In its simplest form, a dividend is the distribution of a company’s earnings to its shareholders, usually taking the form of a cash payment.  Although often forgotten or overlooked, the dividend is a key component of a security’s total return and can provide a more accurate picture of a stock’s true value than its market price.  Being a byproduct of fundamental data, the dividend is a true representation of a stock’s underlying strength and helps to filter out speculative interest and “noise” created by investor appetite.  As seen in the tech bubble of the late 1990’s, stock prices can stray far from underlying fundamentals, so using an indicator such as the dividend is key to  revealing a mispriced stock or index.

Since March 2009, stocks have greatly outpaced their underlying fundamentals if priced using the dividend discount model.  Although stocks soared over 50 percent off their March lows, dividends declined during the same period and have showed no momentum in the positive direction going forward.  Investors have recoiled from some of their equity holdings this year, as mixed earnings data and high unemployment have brought into question the economic environment for the near- to medium-term.  If dividends are any indicator, stocks appear primed for a pullback, as long as fundamentals remain weak and the economic environment uncertain.

The S&P 500 Against Its Dividends Paid, 2000-Present

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com ]]> /2010/02/05/dividends-can-help-investors-navigate-volatile-markets-ahead/feed/ 0 /2010/03/12/has-crude-taken-the-first-step-towards-a-breakout-and-reversal/ /2010/03/12/has-crude-taken-the-first-step-towards-a-breakout-and-reversal/#comments Sat, 13 Mar 2010 00:09:34 +0000 CFDTrading Analyst /?p=7536 North American Commodity Update

Crude Oil (LS NYMEX) -  $81.21   //  -$0.90  //  -1.10%

Volatility perked up modestly for the active NYMEX crude contract Friday such that the market would test a new eight-week high of $83.16 before reversing course and potentially forging a bearish breakout. With the week’s close pulling the market below a trendline that has guided the commodity upward for over a month now, a speculative barrier has been removed. What is needed now is momentum; and such conviction will likely come through risk appetite itself. As it stands, the market’s level of activity (measured through the rolling 20-day average daily range) is still near its lowest level since September of 2007. However, the CFTC’s Commitment of Traders figures reported a 17,897-contract increase in net long speculative positioning through the period ending March 9th. Furthermore, aggregate open interest for the commodity on New York futures exchange has steadily climbed to its highest level since June of 2008. Interest is building; but market participants are awaiting a clear bearing before committing. Therefore, the end-of-the-week break that is so clear on the chart must still be considered a tentative move; because risk appetite was ultimately little moved through the session and the US dollar actually tumbled itself (the commodity and currency often move inversely due as the dollar is oil’s primary pricing instrument).

Ultimately, when the next solid trend does form, it will likely follow wherever investor sentiment leads. However, risk appetite itself has significant fundamental pressure from economic data on the backend. Specifically, should fear and uncertainty take over, there is more than enough reason to unwind speculative positioning. Today, the headline macro data was somewhat mixed. Retail spending in the world’s largest economy rose 0.3 percent against speculation of a contraction. On the other hand, the University of Michigan consumer confidence report unexpectedly eased back from a two-year high. These changes were relatively modest and do not definitively alter their respective trends of improvement. Taking a broader look at demand, the International Energy Agency revised its forecast for global oil demand for the year by 70,000 barrels to 86.6 million barrels per day. Further noteworthy in this release was the 1.7 million barrel increase to emerging market consumption to 41.2 million barrels per day. Economic expansion across the globe has developed more clearly outside the developed bloc; and top amongst this group is China, which is also the second largest consumer of fuel in the world. This is a link that will certainly not be overlooked going forward as the Chinese government attempts to cool its markets and economy to avoid a potential asset bubble. And, through this economic link, we loop once again back to the influence risk appetite has on the market as sentiment has so far held up despite building pressure for policy makers in the economy to act upon.

