crude oil

U.S. Stocks Rise on Better-Than-Expected Non-Farm Payrolls

U.S. Session Key Developments

Labor Department Reports Payrolls Dropped By 36,000 in February

Consumer Credit Unexpectedly Rises in January

Investors Sell Off US Dollar, Crude Gains 2 Percent

U.S. Equities are on track to test January highs after a better-than-expected non-farm payrolls report sent stocks higher.  The Labor Department reported that payrolls dropped by 36,000 in February, compared with a decrease of 68,000 estimated in a Bloomberg survey.  Economists had expected that the severe weather had kept job hunters at home and kept businesses from hiring.  The report showed that 1 million Americans said bad weather prevented them from getting to work during the survey week.  Nonetheless, the unemployment rate held at 9.7 percent in the face of all the snow, suggesting that March could see the first significant rise in payrolls.  On the other hand, the underemployment rate – which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking – rose to 16.8 percent from 16.5 percent.  Gains in employment are pivotal to a sustainable economic recovery.  The greenback faltered despite the employment surprise due to its “safe-haven” status.  The dollar index finished the session at 80.44, 0.2 percent lower from yesterday’s close.  The dollar was lower against all G7 currencies except the Japanese Yen, which fell 1.4 percent to 90.29 against the dollar.  Commodities gained on the dollar’s weakness and the newfound confidence in the strength of the economic recovery.  The CRB Commodity Index was up 0.8 percent at the end of the session.  Crude oil provided major strength, gaining 2.0 percent to $82.09.

DJIA 30                  10,566.20                    +122.06                       +1.17%
The Dow Jones Industrial Average closed the first week of March back in the black for 2010 and on the verge of testing its January 19 high of 10725.  Overall, only two components of the index declined in today’s session as shares of Boeing and American Express paced all advancing issues.  Both companies advanced at least 3.4 percent and contributed a combined 28 points to the Dow’s advance.  Alcoa was the third best performer as metal prices gained 0.7 percent in today’s commodity rally.  Alcoa closed up 3.1 percent.

S&P 500                     1,138.70                      +15.73                         +1.40%
The Standard and Poor’s 500 Index gained for the sixth consecutive trading day.  All industry groups were in the black as 19 out of 20 components advanced overall.  All 82 Financial issues were higher today as the group gained 2.0 percent to lead all sectors.  Bank lending to consumers unexpectedly increased in January for the first time in a year.  Consumer credit rose by $5.0 billion compared to the $4.5 billion drop anticipated by economists surveyed by Bloomberg.  American International Group was the best performer among financial companies.  The bailed-out insurer rose 5.1 percent after it announced it would sell its remaining stake in Transatlantic Holdings, valued at close to $500 million.

NASDAQ                   2,326.35                      +34.04                         +1.48%
The tech heavy Nasdaq Composite was the best performer among the three main U.S. equity indices.  Basic materials stocks led all industry groups higher, gaining 2.65 percent amid major gains in commodity prices.  Technology shares, which hold the most weight by far, gained 1.3 percent.  Apple contributed the most to the sector’s advance.  The maker of iPods gained 3.9 percent to close at $218.99.  The company climbed to a record intraday price of $219.70 after they announced they would start selling the iPad in the U.S. on April 3 and will take preorders next week.

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

crude oil

U.S. Equities Trim Weekly Loss On Fourth Quarter GDP Revision

U.S. Session Key Developments

•    U.S. Fourth Quarter GDP Revised Higher to 5.9 Percent, Personal Consumption Lower
•    Existing-Home Sales Drop in January, Chicago Business Gauge Better-Than-Expected
•    Commodities Trade Higher as Greenback Falls Against Major Cross Currencies

