March 2010

Without Risk Appetite, Crude May Hold $83

North American Commodity Update

Commodities – Energy

Without Risk Appetite, Crude May Hold $83

Crude Oil (LS NYMEX) -  $82.06   //  -$0.87  //  -1.05%

Investor sentiment didn’t collapse Thursday; but neither did it make significant progress towards optimism. Over the past month, a general appreciation in capital markets has been supplied with an otherwise tepid sense of conviction. In the upswing from $69.50 from the beginning of February back to the 17-month high set back in January, the market has simply covered a broad congestion channel that has developed since October. Pushing beyond the now triple top at $83 and the psychological swing high at $84 will require a clear shift in the conviction of speculative positioning. Maintaining the drive will be even more complicated. The failure to forge new highs today would be a conclusion for most markets. The Dow failed to extend a push to new highs set for the year yesterday. Another sign of sentiment and an indirect driver on crude was the dollar’s late session rally. The primary pricing instrument for the commodity, the currency appreciated against most of its major counterparts with a particularly noteworthy reversal from EURUSD that prevented a consequential break. The pullback in sentiment and subsequent advance for the dollar was largely influenced by renewed turmoil in Greece. After finding an uneasy calm after the two-day EU meeting early this week, the market seemed as if it was ready to ignore this region’s troubles, for now. However, recognizing its own troubles, Greek Prime Minister Papandreou set a one-week deadline for the EU to draft a meaningful financial aid plan should the country need it. This is not an unreasonable step from Greece to stabilize its own finances; but it nonetheless reminds the market of the uncertainty that exists in the market.

Keeping a constant vigilance on the supply-and-demand dynamics of price action, there was limited data that meaningfully altered the global consumption forecast. Data from the UK included an industrial trends report for March that reported an unexpected contraction in orders – the first in six. In the US, the Leading Indicators composite for February projected growth for the next one to two quarters for a 13th consecutive reading. However, the 0.1 percent increase was also the weakest in the series. Assessing the potentially crippling effect that energy prices can have on the economic recovery, both UK Prime Minister Gordon Brown and French Prime Minister Nicolas Sarkozy called on Saudi Arabia (OPEC’s largest crude producer) to increase output in order to ensure prices do not grow out of hand. Just yesterday, the oil oligarchy (which accounts for 40 percent of global production) announced it would not change capacity for a fifth meeting. On the other hand, compliance among the group stood at only 53 percent through February.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Gold Benefits from Renewed Uncertainty in the European Union

Spot Gold  -  $1,126.66   //  $6.31 //  0.56%

Risk appetite was curbed and the US dollar enjoyed a respectable rally Thursday; and yet, gold was still able to put in for an advance on the day. The many facets of this precious metal have made it a robust asset that can switch back and forth between speculative commodity to safe haven for weary investors. Today, the retracement in sentiment just after other prominent market benchmarks forged new highs certainly weighed on the metal. However, the source of this fear and uncertainty would inadvertently spark another source of demand that is common to gold: its appeal as an alternative store of wealth. While its role as a dollar hedge is well known, its function as a general substitute for fiat currency itself is far more significant. Stirring recently dormant concerns surrounding the stability and fiscal health of the European Union, Greece offered an ultimatum to the governmental body to develop a financial aid plan within a week or the nation would pursue other options to secure its finances. This is a significant step towards finding a real solution, but it nonetheless taxes the value of the shared currency: the euro. Therefore, investors are concerned enough about exchange rate volatility to seek harbor in gold. Other fundamental updates on the day would see the metal’s value as an inflation hedge dim after US inflation data reported the core consumer index cooled to its weakest pace since February of 2004. On the other hand, the World Gold Council’s update on central bank accumulation through 2009 revived confidence that a major buyer was still in the market. According to the industry group, central banks bought the most purchased 425.4 tons for reserves last year (the most since 1964) to bring total holdings up to 30,117 tons, or approximately 18 percent of world’s mined gold.

Spot Silver  -  $17.41   //  -$0.05  //  -0.29%

Once again, gold and silver would diverge in their path Thursday. However, the tempered bearing on risk appetite would ensure that the deviation would not be too large. Where the more expensive metal was able to appreciate in virtue of it being used as a well-known alternative store of wealth, silver would have to fall back on its fundamental dependencies on the US dollar and investor sentiment. Optimism among the speculative crowd would ease only modestly; but the greenback put in for a significant enough rally through the European and US market hours.