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

Spot Gold  -  $1,102.11   //  -$7.39 //  -0.67%

It was an unusual end to the week for gold bugs. Through the close, the risk appetite was little changed while the US dollar was tumbling ; and yet, the precious metal was also on the decline. This is an unusual mix considering gold’s two most elemental roles in the financial market through recent history were as a speculative instrument and dollar-hedge. This divergence is most likely the mix of two key developments. The first consideration that market activity itself has become so stagnant that the correlation that has bound these markets together is loosening. A second issue is the deterioration of fundamentals in the background (despite the relatively stable condition of other growth-sensitive markets). Concerns about the stability of the Euro Zone, financial stability of China and sovereign credit ratings of the world’s largest players have all increased with time. So, while this metal has a value through its function as a safe haven by acting as an alternative to fiat currency; it could be considered too expensive and volatile to reliably play the role of a clear hedge. Looking at speculative interest, the COT report revealed speculators increased their long exposure on the COMEX by 822 contracts on to a net 208,194 contacts. At the same time, the delayed volume data on the active futures contract shows the highest level of activity, at a turnover of 236,000 contracts, since the February 5th plunge and reversal. We will see what leading fundamental driver takes precedence in the near future as the market finds its course for risk appetite.

Spot Silver  -  $17.08   //  -$0.10  //  -0.58%

Where other commodities would put in for a relatively active day Friday (compared to recent history); silver would exhibit little progress or volatility. Once again, we are presented with a clear reflection of the primary catalysts for this precious metal. As a speculative instrument, the lack of activity on the Dow Jones Industrial Average (our standard-bearer for risk appetite) gave little impetus for this commodity to stray in otherwise quiet markets. However, the permanent link to the US dollar would offer a modest increase in volatility, though direction would not match what EURUSD would suggest. For speculative interest, futures volume rose to its highest level in three weeks on turnover of 47,681 contracts Wednesday. Furthermore, the COT numbers showed a 4,107-contract increase in the net speculative long balance to a 35,165 total.

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

•    Reuters/University of Michigan Consumer Confidence Unexpectedly Declines in March
•    Retail Sales Surprisingly Rose in February Despite Winter Storms
•    Commodities Trade Lower Despite Dollar Index Closing Below 80 Level

U.S. stocks were generally lower today as a surprisingly weak consumer confidence report overshadowed February gains in retail sales.  The broad S&P 500 Index ticked lower by a quarter-point for the day, but still closed 1 percent higher for the week.  Initially, stocks appeared headed for another strong day following a pre-market Commerce Department report that showed retail sales rose 0.3 percent in February despite poor weather conditions during the month.  The release was considerably than the consensus of a 0.2 percent decline in sales and the S&P traded above 1153 within the first thirty minutes of trading.  Sentiment was quickly dampened, however, following an unexpected drop in the Reuters/University of Michigan Confidence gauge for March.  The S&P fell below 1147 following the release, and was never able to recover its initial gains.  On the commodities front, crude oil dropped over 1 percent to close at $81.24 a barrel on the NYMEX, while gold and silver futures fell to $1101 and $17.04 respectively.  Surprisingly, a strong greenback did not coincide with today’s weakness in commodities as the U.S. Dollar Index closed below 80 for the first time since March 3.  The Dollar fell against a basket of its major cross currencies for the third consecutive session.

DJIA 30                     10,624.69                      +12.85                       +0.12%
The Dow Jones Industrial Average posted the only gain among major U.S. indices, closing at its highest level since January 19.  General Electric was the strongest performer on the index, adding 3.4 percent following the better-than-expected retail sales report for February.  Caterpillar also posted a strong gain of 2.4 percent as general investor continued to improve for “blue chip” stocks.  The worst performer among the Dow’s 30 stocks was Bank of America, as the bank’s shares fell 1.6 percent on general weakness in the financial sector.  BofA’s shares still closed the week in the black, however, gaining 0.9 percent.

S&P 500                       1,149.99                           -0.25                       -0.02%
The broad-based S&P 500 traded slightly lower for the day on weakness in utilities and health care shares.  NRG Energy was the worst performing utility, dropping over 3 percent following a downgrade on the firm’s shares from “buy” to “neutral” from analysts at Bank of America.  PPL Corporation furthered the decline in utilities, falling over 2.5 percent, while Entergy and Constellation fell 1.9 percent each.  Health care shares traded lower as Pfizer said that trials failed for a new breast cancer drug.  Pfizer shares fell 1.2 percent on the day and have now dropped over 16 percent since January 20.

