finance Ministry, while Mitsui Chemicals advanced 4.46% as UBS maintained the firms’ rating at “neutral.” Moreover, Showa Denko K.K. added 1.95% as Goldman Sachs increased its rating on the company to “neutral” from “sell,” while Isuzu Motors slipped 4.70% following the marked appreciation in the Japanese exchange rate.

Hang Seng                        22,210.41

Hong Kong shares closed to the downside on Thursday, leading the benchmark equity index to push 401.39 points (1.78%) lower and end the trade at 22,210.41 as all 9 components traded lower on the day. Shares of Li & Fung slumped 2.46% as Hong Kong exports declined for a 12^th straight month in October, dragging on the city’s recovery from a year long recession, while China Petroleum & Chemical, the nation’s largest oil refiner tumbled 2.07% as the company, along with U.S. buyout firm TPG, have weighed a bid a for LyonellBasell Industries AF which could challenge Reliance Industries offer of approximately $12 billion.  At the same time, Aluminum Corporation of China shed 0.11% on the back of lower metal prices, while China Construction Bank Corp slid 3.64% on speculation the firm may sell shares to shore up its capital holdings.

S&P/ASX 200 Index           4,708.60

Stocks in Australia traded lower on Thursday, leading the S&P/ASX 200 to shed 13.60 points (0.29%) and close at 4,708.60, with 7 of the 10 components contracting on the day. Shares of Beach Petroleum jumped 4.62% as the firm held an improved outlook for crude outputs at its Egypt and Tanzania oil site, while Newcrest Mining, Australia’s biggest gold producer, rallied 2.76% on the back of gold trading at record highs. Meanwhile, BHP Billiton, the world’s largest mining company, added 1.48% amid copper prices rising to a 14-month high due to the fall in the U.S. dollar, while Amcor soared 3.91% as the company cited a potential divestment of flexible packaging plant.

Notable Asian Session Event Risk / Economic Releases

Gold Rally Accelerates, Oil Bounces On Dollar Weakness

Commodities – Energy

Oil Bounces, Risk Trends and US Dollar Outlook Key Ahead

Crude Oil (WTI)       $77.25       -$0.71       -0.91%
Oil rebounded from support near the bottom of a falling channel that has confined trading since late October to find resistance in familiar territory ahead of the $78 level. Liquidity has thinned out ahead of the US Thanksgiving holiday with nothing on the economic or the earnings calendars to guide risk sentiment, opening the door for knee-jerk volatility into the end of the trading week.

Commodities – Metals

Gold Rally Accelerates, Silver Technical Positioning Points Lower

Gold       $1192.55       +$0.75        +0.06%
Gold prices have pushed above resistance at the top of a rising channel that has confined trading since the beginning of the month, hitting a new record high. The psychologically significant $1200 level looms ahead. The fundamental docket is empty ahead of the US Thanksgiving holiday, with risk trends and US Dollar sentiment the only catalysts of note.

Silver       $18.76       -$0.09        -0.48%
Silver technical positioning continues to point to a bearish reversal, with prices showing sharp negative divergence with the RSI momentum gauge below key psychological resistance at the $19 level. The fundamental landscape is much the same as that of gold, with risk trends and the US Dollar being the primary drivers for the near term.

Gold Surges to a New Record High Just Below $1,200 as the US Dollar Plunges 15-Month Lows

North American Commodity Update

Commodities – Energy

Oil Maintains Its 5-Week Trend Channel as a Dollar Plunge Offsets Weak Inventory Numbers

Crude Oil (WTI) -  $78.08  //  $2.06 //  2.70%

Ever the balance between a seemingly constant glut of fundamental supply and a speculative demand for an alternative to the struggling dollar, crude is carving an uncertain path. Today, the drop in oil that began this past Monday was reversed, but not before the market would make a brief test of fresh five-week lows. From a trader’s perspective, this bounce is the less controversial path for a market heading into a low liquidity period where US participation will be almost completely absent until next week. While volatile – this was the sharpest intraday rally since November 3rd – the commodity is still trading within a well-developed, descending trend channel that has guided price action since hitting the high for the year at $82.

For fundamental traders, there was some conflict between which driver would ultimately take responsibility for price action. Supply-and-demand fundamentals were in play with the closely monitored US Department of Energy inventory report crossing the ticker. As expected, stores recovered in the week through November 16th following a period where inventory was artificially depressed by Hurricane Ida. However, the increase was relatively constrained on a historical basis. Crude holdings grew 1.019 million barrels, falling short of the Bloomberg consensus for a 1.5 million increase. Gasoline stockpiles rose more than three times faster than expected with a 1.003 million barrel contribution and distillate fuels saw a contraction of 529,000 barrels against forecasts of no change. All told, this certainly falls well short of the unofficial expectations developed after the API reported a 3.347 million barrel jump in crude inventories the day before. What’s more, taken alongside the EIA’s suggestions yesterday that the distillate fuel demand could drop 7 percent through the fourth quarter and US refinery capacity is already approximately 2 million barrels over natural levels of demand, the equilibrium for supply and demand maintains it long-term skew. However, if tangible fundamentals were the only component of price action, there would no room for speculators. The true catalyst for momentum was the steady descent of the US dollar. The primary instrument for pricing for the commodity, the greenback is now forging new lows for the year just as US interests leave the market for the week.