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

Crude Shirks Rise in Crude Inventories to Focus on Risk Appetite

North American Commodity Update

Commodities – Energy

Crude Shirks Rise in Crude Inventories to Focus on Risk Appetite

Crude Oil (LS NYMEX) -  $82.77   //  $1.07  //  1.31%

Riding on the momentum of yesterday’s impressive reversal, the active NYMEX crude futures contract was able to fully compensate for its Friday/Monday losses and subsequently push the market back to its $83, two-month high. This nearby high clearly holds significant influence over the market as a psychological level given its ability to hold up follow through; but for true recognition, the 17-month month high at $84 will be the true catalyst for sentiment. On the other hand, merely overtaking this figure does not guarantee a shift in conviction amongst market participants. For one thing, volume fell back to its lowest level since the February 19th/20th contract rollover despite the proximity of new heights. More importantly, the quality of risk appetite that has contributed to this asset class’s (and very well all markets that have a distinct connection to growth forecasts) advance seems to be lacking. New milestones are being made by equities (the Dow has advanced to a new 17-month high) and other investor-favored securities; but the achievement seems to be in name only and not sentiment itself. Indeed, there are many financial threats to the global markets on the horizon while potential growth and returns promise relatively little; but speculation itself decides the momentum and sustainability of such trends.

With the encouragement of risk appetite and the presence of meaningful high, speculative interests would overwhelm clear-cut fundamentals released on the day. At the top of the list, this morning’s Department of Energy inventory figures would prove lacking for market-influence. Following a disappointing 403,000-barrel increase in the API’s figures yesterday, the government’s reading on crude stockpiles reported a smaller-than-expected 1.01 million barrel pickup through the week ending March 12th. Nonetheless, this was the seventh consecutive increase (the longest trend of growth since last May) which subsequently pushed total stores to a 344 million total. Furthermore, fuel demand reportedly dropped 4.2 percent to 18.8 million barrels per day, the biggest drop since the period ending November 6th. On the other hand, this rise in inventories may not balloon the supply/demand gap for long. Crude imports reportedly fell 0.8 percent to its lowest level since March 2002. With inflows restrained, a rebound in demand (which is certainly possible given the consumption of refined products like gasoline and distillates) could quickly absorb the United States’ glut. What’s more, OPEC officials decided at their first official gathering this year to hold production targets for the fifth consecutive meeting. This market continues to be dependent on risk appetite and fundamental demand.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Risk Appetite Does Not Translate into an Easy Break for Gold

Spot Gold  -  $1,122.30   //  -$5.40 //  -0.48%

Drawing an accurate comparison between markets, gold would follow the dollar more than it would the Dow Jones Industrial Average. The advance in the equities index has been impressively consistent and today’s push would leverage the market to a fresh 17-month high. However, surpassing this psychological milestone would do little for volatility and momentum. This suggests that, though the markets are indeed climbing, there is still a meaningful disconnect in assurance that assets are actually undervalued at their current highs. This translates into skepticism and a particular sensitivity to any new financial uncertainties that pop up. However, from speculative appeal to fundamental value, there is also a concern that the commodity’s role as a dollar hedge is keeping the market back. Though the greenback has lost value in the past few days, the currency is stubbornly holding up in the face of risk appetite trends. The currency’s strength is linked to its own climb up the risk spectrum. On the other hand, we may see inflation take up its own presence. Following the Federal Reserve’s promise to keep lending rates at an “exceptionally low” level for an “extended period,” the Bank of Japan expanded its own lending facility to reverse deflationary trends and the Bank of England noted concerns that price pressures could pick up. It may still be some ways off; but when inflation trends do build to remarkable levels, governments will have a difficult time curbing them as policy authorities will have to weigh their efforts against a growth objective.

Spot Silver  -  $17.48   //  $0.02  //  0.11%

Like gold, silver was unable o establish meaningful follow through on yesterday’s impressive advance. Torn between a stable US dollar and a modest build in risk appetite, the metal would end the day little changed. To overtake last week’s swing high and truly reestablish its bullish trend, the commodity will likely have to find support through a rise in risk appetite strong enough to encourage a meaningful dollar decline. In the meantime, delayed futures market data shows open interest has pulled back from its seven-week high and trading activity (volume) has fallen to levels not seen in months.

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

European Equities Rise on Positive Sentiment Following FOMC

Europe Session Key Developments

•   Markets React to FOMC Interest Rate Decision
•   U.K. Jobless Claims Drop at Fastest Pace Since 1997
•   Sterling Jumps 1 Percent After Jobs Report

A crowded U.K. economic docket and reaction to yesterday’s FOMC statement, which happened after the European close, sent European equities to their highest level in over 17 months.  The Stoxx Europe 600 Index, a benchmark gauge for European equities, rose 0.9 percent for a second straight day to bring the index to 261.34.  Yesterday, the FOMC left rates unchanged and reiterated its pledge to maintain record low borrowing costs for an extended period.  The news sent U.S. equities higher before yesterday’s close and the positive sentiment carried into today’s European session.  Encouraging U.K.  jobs data drove stocks even higher and may have provided a boost for Prime Minister Gordon Brown and his Labour Party ahead of general elections.  U.K. jobless claims fell at the fastest pace since 1997 as the number of people receiving unemployment benefits dropped 32,300 in February while the median forecast in a Bloomberg News survey called for increase of 6,000.  Sterling jumped as much as 1 percent against the dollar after the report.  The currency was up 0.8 percent to 1.5360 at 17:30 GMT.  Meanwhile, the Euro and Swiss Franc were both lower against the dollar, while the dollar index was down 0.2 percent at the time of this report.  On the commodity front, industrial metals and grains provided strength, as the CRB Commodity index was up 0.5 percent.