NASDAQ                     2,367.66                         -0.80                     -0.03%
Shares on the tech-heavy Nasdaq fell for the first time this week as technology stocks ticked lower by 0.04 percent.  Yahoo! had the worst day among the largest weighted ten tech stocks on the index, as shares of the search engine dropped over 1.2 percent.  A Benchmark Company analyst downgraded the search giant from “buy” to “hold”, citing issues like better-scaled competitors gaining larger share of the internet search market.

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

• Japan’s Industrial Production Rises for 11^th Straight Month
• Hong Kong Producer Prices Extend Three Month Decline

Stocks in Asia/Pacific were mixed on Friday amid speculation that Japan’s central bank will add additional funds to the financial system, while the Hang Seng tipped lower on speculation China’s government will tighten policy later this year. Taking a look at the economic docket, industrial production in Japan soared 18.5% in January, with the reading rising for the eleventh consecutive month, while Prime Minister Hatoyama stated that the government must take “firm measures” to keep the rising yen from hurting the economy. In addition producer prices in Hong Kong retreated 0.3% in the fourth-quarter after contracting 2.0% during the previous three-month period, while industrial outputs slipped at an annual pace of 4.9% during the same period after weakening 8.6% in the third quarter.

Nikkei 225                          10,751.26

Stocks in Japan extended yesterday’s advance, leading the Nikkei 225 to advance 86.31 points (0.81%) on Friday and close at 10,751.26. Nine out of the ten components pushed higher on the day, with basic materials leading the way, climbing 1.42%, while oil & gas slid 0.18%. Shares of Fuji Heavy Industries added 4.08% as Mitsubishi UFJ rated the company’s stock “strong outperform,” while Isuzu Motors surged 3.96% as the truck makers was rated “outer perform” by Mitsubishi. In addition, Kobe Steel pushed 2.81% higher on the back of higher metal prices, while Mitsui Chemicals retreated 1.47% as the company looks to shut down an ethylene plant in Chiba on February 28^th, which may have cost the company about 3 billion yen.

Hang Seng                        21,209.74

The Hong Kong equity market halted its five-day advance, with the benchmark equity index shedding 18.46 points (0.09%) and closing at 21,209.74. Six out of the nine components tumbled on the day, with consumer goods falling1.74%, which was followed by a 1.15% decline in technology.  Shares of Henderson Land Development pushed 2.72% higher as Sun Hung Kai Chairwoman expects the expansion in the housing market to continue for another year, while CNOOC increased 0.78% as the company, along with Total SA are expected to split a two-third stake in Tullow Oil Plc’s. Moreover, PetroChina rose 0.54% on the back of higher energy prices, while Bank of China climbed 0.25% as the nation’s best-performing primary-market debt fund stated that China’s Yuan bonds will return as much as 6% this year.

S&P/ASX 200 Index           4,818.10

Shares in Australia pared yesterday’s decline, leading the S&P/ASX 200 to rise 3.90 points (0.08%) and close at 4,818.10. Three out of the ten components rose on the day, with oil & gas leading the way, climbing 0.71%, while technology slid 1.08% to taper the advance.  Shares of Woodside Petroleum added 0.31% as crude-oil futures in New York rose 0.1%, while CuDeco soared 5.80% as the company is in “wide-ranging” talks with Xiangguang Copper and Sinosteel Group over its Rocklands project. At the same time, Alesco soared 3.29% as the company was raised from “sell” to “hold,” while Newcrest Mining gained 0.91% on the back of higher commodity prices.

Notable Asian Session Event Risk / Economic Releases

Crude Oil (LS NYMEX) -  $81.85   //  $0.36  //  0.44%

Risk appetite, macro data and supply-and-demand statistics seemed to align for bullish crude traders. Yet despite begin given the fundamental green light (and notably still backed by impressive buying momentum over the past month), the active crude futures contract on the NYMEX was forced to retrace its morning thrust to a fresh, eight-week high just above $83. Whether using a fundamental, technical, sentiment or hedge-based trading approach, every active market participant is conscious of the $84 swing high set back on January 11th and its status as a 16-month high for the market. Surpassing this level could easily banish uncertainty and encourage sidelined investment; but truly extending a bull trend for this commodity will require a broad improvement in investor sentiment and a clear shift in production and consumption fundamentals. As for sentiment, the dollar was lower and equities were modestly higher; but it was obvious that the sparks of risk appetite are not catching. Whether a turn in the markets itself or a prominent economic catalyst is responsible for the inevitable restoration of speculative interest remains to be seen.