U.S. stocks posted a slight gain in the final day of trading this week, as estimates for fourth quarter economic growth were shown to be higher than previously thought.  Despite today’s gain, however, the S&P 500 closed the week down 0.4 percent to 1,104.  The market-moving GDP revision was announced one hour before the opening bell and showed that the U.S. economy expanded 5.9 percent in the fourth quarter of 2009, better than the 5.7 percent initial estimate.  The GDP data was revised higher thanks to stronger business investment in the quarter and a greater contribution from inventories.  The personal consumption aspect, however, was revised lower to 1.7 percent from a 2.0 percent initial reading.  Overall, stocks traded mostly sideways during the session as other economic data released today was mixed.  The Chicago Purchasing Managers Index unexpectedly rose from 61.5 to 62.6 in February, but the University of Michigan Confidence indicator fell in the month and existing home sales disappointed for January.  Home sales were expected to rise 0.9 percent in January but instead were shown to have fallen 7.2 percent, after declining 16.2 percent in the month prior.

Globally, stocks had a strong day as the major European indices and China’s Hang Seng Index each traded at least 1 percent higher.  Investor risk appetite made a strong return as commodities joined stocks in trading higher across the board.  Crude oil prices gained for the third time this week, adding nearly 2 percent to $79 a barrel, while gold futures posted a second consecutive gain and closed the week near the $1120 level.  As for currencies, the U.S. Dollar was generally weak, falling against most of its major counterparts, including the euro.  The U.S. Dollar Index fell for a third consecutive day, but held above the 80 level for a seventh consecutive session.

DJIA 30                     10,325.26                      +4.23                       +0.04%
The Dow Jones Industrial Average closed slightly above even on a low-volume trading day.  Volume on U.S. exchanges today was slightly under 8 billion shares, 11 percent less than the 2010 average due to a snow storm in New York City and the surrounding area.  JPMorgan Chase led the index with a 3.2 percent gain after analysts at Barclays recommended buying the bank’s shares.  The bullish commentary led to a near full percent gain among financial shares.  Other stocks that outperformed the index included General Electric and drug maker Merck, which each added 0.8 percent on the day.  The worst performer on the index was Kraft Foods, which fell over 1.3 percent on the day.

S&P 500                     1,104.49                         +1.55                         +0.14%
The broad-based S&P 500 posted a small gain in the final day of trading this week on strength in financials and basic materials shares.  Financials rose nearly 0.7 percent on bullish commentary from Barclays analysts as well as commentary from Fed Chairman Ben Bernanke in the past two days that suggested rates would remain low for the foreseeable future.  The basic materials sector added 0.3 percent today, as commodities generally traded higher during the session.  Mining company Freeport McMoRan gained over 1 percent, while Barrick Gold Corp. added 0.2 percent on higher precious metals prices.  On the downside, AIG fell 10 percent for the biggest loss  on the index after posting a fourth-quarter net loss of $8.8 billion.

NASDAQ                     2,238.26                         +4.04                         +0.18%
The tech-heavy Nasdaq was the best performer among major U.S. indices as technology stocks posted a slight gain.  Among the heaviest-weighted fifteen tech stocks on the index, smart phone competitors Research in Motion and Apple posted the largest gains.  Shares of each company rose at least 1.2 percent as shares of Palm, another smart phone competitor, sank on news that company sales may be very weak this year.  Qualcomm was the worst performer among the large Nasdaq tech stocks, dropping 1.3 percent on the session.