FTSE 100                    5644.63                      +24.20                       +0.43%
The benchmark FTSE 100 Index rose to a 20-month high amid expectations that interest rates in Britain and the U.S. will stay near current lows for some time.  The Bank of England released the minutes from its March meeting today, which showed that the Monetary Policy Committee agreed unanimously that interest rates should  stay at 0.5%.  On the FTSE, tech stocks performed the best as a group while commodity producers and financials followed suit.  Bank stocks gained 1.1 percent, led by Standard Charter and HSBC, as a prolonged period of record low borrowing costs would benefit the group tremendously.

CAC 40                            3957.89                     +18.94                      +0.48%
Three components advanced for every one that declined in the CAC 40, leading the index to rise for the second day.  ArcelorMittal advanced 2.7 percent to 32.12 euros, contributing 3.9 points to the CAC’s advance.  The world’s largest steel producer rose on the back of higher industrial metal prices in today’s session.  Lafarge, the world’s largest cement company paced all components, advancing 3 percent to 53.79 euros.  The company is sensitive to improved economic sentiment.

DAX                                 6024.28                       +53.29                    +0.89%
The German benchmark index rose the most among the benchmarks of the three largest EU economies.  Overall, two out of three components advanced in the session.  Siemens alone contributed 21 points to the advance as shares in the company rose 3.2 percent to a 19-month high.  Siemens, Europe’s largest engineering company, announced plans to overhaul its information technology unit in preparation for a possible sale or IPO.

IBEX 35                          11166.80                     +107.50                   +0.97%
Trading in Spain led to a near 1 percent gain on the day, as only four total components declined.  Financials, which weigh almost 40 percent on the index, advanced 0.8 percent.  The group was led by gains in Bolsas y Mercados, which operates the Madrid Stock Exchange, and Banco Popular.  Santander, Spain’s largest company and bank by market cap advanced 0.8 percent to contribute 20 points to the advance.

FTSE MIB                      22902.58                     +282.73                    +1.25%
Italy’s FTSE MIB rallied 1.25 percent as UniCredit, the country’s largest bank, topped analyst estimates when it reported earnings today.  Shares in the company surged 6.3 percent to 2.17 euros and other Italian banks followed suit.  In other Italian bank news, Deutsche Bank, JPMorgan, and UBS were charged with fraud linked to the sale of derivatives to the City of Milan.  The banks allegedly misled the city over swaps that adjusted interest payments on 1.7 billion euros of bonds sold in 2005 and will be standing trial on May 6.  The case could have consequences that reach far beyond Italy if other municipalities in the US and Europe decide they were also misled.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

Australian Dollar Nearing Trendline; Watch 9265

Euro / US Dollar

Favor a test of 13850, which is former support as well as the 38.2% of the decline from 14583.  A daily close above the parallel channel line would expose 14030, which is the next level of former support and the 50% retracement.  Short term support is at 13720 and only a decline below 13640 would suggest that the downtrend is back underway.

British Pound / US Dollar

The GBPUSD is approaching resistance from the 38.2% retracement of the decline from 16464; at 15425.  This level is reinforced by parallel channel resistance tomorrow.  Additional resistance would be at 15530 (former support).  Look for a top in the 15425-15530 zone in order to position for a drop below 14780 in a 5^th wave.

Australian Dollar / US Dollar

A diagonal can be counted as complete from 8800 and a break of 9050 would inspire confidence in the downside.  The diagonal from 8800 may complete wave C of an A-B-C correction from just below 8600.  If this count is correct, then the entire advance (from 8600) will be retraced over the next several weeks.  Look for resistance at 9265.  It is worth noting that 21 day ATR is at its lowest point since July 2008.  As a barometer of risk aversion, the complacency that is indicated by the low ATR level warns of a top and reversal.

New Zealand Dollar / US Dollar

There is potential NZDUSD resistance at 7200, which is the 61.8% retracement of the decline from the January high (7446).  I am looking for a secondary top near that level.