For actual drive, today’s fundamentals offered the better source of momentum – though this wouldn’t actually pan out as one would expect. Through the morning, the top headline was the report from China that its exports had surged 46 percent – suggesting global activity was accelerating and economies would require fuel to keep the expansion in place. During the European hours, there were two conflicting reports. Germany reported its crude reserves were 20 percent larger than initially estimated due to deposits reported in the Upper Rhine region. Counteracting this potential supply boost from Europe’s largest economy, OPEC raised its global consumption expectations for the year and upgraded its output projections by 190,000 barrels to 28.94 million barrels per day. Come the active US trading session, traders had hoped that the US Department of Energy inventory figures would be able to break the offsetting nature of the early data. Following the yesterday’s 6.5 million barrel increase from the API report, expectations were probably set higher for the DoE account than the 2.0 million rise expected. In fact, the 1.432 million barrel pickup through March 5th was smaller than expected; and there was a notable 3.181 million barrel and 2.796 million barrel contraction in gasoline and distillate inventories respectively. Furthermore, total fuel consumption rose 0.2 percent to an August high 19.7 million barrels. Nevertheless, with this weekly increase, we have see the longest period of expansion in crude holdings since May and the highest overall stockpiles at 353 million barrels since August.

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

Spot Gold  -  $1,107.66   //  -$14.19 //  -1.26%

It seemed a dichotomy in nature. The US dollar was on the retreat and China reported remarkable levels of inflation; and yet, gold would tumble on the day. In fact, the commodity was little changed through most of the session; but there was a remarkable swing during the early trading hours of the US session that measured 2.7 percent in a mere two hours. This jump in activity notably pushed the market to lows not seen in over a week and ultimately broke a loose but untested rising channel for the past month.  For fundamental encouragement, the precious metal had a few contradictory dynamics to account for. Running astray of the commodity’s role as a dollar hedge, the decline in the US dollar through much of the day ultimately roused little impetus for price action. Furthermore, the currency’s penchant for playing safe haven seems to fit the assurances of former EU Commission President Prodi who suggested the Greece crisis had passed and other European economies would not follow in its path. However, there are two inconsistencies here. First, Prodi is no longer standing President; so he is entitled to black-and-white assessments; and gold itself has recently taken on a value of safe haven asset due to its value as an alternative to fiat currency with sovereign debt risk as inflated as it is. In the end, neither risk appetite nor credit stability were particularly strong; and long-standing concerns are still certainly engrained. Another questionable driver was China’s report of inflation. The government reported home prices grew at their fastest pace in nearly two years in recent data. This would seemingly support a demand for gold as an inflation hedge; but the implications this price growth has for an asset bubble and instability in the Chinese economy more than compensates for the bullish sentiment that can be derived from this data.

Spot Silver  -  $16.98   //  -$0.28  //  -1.62%

Just as surely as the dollar would retrace its gains yesterday, the currency would recover much of its losses today. In the end, this would leave highly-sensitive silver with a mute, dominant fundamental driver. From speculative readings, equities and other key markets were slowly building in favor of growth-linked performance. Nonetheless, this precious metal would take its cues from gold and close its worst daily performance in two weeks. Looking at speculative demand, iShares (the largest ETF backed by silver) reported its holdings were unchanged at 9,351 tons following two sales of 61 tons a piece over the past week.

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

•    Government Officials Struggle to  Put Together Health Care, Financial Reforms
•    Initial Jobless Claims and Continuing Claims Higher Than Expected
•    Commodities Post Slight Gains on Dollar Weakness

U.S. stocks rallied into market close today, as investor concerns were eased regarding health care reconciliation and financial regulatory reforms.  The late surge for equities helped push the S&P over the 1,150 level, the highest close for the index since 2008.  Initially, stocks traded lower on the open following a disappointing jobless claims report one hour before market open.  The Labor Department said that initial jobless claims fell to 462,000 last week versus 460,000 expected, and continuing claims unexpectedly rose over 4.55 million.  The news caused the S&P 500 index to dip under 1,139 off the open, before finding its footing and posting a strong rally into market close.  Financial shares led the ascent, as investors seemed more confident that financial regulation would struggle to pass and was unlikely to suffocate future bank profits as some feared the proposed “Volcker Rule” might have.  Senate Banking Committee Chairman Christopher Dodd announced that he will release his version of the regulation without bipartisan support, as talks with Republican Bob Corker have collapsed in recent days.  Following financial shares higher today was the health care sector, which gained nearly 0.5 percent on the S&P.  Investors speculate that health-care reform will be difficult to pass and that has taken some of the uncertainty out of the health care market, according to sector analysts.  Overall, investors continued to seek riskier assets, driving stocks and commodities higher on the session.  Crude oil closed above $82 a barrel, while gold and silver future contracts closed at $1108 and $17.16 respectively.  The U.S. Dollar Index fell for a third time in the last five trading days but held above the 80 level.