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

crude oil

Oil, Gold Threatened as Greece Sinks Risky Assets

Commodities – Energy

Oil Prices Threaten Support as Greek Downgrade Threat Sinks Risky Assets

Crude Oil (WTI)        $79.53       -$0.47       -0.59%
Technical positioning is essentially unchanged from yesterday: prices at the bottom of a rising channel set from the swing low established earlier this month (now at $79.17), with a break lower exposing horizontal support at $77.53 and ultimately the $76 figure. The push lower may be catalyzed as risky aversion makes a comeback in the wake of comments from ratings powerhouse Standard & Poor’s, who said that they may downgrade Greece again by the end of March. This comes on the heels of yesterday’s downgrade of Greece’s four top banks by Moody’s. The issue has also been compounded by comments from Greek Deputy PM Theodoros Pangalos, who told the BBC that Germany has no right to criticize his country after devastating it under the Nazi occupation, adding that the current crop of EU leaders are of “very poor quality” and unfit to manage Europe’s fortunes. Such outbursts will make it all the more difficult for Western Europe to sell a Greek bailout to its electorates, who are already upset with the idea of spending their tax money to finance southern Europe’s spendthrift policies, making the likelihood that the troubled region is left to its own devices significantly more likely. The prospect of a sovereign default with the Euro Zone has sent investors fleeing out of risky assets, with stocks broadly lower in Asia as well as opening in the red in Europe. US equity index futures are likewise in the red, hinting that oil may mount a push lower considering the near-term percent change correlation between crude and the MSCI World Stock Index stands at a firm 0.91. January’s US Durable Goods Orders and weekly Jobless Claims figures headline the economic calendar.

Commodities – Metals

Gold, Silver to Extend Losses as Risky Aversion Gains Momentum

Gold       $1091.90       -$5.85        -0.53%
Prices have taken out range support at $1101.16, with the door now open for a move to resistance-turned-support at the top of a falling channel established from January’s swing high (now at $1073.21). As with oil, the turmoil in Greece promises to encourage further losses as the near-term percent change correlation between the yellow metal and the MSCI World Stock Index remains significant at 0.75.

Silver       $15.75       -$0.22       -1.39%
Technical positioning is unchanged from yesterday: are trading sideways above horizontal support at $15.68, with near-term resistance at the bottom of a previously broken rising channel set from the swing low set earlier this month. The correlation between the cheaper precious metal and the MSCI World Stock Index matches that of its more expensive counterpart at 0.75, suggesting bearish momentum is set to resume. A break past current support exposes considerable downside potential toward the $15.00 figure.

crude oil

Iran Sanctions Move to the Forefront for Crude Traders as Sentiment Trends Cool

North American Commodity Update

Commodities – Energy

Iran Sanctions Move to the Forefront for Crude Traders as Sentiment Trends Cool

Crude Oil (LS NYMEX) -  $80.00  //  -$0.06 //  -0.07%

Looking across the various markets Monday, it was clear that speculative interests were relatively subdued. This alludes to the presence of big-ticket fundamental concerns (the potential Greece default and steady withdrawal of government stimulus) that are both preventing another build up in speculative positions and found investors seeking out further developments in these matters that could define the future trading environment. For crude, the lack of underlying risk appetite would dry up momentum behind the commodity’s impressive advance of the past two weeks. On the day, oil prices were relatively unchanged; but there was notable discrepancy between the intraday price action of the March and April futures contracts on the NYMEX as the market rolled over for the former’s expiration. Taking a broader view of speculative interest, the CFTC’s Commitment of Traders numbers revealed net speculative long positions for the benchmark crude contract jumped 63 percent in the week through the 16th; though the total only represented 5.3 percent of total open interest.

From speculative interests to supply-and-demand considerations; the docket for scheduled and unscheduled event risk was relatively light. For macro economic data, the US Chicago Federal Reserve National Activity Index reported only the second ‘above trend’ growth reading in nearly three years. The outlook for the world’s largest economy is brightening; but the struggles for employment and business investment are notable hurdles to a true recovery in activity and thereby energy demand. What’s more, with emerging markets seeing export demand drying up and some nations (China) forcibly slowing the economies; the forecast for global crude consumption is discouraging. This very assessment was formed by the Centre for Global Energy Studies – headed by a former Saudi Arabian oil minister – when they projected that oil prices will struggle to hold above $80 this year. Among the other headlines that oil traders are keeping track of are the French strikes and political spat between Iran and the rest of the world. A refinery strike at Total in France is entering its sixth day. A large union is calling for additional strikes at other major firms. In the Middle East, Iran is coming under pressure from the US for its plans to build two new uranium enrichment plants. Both of these issues are still developing; but their scale for influence on true supply and demand is relatively constrained. Looking ahead to the forthcoming inventory reports, Bloomberg’s survey has tallied a forecast for a 1.95 million barrel increase in stockpiles. If this increase is released, it would be the longest period of gains in nearly nine months.