US Dollar / Japanese Yen

“Given the extent and structure of the USDJPY advance from 8813, it is possible that an A-B-C decline is complete from 9380.  A move above 9217 would strongly suggest that the USDJPY is headed above 9380, which would indicate a breakout above trendline and channel resistance.”  Still, until a move above 9380 or drop below 8813, conditions can be described as rangebound at best.

US Dollar / Canadian Dollar

The USDCAD finally dropped below 10200 Friday, which negates the bullish bias that I had held for several weeks.  At this point, there is no support until parity / 9970.  Of course, intraday momentum remains divergent and rising from an oversold condition.  Former support at 10150 is now resistance.

US Dollar / Swiss Franc

Like the EURUSD (but as the inverse), I favor USD strength in a 5^th wave to a new high.  Price needs to remain above 10500 in order to keep the bullish count valid.  In other words, the USDCHF has gone about as far as it can go if the trend is up.

Gold

“Gold has traded sideways since December and appears to be building a bullish base.  Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders).”  The decline from 1145 is in 7 waves, which counts as a complex correction.  Look for support near / just below 1120.

Light Crude

After reversing from a gap, crude’s decline is impulsive.  Expect weakness to at least below 7705.  7613 is potential support.  It is possible that the rally from the February low completes wave C of an A-B-C flat.  Exceeding 8475 would suggest that crude is headed higher for a test of 90.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

Stocks in Asia/Pacific Rally on Optimism for Future Earnings, BoJ Expands Lending Program

Asia Session Key Developments

• Bank of Japan Holds Rate at 0.10%
• Japanese Stocks Rise to Eight Week High

Stocks in Asia/Pacific rallied on Wednesday after the Bank of Japan decided to expand its emergency program and kept borrowing costs at 0.10%, while the Fed pledged to keep the benchmark interest rate at a record low for an “extended period.” The BoJ increased its lending program to 20T yen from 10T yen this month as the central bank aims to stem the risks for deflation, but added that the recovery is picking up as expansion in monetary and fiscal policy continues to feed through the real economy. Meanwhile, the economic docket in Australia showed that the Westpac Leading index rose to its highest level in more than a year, while dwelling starts in the isle-nation advanced for the second time in the past five months. Moreover, Japan’s tertiary industry index for January surged to the highest level since 1989, with the index advancing 2.9% from the previous month to top forecasts for a 1.3% rise.

Nikkei 225                          10,846.98

Stocks in Japan pared yesterday’s decline, leading the Nikkei 225 to rally 125.27 points (1.17%) on Wednesday and close at 10,846.98 as all ten components pushed higher on the day. Shares of Nippon Oil jumped 3.83% on the back of higher commodity prices, while Fast Retailing added 2.24% as the company publicized that it expects overseas sales to overtake domestic revenue as soon as four years. In addition, Toshiba climbed 3.26% as the company ended its production of general-use incandescent bulbs and has fully transitioned to environmentally friendly lighting, while Mitsui Mining & Smelting surged 5.81% after the firm raised its net income forecast for the year by 44%.

Hang Seng                        21,384.49

The Hong Kong equity market pared the previous day’s decline, leading the benchmark equity index to soar 361.56 points (1.72%) and close at 21,384.49 as all nine components pushed higher. Shares of New World Development rallied 1.70% after the firm announced it saw profits during the first-half of the fiscal year, while Aluminum Corporation of China advanced 4.21% on the back of higher metal prices. Moreover, China Life Insurance added 3.04% amid speculation that an agreement between China and Taiwan will allow cross-investments in insurers, while HSBC Holdings tipped 0.81% higher as the lender hired former Nomura Holdings executive Jane Wang to bolster investment banking in the world’s fastest growing major economy.

S&P/ASX 200 Index           4,853.20

Shares in Australia extended yesterday’s advance, leading the S&P/ASX 200 to climb 56.00 points (1.17%) and close at 4,853.20. All ten components pushed higher on the day with technology leading the way after adding 2.62%, which was followed by a 2.26% advance in oil & gas. Shares of BHP Billiton gained 1.29% as copper pushed 1.4% higher on the day, while Australia & New Zealand Banking Group rallied 1.90% as Daiwa Securities raised the company’s stock rating from “outperform” to “buy.” At the same time, AWB tumbled 11.37% after the firm lowered its profit forecast for the full-year by 39%, while Woodside Petroleum rose 2.32% as oil prices leaped the most in four weeks yesterday.