Commodities – Metals

Gold Surges to a New Record High Just Below $1,200 as the US Dollar Plunges 15-Month Lows

Spot Gold  -  $1,190.80  //  $21.40  // 1.83%

All the standard fundamental drivers for gold were aligned for bulls Wednesday. With a healthy bid driving the market beyond short-term congestion, spot gold rallied to a new record high of $1,192.40 (and still rising as this report was being written). Looking to the futures market, a nine consecutive day advance on the active contract is the longest run for the market since 1982. Furthermore, gauging underlying speculative interest, aggregate contract volume (which lags a few sessions) was pushing to highs not seen since September 18th of last year while open interest hit a 23 month high. Momentum is clearly a heavy contributor to the steady advance; but there was nonetheless plenty of fuel for today’s rally. Still a source of speculation, a report from the Financial Chronicle quoted an unknown source in an article that said the Indian central bank would add to its 200-ton deal with the IMF on November 3rd. Skepticism would likely have held the market steady if it had not been for Russia’s announcement today that it would diversify its reserves into gold and commodity currencies while IMF reported Sri Lanka had purchased 10 tons from the international group this past Monday. Further adding to the momentum already developing on its own, the inflation protected Treasury index rallied to a new 14-month high on strong spending data from the US; and the US dollar tumbled to a new 15-month low on a trade-weighted basis.

Spot Silver  -  $18.82  //  $0.30  //  1.62%

Silver leeched off the momentum found in gold; but it certainly wouldn’t mark the meaningful milestones that its more expensive counterpart would. While Wednesday’s session would offer the first day of a clear direction (bullish) the advance wouldn’t overtake the yearly highs set earlier this week. As for underlying market activity, volume was substantially lower on the active futures contract – suggesting limited conviction in this revived advance. Aggregate open interest on the other hand was pushing highs not seen since April of last year; so today’s activity was likely anchored by the drop in liquidity into the US holiday.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

US Markets Rally With Dow Reaching another Fresh High

U.S. Session Key Developments

•    Commodities Rise Following Volatile Session
•    Dollar Strengthens into Close
•    Indicators Post Mostly Higher

US equities closed roughly at the same point of trading on Monday as markets recovered on higher commodity prices while fundamental indicators helped lead sentiment. Dollar weakness had been noted for much of the trading session until the greenback recovered to end stronger in the final hours. Several key data points included weaker mortgage approvals in the past week while durable goods orders surprised lower in October. Despite this, investors found optimism in an increase to personal spending and income, along with a rise in new home sales and jobless claims at the lowest since October 2008. Elsewhere in trading, gold surged higher to above $1190 per ounce, helping raw material producers to climb. Ultimately, the Dow managed yet another fresh 2009 high that could lift sentiment and lead to further gains across equities into the year-end. While there remains some clout as to the sustainability of recovery once government incentives are pulled back, it appears that this is far from becoming a chief concern. Following the strong data today, investors will be look ahead this week to lower volatility as trading in the US will be closed Thursday for the Thanksgiving holiday while Friday will see a half-day session of trading. Consequently no indicator releases are scheduled, with investors left in global crosswinds to watch releases abroad that range from jobs and sales in Japan to confidence in the Euro-Zone and other regions.

DJIA 30                      10,464.40                   +30.69               +0.29%
Trading in the Dow led to a fresh high just slightly above the top set on Monday. Most sectors advanced while a third of stocks closed lower including the financial sector. Moves proved limited today with no stock gaining or falling two percent or more. Ultimately, euphoric buying continues in equities with the index appearing to show little restraint while volume fell sharply for the third consecutive session. Concern should be noted, although the Dow remains the worst performer on the year-to-date of the three major indices, with a gain just shy of 20%.

S&P 500                    1,110.63                   +4.98                 +0.45%
The broader S&P500 index closed strong with all sectors advancing, with the exception of Financials. More than 75% of stocks climbed while Basic Materials and Oil & Gas led with gains of 1.67% and 0.95%, respectively. Of the ten largest firms, six closed higher while none posted more than a fractional move.

NASDAQ                         2,176.05                    +6.87             +0.32%
Trading in the tech-heavy NASDAQ led to a gain of one-third of one percent, while the index remains the most dominant since the start of the year with a gain of 38%. All sectors advanced with the exception of financials, down 0.15% on the day while Basic Materials rallied nearly two percent. Big index movers included Oracle, up 2.08%, as the only stock to add a point or more to the index. Of the ten largest firms, five closed higher with minimal losses in Microsoft, Apple and others.

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

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