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

Commodities – Metals

Little Movement in the Dollar and Risk Appetite Leads to the Same for Gold

Spot Gold  -  $1,114.00  //  -$5.20 //  -0.46%

With neither risk trends nor the US dollar developing significant headway Monday, gold would find no fundamental leverage to resolve the technical congestion that has developed over the past week. Spot gold has carved a steady bullish channel since the February 5th reversal; but restrained momentum has prevent the market from moving beyond $1,225. Like currency or equity traders, those in the gold market are looking for the larger fundamental trends to develop headway. The European Union’s management of Greece’s financial troubles has been woefully disappointing; yet cautious investors are hesitant to label this the next financial crisis. The same is true about the steady and widespread withdrawal of government stimulus – a vital element to the global financial market recovery last year. While neither threat has produced any positive or negative developments; the market’s mere appreciation of these dangers reflects a state of uncertainty. In other news, the World Gold Council opined that China wasn’t a “realistic candidate” to buy the remaining portion of the IMF’s gold inventory that it plans to sell (approximately 191 tons). This contradicts the assessment of other notable analysts who say China’s efforts to diversify away from the US dollar will lead to large purchases. Currently, the world’s second largest economy is struggling to prevent the popping of a significant asset bubble. A move into risk-sensitive gold seems an unattractive move at the metal’s already high prices; but a concentrated exposure to US policy and markets is a problem in its own right.

Spot Silver  -  $16.23 //  -$0.09 //  -0.55%

Silver would advance intraday to its highest level in nearly three weeks Monday morning; but the metal would struggle to hold onto its gains as the US dollar and Dow maintained tight ranges for the day. Looking at market tangibles, volume on the active contract extended its steady decline over the past week – a trend that roughly extends back to the beginning of the current bull trend. Furthermore, open interest has tumbled to its lowest level since November 12th – though it is difficult to establish how much of this is due to the proximity of the February futures’ expiration (then again March is the far-more active contract).

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 oil

Oil Falls for the First Time in Five Days but Closes Friday Well of its Lows

North American Commodity Update

Commodities – Energy

Oil Falls for the First Time in Five Days but Closes Friday Well of its Lows

Crude Oil (LS NYMEX) -  $74.09  //  -$1.19 //  -1.58%

Oil’s steady, rising trend channel of the past week was brought to a close in the morning hours of Friday’s session. From Thursday’s high (set near the end of the day after the Greek bailout news filtered through the market), the active NYMEX futures contract fell as much as 4 percent before bulls stepped in pushed the market well off its lows. This aggressive move wasn’t formed in a vacuum however. The fundamental impetus for this significant drive was multi-faceted (a fact that could keep the market volatility into next week as well). For direction, traders would look at both risk appetite trends and underlying supply-and-demand factors. As for market-wide sentiment, there were still tremors surrounding the Greek bailout; but until the European Union offers details on the plan next week, this looming event will actually help to anchor trend development. However, this episode couldn’t keep the crude (nor any other speculative asset) stable in the face of another move to cool speculation in the market’s favorite place to invest – China. The People’s Bank of China announced it would lift the nation’s reserve requirement another 50 basis points starting February 25th. This is the second time in a month the policy authority raised the ratio, suggesting the group is growing increasingly desperate to cool inflation and avoid a potentially devastating asset bubble. Considering China is seen as the standout destination for growth and potential returns, their efforts to throw the breaks on the speculative trends are a moderating influence for the entire world.