Notable Asian Session Event Risk / Economic Releases

European Equities Trade Higher on Greece Bailout Talks, German Sentiment

Europe Session Key Developments

•   European Union Ministers Lay Groundwork for Greece Bailout
•   German Sentiment Indicators Beat Expectations for March
•   Commodities Trade Higher, European Currencies Gain Against Greenback

European stocks rallied today as European Union Ministers laid the groundwork for a Greece bailout and German sentiment indicators beat expectations in March.  The news helped push the Dow Jones Stoxx 600, a broad collection of European equities, to its highest close since January 19.  The news of potential EU aid to Greece came in the nick of time, as ratings agency Standard & Poor’s had threatened to cut the country’s credit-rating if substantial actions were not taken to alleviate fears of the country’s creditors.  EU finance ministers met yesterday and today in Brussels, to work out a strategy for emergency loans to Greece to help stabilize the sliding euro currency.  The gathering helped alleviate pressures of an S&P rate cut, as the agency today affirmed Greece’s investment-grade BBB+ rating and removed the country from “creditwatch negative.”  The measures were well received by Greece Finance Minister George Papaconstantinou, who had urged fellow EU leaders to provide a backstop for the country’s debt to ward off investors betting against Greek bonds.  He stated that current 10-year rates over 6 percent “would be difficult to live with.”  Other European leaders seemed to agree, although Luxembourg’s Jean-Claude Juncker says the leaders remain “convinced it won’t be necessary” to provide a bailout.

As for the economic docket, German investor confidence fell for a sixth month in March, but managed to beat expectations for the month.  The data, coupled with news from Greece, was taken as a bullish signal for investors, who drove up stock and commodity prices in tandem.  Crude oil once again traded above the $80 a barrel level, while gold posted its biggest gain since February, closing at the $1125 level per ounce.  The major European currencies also gained on improving investor confidence regarding the euro region.  The euro gained 0.6 percent against the U.S. dollar, pushing the EURUSD to $1.3766, while cable rose 1.2 percent to $1.5243.

FTSE 100                    5620.43                      +26.58                       +0.48%
British shares rebounded from yesterday’s losses as financials and commodity shares posted strong gains on the day.  Commodity shares were led by a 2.9 percent gain for Eurasian Natural Resources, while shares of Rangold and Antofagasta rallied over 2 percent each on higher metals prices.  As for financials, Barclays gained 2.5 percent after analysts at Morgan Stanley named the bank as one of its top picks in Europe.  The analysts stated that “capital providers are likely to take a greater share of industry profits.”  Royal Bank of Scotland posted a 1.3 percent gain after the Financial Times reported that the bank may buy back 10 billion pounds of debt in a balance sheet restructuring plan.

CAC 40                            3938.95                     +48.04                      +1.23%
Trading in Paris led to the biggest gain among major European indices, as health care shares gained over 2 percent to lead each CAC component higher on the trading day.  Health care firm Sanofi-Aventis added over 2.2 percent after agreeing to combine its animal-health division in a 50-50 joint venture with Merck & Co.  Steel company ArcelorMittal also gained on a foreign agreement, rising 2.7 percent after signing an understanding to establish a joint steel mill in Iraq with Turkish partner Dayen.  Overall, the biggest CAC gainer today was bank Credit Agricole, whose shares rose 3.5 percent.

DAX                                 5970.99                       +67.43                    +1.14%
German stocks posted the second-largest gain among major European indices today, as consumer services and industrial shares rallied over 2 percent following better-than-expected confidence readings for March.  Metro and Deutsche Luft gained 2.6 percent and 2.2 percent respectively to lead the consumer services sector, while Siemens posted a 2.9 percent gain to lead industrials.  Siemens, a leader in telecommunications, rallied on news that the firm appointed Roger Radke as the new chief executive officer of Siemens Audiologische Technik.

IBEX 35                          11059.30                     +101.50                   +0.93%
Trading in Spain led to a near 1 percent gain on the day, although the IBEX remains down 7.3 percent for the year.  Basic Materials and consumer services posted the strongest gains among index sectors, while health care and technology were the lone components to close in the red.  Spanish airline Iberia posted the strongest gain on the index, rising 4.7 percent following the announced completion of its sale to British Airways.

FTSE MIB                      22619.85                     +246.62                    +1.10%
Italy’s FTSE MIB rallied over 1 percent despite a 9.6 percent loss for Bulgari.  The world’s third-largest jeweler dropped by the most since 2001 after reporting a 13.6 million-euro fourth-quarter loss, well short of analyst estimates.  Helping boost shares today was Brembo, which added 6.1 percent for its second consecutive gain, after Banca Akros and Equita Sim upgraded the disk brake manufacturer to “accumulate” and “buy.”