DJIA 30                     10,611.84                      +44.51                       +0.42%
The Dow Jones Industrial Average posted the strongest performance among the major U.S. indices led by 1 percent gains for IBM, Disney, Travelers, and Home Depot.  Disney had posted strong gains this week thanks to a strong opening weekend for the company’s newest hit film, “Alice in Wonderland.”  Today, the entertainment giant announced an agreement that gives Starz Entertainment exclusive licensing for Disney movies through 2015.  Overall, the thirty Dow stocks have gained collectively in eight of the past ten trading days, and the index is inching closer to its 2010 high close of 10725 on January 19.

S&P 500                       1,150.24                           +4.63                       +0.40%
The broad-based S&P 500 traded to a 17-month high on strength in health care and financial shares.  Financial shares gained nearly 1 percent led by a strong 5.5 percent gain for Citigroup following bullish commentary from Chief Executive Officer Vikram Pandit.  Pandit said that the bank should be consistently profitable and he “wouldn’t be surprised” if the government decided to sell its 27 percent state in the firm.  Furthering gains for the S&P index was the health care sector, which added nearly half of one percent as Coventry Health, Aetna, and Davita added 3 percent each.

NASDAQ                     2,368.46                         +9.51                     +0.40%
Shares on the tech-heavy Nasdaq gained for a sixth day as technology were generally higher on the day.  Blackberry maker Research in Motion posted the strongest gain among the ten largest tech stocks on the index, adding 1.2 percent.  Oracle also had a strong day, gaining over 1 percent as CEO Larry Ellison was announced to be the sixth richest billionaire this year.

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

• Australian Employers Add Fewest Jobs in Six Months
• Japan’s GDP Expands Less Than First Estimated
• Lending in China Tops Forecast

Stocks in Asia tipped higher on Thursday as market participant held an improved outlook for global growth, while the ASX 200 bucked the trend as employment in the $1T economy rose the least in six months. Meanwhile, the economic docket in Japan showed that the economy expanded less than previously forecasted in the fourth quarter as companies scaled back on spending, while Australia’s labor market added 0.4K jobs in February, which fell short of expectations for a 15.0K rise. At the same time, consumer prices in China increased to an annual pace of 2.7% in February, with producer prices jumping to 10.3% to top forecasts for a n 8.5% rise, while retail spending surged 22.1% from the previous year. Moreover, industrial outputs increased 12.8%, with fixed investments advancing 26.6%, while new Yuan loans jumped 700.1B from January.

Nikkei 225                          10,664.95

Stocks in Japan pared yesterday’s decline, leading the Nikkei 225 to rally 101.03 points (0.96%) on Thursday and close at 10,664.95. Nine out of the ten components pushed higher on the day, with financials leading the way, climbing 1.70%, while oil & gas slid 0.55% to taper the advance. Shares of Mitsui & Co. added 2.73% subsequent to the Nikkei newspaper stating that Vale SA is aiming to increase prices of iron ore by 90%, while Okuma leapt 5.83% after Japan Machine Tool Builders’ Association announced orders amounted to 64.8 billion yen in February. At the same time, Shinsei Bank sank 3.85% as the lender may abandon its merger with Aozora Bank and instead sell shares to raise 75 billion yen, while Sumitomo Heavy soared 4.80% amid MF Global placing a “buy” rating on the stock.