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

U.S. Stocks Rise Sixth Straight Day on FOMC, Greece

U.S. Session Key Developments

•    Threat to Greek Credit Rating Lowered by S&P
•    FOMC Keeps Interest Rate Near Zero
•    Commodities Increase as Greenback Weakens

The Dow Jones Industrial Average extended its streak of higher closes to six while the Standard and Poor’s 500 Index closed at its highest level in almost 18 months.  Stocks reacted positively to a lack of any surprises from the FOMC’s Interest Rate Statement as well as S&P’s affirmation of Greece’s BBB+ credit rating.  Greece, which boasts the European Union’s largest budget deficit, was removed from “creditwatch negative,” meaning S&P is no longer considering an imminent reduction in grade.  S&P cited the steps Greece announced last week to narrow its deficit as the reason for lowering the threat to Greece’s credit-rating.  In addition, EU finance ministers meeting in Brussels yesterday and today worked out a strategy for emergency loans to Greece in order to avoid a euro crisis.  The euro gained 0.65 percent today to 1.3766, while the dollar index fell 0.7 percent to 79.67.  The dollar pared some of its earlier losses leading up to the Fed’s Interest Rate Decision, before giving them all back after the Fed decided to keep rates unchanged between zero and one quarter percent.  Though the rate decision itself was expected, the fed left the language in the statement mostly unchanged, leaving markets to believe that the fed would leave rates near zero for an extended period despite the recent influx of positive economic data.  Commodities were particularly strong given today’s dollar decline.  The CRB Commodity Index gained one percent, paced by Precious Metals and Energy which both gained 1.5 percent.  Crude gained 2.4 percent to $81.97 per barrel while Gold gained 1.5 percent to 1123.60 per troy ounce.

DJIA 30 10,685.98                      +43.83                       +0.41%
The Dow closed in the black for the sixth straight trading day, the longest streak of the year.  General Electric and Intel paced all components as shares in the two companies gained 4.5 percent and 3.9 percent respectively.  GE closed above $18 for the first time since December 2008 after JPMorgan wrote in a note that earnings momentum was building for the company.  Intel, the world’s largest semiconductor maker, said it already has shipped more than 100,000 units of its Xeon 5600 server chip, which officially went on sale today.

S&P 500 1,159.46                           +8.95                       +0.78%
The broader S&P 500 closed at its highest level since October 1, 2008.  Overall, more than four stocks advanced for every one that declined and all industry groups rose.  Basic Materials stocks led all groups higher as the group advanced 1.7 percent.  On top of higher commodity prices, which gained one percent today, the group was paced higher by Cliffs Natural Resources, North America’s biggest iron-ore producer.  Shares in the company gained 4.9 percent after Deutsche Bank lifted its share price estimate from $65 to $85.  Financials were the second best performers, gaining 1.2 percent as a group, as a prolonged low interest rate environment would prove highly beneficial for the sector.

NASDAQ 2,378.01                         +15.80                     +0.67%
All industry groups in the tech heavy Nasdaq Composite advanced as well, as tech stocks rose 0.7 percent as a group.  Intel, which advanced 3.9 percent, contributed almost 3 points to the index’s advance.  In other tech news, Google’s ongoing dispute with China may be decided this month as Internet-service licenses come up for renewal.  There is growing speculation that a censorship dispute with the world’s most populous country will drive the world’s most popular search engine from the country.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

Stocks in Asia/Pacific Mixed Ahead of Bank of Japan Interest Rate Decision

Asia Session Key Developments

• Japan’s Machine Tool Orders Rises to Most on Record
• New Zealand’s Nonresident Bond Holdings Advances in February
• Hong Kong May Sell 4,000 Subsidized Flats in June

Stocks in Asia/pacific were mixed for the second consecutive session on Tuesday as investors held a cautious outlook for future earnings. Meanwhile, the economic docket in Japan showed that machine tool orders surged 217.4% in February to post the fastest pace of growth since records began in 1987, while New Zealand’s nonresident bond holdings soared 64.2%, marking the most the reading has advanced since November 2009. Nevertheless, the Reserve Bank of Australia meeting minutes said “members concurred that the appropriate course was to set policy as required by the most likely outcome,” and went onto say that that borrowing costs will move “gradually towards more normal levels” as economic conditions improve. However, the central bank argued that the ongoing turmoil in Europe could lead to another downturn in the global economy if the situation is not “resolved satisfactorily,” but expects the global recovery to “continue at a reasonable pace with significant regional difference.”

Nikkei 225                          10,721.71

Stocks in Japan pared yesterday’s advance, leading the Nikkei 225 to shed 30.27 points (0.28%) on Tuesday and close at 10,721.71. Eight out of the ten components slumped on the day, with technology leading the way, declining 0.62%, and was followed by a 0.60% drop in basic materials. Shares of Honda Motors, the world’s largest motorcycle maker retreated 1.52% as the company announced plans to move large motorcycle production from Italy to Japan within a few years, while Mitsui Co slipped 1.24% on the back of lower commodity prices. In addition Suzuki dived 0.69% amid the company recalling 432,366 units of two mincar models in Japan, while Sumco slumped 3.90% as JP Morgan slashed the company’s stock rating from “neutral” to “underweight.”

Hang Seng                        21,022.93

The Hong Kong equity market pushed lower for a third consecutive session on Tuesday, with the benchmark equity index retreating 56.17 points (0.27%) to close at 21,022.93. Six out of the nine components tumbled on the day, with basic materials leading the way, falling 2.25%, while consumer services rose 1.21%. Shares of Sino Land lost 1.74% as Hong Kong may sell 4,000 subsidized flats in June in order to rein-in on price increases, while PetroChina sank 1.00% on the back of lower energy prices. Moreover, Cosco Pacific pushed 0.95% lower after announcing a rights offer to fund the purchase of ships, while Cathay Pacific Airways rallied 0.27% as lost cost carriers set the rules of the game offering never-before seen rates with a lot more flight options.

S&P/ASX 200 Index           4,797.20

Shares in Australia pared Monday’s decline, leading the S&P/ASX 200 to rally 13.10 points (0.27%) and close at 4,797.20. Five out of the ten components pushed higher on the day, with telecommunications leading the way, climbing 1.99%, while utilities slid 0.64% to taper the advance. Shares of Alesco rose 0.96% as UBS raised the company’s stock rating from “sell” to “buy,” while Telecom Corp, New Zealand’s largest phone company lost 1.46% as the company sees a risk for a NZ$56 million ($39.4 million) drop in operating earnings following a government initiative to increase broadband speed in rural areas. At the same time, Telstra added 2.30% amid a report by the Australian Financial review that illustrated that the government may delay reforms until March 18^th, while Woodside Petroleum sank 0.51% on the back of lower energy prices.

Notable Asian Session Event Risk / Economic Releases

The Biggest Drop in Two Weeks Helps Confirm a Crude Reversal

North American Commodity Update

Commodities – Energy

The Biggest Drop in Two Weeks Helps Confirm a Crude Reversal

Crude Oil (LS NYMEX) – $79.86 // -$1.38 // -1.70%

A sharp decline through the week’s open for crude is a convincing sign that the market has indeed reversed course after running a five-week bullish trend and just before testing two-month highs. In fact, the active futures contract on the NYMEX would put in for the biggest single-day decline in two weeks, a move that would subsequently confirm the first back-to-back daily loss for the instrument since the February 4th/5th plunge. This rally would have a tangible, fundamental component; but much of the influence is traced back to sentiment considerations. Having rallied through most of February and the first half of March, speculators have come to a point where optimism has to be reconciled with realistic projections for risk appetite and demand for the physical. With a 16-month high in view, a critical assessment of progress in speculator positioning and economic activity leaves little room for further appreciation even if investor interest was capable of surpassing the closely watched $84 level. This may seem to stand in contrast to the rise in open interest in the futures market (currently at a 21-month high 1.4 million contacts); but speculative interest can often diverge from practical demand expectations. It Is the correction whereby sentiment meets reality that often introduces the beginning of new trends.

Looking further into the contributing factors to today’s tumble; there was plenty to garner from investor activity and macro economic data. Through the typical channels of risk appetite developments, equities were little changed; but the US dollar would put in for a significant advance – the first in four days. This mixture of tempered optimism and rising pricing instrument naturally translates into a cheaper commodity. Combining the concerns of demand from the speculative and growth factions of the market, Moody’s suggested in a report Monday that the US and UK were putting in for the swiftest move towards losing their respective top sovereign credit ratings. Just the fear of rating cut will encourage higher borrowing costs for the economic powerhouses that will curb speculative interests and the governments’ ability to stimulate their economies. On the data front, US factory output rose a meager 0.1 percent through February – a respectable number given the unfavorable conditions of the period (weather). For a global perspective, the world’s second largest economy (Japan) received an upgraded bill of health by the government and a rise in consumer sentiment. Looking out over the next 24 hours, the big-ticket economic indicators will either compliment or work against dominant risk trends. Furthermore, later in the session, the API crude inventory report will reintroduce supply-side considerations to the fundamental picture.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Gold Levels off as Sovereign Debt Concerns Balance Dollar’s Controlled Recovery