Hang Seng                        21,228.20

The Hong Kong equity market advanced on Thursday for the fifth successive session, leading the benchmark equity index to climb 19.91 points (0.96%) and close at 21,228.20. Five out of the nine components rallied on the day, with consumer goods climbing 3.07%, while basic materials lost 0.63%. Shares of Cathay Pacific Airways added 1.84% as Redford Assets rated the company a new “buy,” while China Mobile tipped 1.62% higher as China’s banking regulator remained “supportive” of the firm’s acquisition of a 20% stake in Shanghai Pudong Development Bank.  Moreover, New World Development dropped 1.05% as the company sold new apartments at The Masterpiece project it co-developed with the government to VIP clients before making them available to the public, while Aluminum Corp of China slid 0.86% on the back of lower metal prices.

S&P/ASX 200 Index           4,814.20

Shares in Australia extended yesterday’s decline, leading the S&P/ASX 200 to retreat 5.80 points (0.12%) and close at 4,814.20. Seven out of the ten components declined on the day, with technology leading the way, losing 1.93%, and was followed by a 0.62% decline in industrials. Shares of BHP Billiton slipped 0.53%on the back of lower energy prices, while Lihir Gold, Australia’s second largest gold producer sank 2.68% as the company, along with Equigold agreed to a $1.1 billion merger. At the same time, Fortescue Metals soared 2.07% as ING Groep NV expects annual contract prices for Australian iron ore to rise 80%, while Leighton Holdings added 1.67% after its Asia unit won a A$463 million contract to build a section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link.

Notable Asian Session Event Risk / Economic Releases

The Dow gains have been slowed by resistance at 10,586- 61.8% Fibo extension of 13,136-6,460. The technical level could prove formidable considering it is the golden ratio of a major decline. Downside risk are to 10,400 where we find trendline support, a break above exposes 10,750 followed by 11,000.

The S&P 500 like the Dow has broke from its short-term wedge but is facing resistance at 1,144-61.8% Fibo of 1,440-665. A break above exposes 1,175, with downside risks to 1,100.

The NASDAQ continues to set fresh yearly highs and continues to be the outperformer of the U.S. indices. However, this could make it more susceptible to a bout of risk aversion.  Possible trend line resistance at 2,415 could slow current momentum with psychological resistance at 2,400 in the way as well. The next major barrier is the August 15, 2008 high of 2,473 which could be tested before any major retracement.

Oil May Finally Break Support Amid Chinese Tightening Fears

Crude Oil (WTI)       $81.58       -$0.51 -0.62%
Prices remain wedged between resistance at $82.23 and a rising trend line established from the bottom in early February. The percent-change correlation between the WTI contract and the MSCI World Stock Index remains significant at 0.78, reflecting the strong influence of risk sentiment. Trading is mixed on European exchanges but US index futures are trading lower, pointing to a “risk off” day on Wall Street. China’s inflation figures look to be the catalyst for selling after a report showed that Consumer Prices rose 2.7 percent in the year to February, putting the annual inflation rate at a 16-month high and sparking fears that Beijing will step up efforts to clamp down on credit growth. Chine is the world’s second-largest crude consumer, so a material slow-down there would bode quite ill for prices. A break lower exposes $77.53. Weekly US Jobless Claims and Trade Balance figures headline the economic calendar going forward.

Commodities – Metals

Gold, Silver Likely to Extend Losses on US Yield Outlook

Gold       $1107.45 -$0.96 -0.09%
Gold prices have taken out support at a rising trend line established from February’s swing low, with continued selling to see barriers emerging at the $1100 figure. Firming US yield expectations continue to weigh on prices. Curiously, gold seems to be developing a firming inverse correlation with the spread between yields on 3-year and 2-year US Treasuries, potentially hinting the market expects the jump in borrowing costs from financing the massive US deficit to filter through somewhere between 2012-13. A Credit Suisse gauge tracking the priced-in outlook for Fed rate hikes over the next 12 months has also jumped by just over 2 basis points for the second consecutive day, suggesting the yellow metal may remain under pressure.

Silver $16.96 -$0.06 -0.37%
As yesterday, the outlook for silver is largely in line with its more expensive counterpart as traders push inflation-hedge assets lower amid firming US yield expectations. Prices dropped to support at $16.86, with a break beyond this boundary exposing $16.31.