Spot Gold – $1,107.90 // $6.01 // 0.54%

Combining the value of a speculative instrument, dollar-hedge and safe haven asset; gold traders would have to indentify which factor was most important for establishing a fundamental bearing. As for risk appetite, European equities were notably lower on the day while US shares finished the session little changed. Furthermore, the US dollar would put in for a hearty advance against its most liquidity counterparts. Normally, the combination of these two factors would lead the precious metal lower; but gold would ultimately put in for the biggest advance in 8 days. So what then was the source of this commodities strength? Over the past year, this instrument’s function as a safe haven has generally diminished as the appetite for yield and capital returns has leveraged the metal’s volatility and preternatural climb to record highs. However, the demand for an alternative investment today takes on a new face: balancing the risk of a depreciating fiat currency. Sovereign debt concerns were leveraged Monday by suggestions that EU officials, through their two-day meeting, wouldn’t produce a meaningful backup plan to bailout Greece or any other member nation that fell on hard times. In fact, Finance Ministers for both Germany and France would go into the discussion vowing that no major changes in policy would be made. This leaves the region open to another adverse turn in sentiment. Far more surprising however was the warning issued by Moody’s that most of the world’s largest industrialized nations had moved “substantially” closer to seeing the credit ratings downgraded. At the front of the line was the US and UK. If these economies’ debt worthiness was indeed lowered, the impact on the credit market would be felt world-wide.

Spot Silver – $17.10 // $0.03 // 0.18%

Without a prominent attachment to sovereign credit interests and safe haven flows, silver would look for guidance from its more typical drivers. Despite the tumble in European equities, investor sentiment was ultimately little changed through the end of the trading session. More interesting was the commodities response to the US dollar. The first advance in four days would leverage a significant precession on the precious metal; but the metal would ultimately absorb the ‘cost.’ Taking stock of price action, the active silver futures contract on the COMEX has seen the smallest rolling average daily range for the past month since February 2nd. This was the period just before the sharp plunge and steady reversal. If history is any guide at all, the future may point to more active markets in the near future.

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

U.S. Equities Buck Downward Global Trend, Dow Advances for Fifth Day

U.S. Session Key Developments

•    Manufacturing in New York Expands for Eighth Month, Industrial Production Climbs
•    NAHB Housing Market Index Unexpectedly Declines in March
•    Commodities Trade Lower as U.S. Dollar Index Returns to 80 Level

U.S. stocks were generally higher today after manufacturing in New York improved for an eighth consecutive month and industrial production beat expectations.  The large-cap Dow Jones Industrial Average rallied late in the trading session to close higher for a fifth consecutive day.  Investors cheered a positive Empire State report that showed manufacturing in New York rose more than expected in March, including the employment gauge which rose to its highest level since 2007.  Furthering the cautious optimism of investors was a Federal Reserve report that showed an unexpected rise in industrial production for the month of February.  Gains in demand for computers and semiconductors helped fuel the rise and showed continued strength in the technology sector despite general economic weakness.  Overall, the continued strength in large-cap equities helped push the Dow Jones Industrial Average to 10642, the highest index reading since January 19.  As for commodities, crude oil fell alongside equities during the European session before trading flat during the afternoon.  Crude fell to $79.13 a barrel intraday, before closing just shy of the $80 level.  Precious metals, on the other hand, were strong as gold futures rose to $1105 and silver futures gained to $17.08.  The greenback also managed to gain on the day, driving the U.S. Dollar Index back above the 80 level.

DJIA 30                     10,642.15                      +17.46                       +0.16%
The Dow Jones Industrial Average extended its four-game winning streak to five, after an analyst upgrade for Walmart and strength in health care shares.  Walmart was the biggest gainer on the index, adding 2.8 percent after analysts at Citigroup raised the stock from “hold” to “buy.”  Analysts also said the retailer is set to win market share going forward through cost-cutting measures.  Health care shares furthered gains for the Dow, as pharmaceutical giant Merck gained 1.5 percent and leading drug maker Pfizer rallied just over 1 percent.  Pfizer shares had struggled as of late, dropping over 16 percent from their January high.

S&P 500                       1,150.51                           +0.52                       +0.05%
The broad-based S&P 500 traded slightly higher today, gaining back Friday’s loss, as telecommunications, consumer goods, and health care shares gained over 0.5 percent to outweigh losses among financials and commodity shares.  The S&P bank sector closed slightly lower, following the release of Senator Chris Dodd’s financial reform bill.  The bill would allow the Federal Reserve to wind down “too-big-to-fail-institutions” and includes a version of the Volcker Rule to ban proprietary trading.  As for commodities, shares of oil & gas firms were down 0.8 percent as the price of crude oil fell below $80 a barrel on the NYMEX.

NASDAQ                     2,362.21                         -5.45                     -0.23%
Shares on the tech-heavy Nasdaq fell for a second consecutive day as technology shares dropped 0.4 percent.  Google Inc. dropped nearly 3 percent on the day, while rival Baidu Inc. gained nearly 5 percent.  Google advertisers in China have been advised to switch to rival search engines, as speculation swirls around Google’s status in China going forward.  Many believe that the most popular Internet search engine will shut down its website in the country, Google.cn.  Furthering the Nasdaq’s decline were shares of Marvell Tech, which dropped over 2 percent on the day.

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

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