North American Commodity Update

Commodities – Energy

Risk Appetite and Data Support Crudes Surge to New Highs Yet Conviction Does Not Hold

Crude Oil (LS NYMEX) –  $81.85   //  $0.36  //  0.44%

Risk appetite, macro data and supply-and-demand statistics seemed to align for bullish crude traders. Yet despite begin given the fundamental green light (and notably still backed by impressive buying momentum over the past month), the active crude futures contract on the NYMEX was forced to retrace its morning thrust to a fresh, eight-week high just above $83. Whether using a fundamental, technical, sentiment or hedge-based trading approach, every active market participant is conscious of the $84 swing high set back on January 11th and its status as a 16-month high for the market. Surpassing this level could easily banish uncertainty and encourage sidelined investment; but truly extending a bull trend for this commodity will require a broad improvement in investor sentiment and a clear shift in production and consumption fundamentals. As for sentiment, the dollar was lower and equities were modestly higher; but it was obvious that the sparks of risk appetite are not catching. Whether a turn in the markets itself or a prominent economic catalyst is responsible for the inevitable restoration of speculative interest remains to be seen.

For actual drive, today’s fundamentals offered the better source of momentum – though this wouldn’t actually pan out as one would expect. Through the morning, the top headline was the report from China that its exports had surged 46 percent – suggesting global activity was accelerating and economies would require fuel to keep the expansion in place. During the European hours, there were two conflicting reports. Germany reported its crude reserves were 20 percent larger than initially estimated due to deposits reported in the Upper Rhine region. Counteracting this potential supply boost from Europe’s largest economy, OPEC raised its global consumption expectations for the year and upgraded its output projections by 190,000 barrels to 28.94 million barrels per day. Come the active US trading session, traders had hoped that the US Department of Energy inventory figures would be able to break the offsetting nature of the early data. Following the yesterday’s 6.5 million barrel increase from the API report, expectations were probably set higher for the DoE account than the 2.0 million rise expected. In fact, the 1.432 million barrel pickup through March 5th was smaller than expected; and there was a notable 3.181 million barrel and 2.796 million barrel contraction in gasoline and distillate inventories respectively. Furthermore, total fuel consumption rose 0.2 percent to an August high 19.7 million barrels. Nevertheless, with this weekly increase, we have see the longest period of expansion in crude holdings since May and the highest overall stockpiles at 353 million barrels since August.

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

Commodities – Metals

The Dollar Drops and Chinese Inflation Accelerates while Gold Tumbles

Spot Gold  -  $1,107.66   //  -$14.19 //  -1.26%

It seemed a dichotomy in nature. The US dollar was on the retreat and China reported remarkable levels of inflation; and yet, gold would tumble on the day. In fact, the commodity was little changed through most of the session; but there was a remarkable swing during the early trading hours of the US session that measured 2.7 percent in a mere two hours. This jump in activity notably pushed the market to lows not seen in over a week and ultimately broke a loose but untested rising channel for the past month.  For fundamental encouragement, the precious metal had a few contradictory dynamics to account for. Running astray of the commodity’s role as a dollar hedge, the decline in the US dollar through much of the day ultimately roused little impetus for price action. Furthermore, the currency’s penchant for playing safe haven seems to fit the assurances of former EU Commission President Prodi who suggested the Greece crisis had passed and other European economies would not follow in its path. However, there are two inconsistencies here. First, Prodi is no longer standing President; so he is entitled to black-and-white assessments; and gold itself has recently taken on a value of safe haven asset due to its value as an alternative to fiat currency with sovereign debt risk as inflated as it is. In the end, neither risk appetite nor credit stability were particularly strong; and long-standing concerns are still certainly engrained. Another questionable driver was China’s report of inflation. The government reported home prices grew at their fastest pace in nearly two years in recent data. This would seemingly support a demand for gold as an inflation hedge; but the implications this price growth has for an asset bubble and instability in the Chinese economy more than compensates for the bullish sentiment that can be derived from this data.

Spot Silver  -  $16.98   //  -$0.28  //  -1.62%

Just as surely as the dollar would retrace its gains yesterday, the currency would recover much of its losses today. In the end, this would leave highly-sensitive silver with a mute, dominant fundamental driver. From speculative readings, equities and other key markets were slowly building in favor of growth-linked performance. Nonetheless, this precious metal would take its cues from gold and close its worst daily performance in two weeks. Looking at speculative demand, iShares (the largest ETF backed by silver) reported its holdings were unchanged at 9,351 tons following two sales of 61 tons a piece over the past week.

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Written by John Kicklighter, Strategist

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