From risk trends to fundamentals, there were significant indicators that would both bolster and undercut the outlook for supply-and-demand equilibrium. For oil traders, the US retail sales figures were perhaps the bright spot for an otherwise discouraging day for data. Delayed because of the snowed-in capital, the spending numbers would come out better than expected with a 0.5 percent increase through January. This would beat expectations and mark the third time in four months the series would climb – suggesting the American consumer (the world’s largest) was once again encouraging demand. However, this would prove the only tangible support fundamental traders would find on the day. Dimming the spending forecast, the University of Michigan consumer confidence survey would unexpectedly step back for its initial February reading. Far more influential though was the short-fall in the 4Q European GDP numbers. German (Europe’s largest economy) unexpectedly stalled in through the final months of the year while the broader Euro Zone expanded a tepid 0.1 percent over the three-month period. Considering Germany is largely dependent on manufacturing and exports, this is particularly discouraging for energy demand going forward. Turning from macro data to true market demand, today’s inventory and speculative positioning figures were very discouraging. The DoE reported US crude holdings jumped 2.42 million barrels last week to 331.4 million barrels to its highest level in two-months. Gasoline supplies jumped 2.32 percent to push holdings up to the highest level since March 14th of 2008. Taking a bead on speculative interest, net long positions among traders reportedly dropped 51 percent to 42,060 contracts according to today’s COT release.

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

Commodities – Metals

Gold Recovers Much of its Early Losses Thanks to an Anchored Dollar

Spot Gold  -  $1,090.80  //  -$4.60 //  -0.40%

Two of gold’s primary fundamental roles were in play Friday; and each would have a meaningful impact on price evolution. In the early trading hours of the Asian and European sessions, the commodity would tumble on news that China would take another definitive step towards cooling its markets. Raising the reserve ratio of the nation’s banks aimed at cooling the explosive loan growth in the nation; but it will also the effect of tempering growth and speculative turnover. Naturally, this move curbed an already fragile bounce in risk appetite that had developed after the EU confirmed it would rescue Greece yesterday. As a risky security, gold would shoulder this discouraging news and pullback from a notable, descending trend of lower highs that has developed since the market hit a record high in November. This aggressive run could have held through the end of the day; but another of the precious metal’s functions would step in and push it back towards its opening level. As a dollar hedge, the commodity is seeing another indirect connection to risk trends (as the greenback is one of the market’s favored safe haven currencies); but there are fundamental aspects for this benchmark that move beyond the realm of carry interest. After briefly testing a new seven-month high in the morning, the dollar would quickly retreat into the close of the day. Looking ahead to next week, the immediate concern for this commodity is the details to the Greek bailout. If it falls short, risk aversion can easily pick back up. It will be interesting to see though when/if gold can once again find its appeal as a safe haven asset. In the meantime, the COT report showed that speculative net long positions dropped 14 percent to 181,519 contracts in the week through February 9th.

Spot Silver  -  $15.49 //  -$0.17 //  -1.09%

A sharp turn in risk appetite would have a prominent effect on silver’s price action Friday. Through the morning, the transition from Greece bailout to China reserve ratio hike would send the speculation-sensitive commodity tumbling. However, a notable retracement in from the safe haven dollar through the active US trading hours would ensure no trend would develop before the week closes. Taking a look at price action over the entire week, this pair has carved a very clear and consistent rising trend channel. However, the gradient on the price action is gradual and has developed after a dramatic selloff over the preceding three weeks. From the CFTC’s positioning data, net speculative long interest dropped 24 percent to 23,365-contracts through this past Tuesday.

For real time news and analysis, please visit http://forexstream.dailyfx.com

Written by John Kicklighter, Strategist

Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

crude oil

Oil Supported by a Sharp Rebound in Risk Appetite on Speculation of a Greek Bailout

North American Commodity Update
Commodities – Energy

Oil Supported by a Sharp Rebound in Risk Appetite on Speculation of a Greek Bailout

Crude Oil (LS NYMEX) -  $73.87  //  $1.98 //  2.75%

A clear sign that risk appetite is still the dominant fundamental driver for crude traders, oil futures trading on the NYMEX exchange rallied mid-day in the New York trading session along with many other risk-sensitive securities on heightened speculation that Greece would be bailout by either the EU or Germany. Mimicking volatility in stocks and currencies, the active crude futures contract rallied as much as 3.5 percent and handily overtook the closely watched $72.50 level. Now, the market is hovering between the aforementioned pivot and the $75 figure that has similarly offered trouble for trend progression in the past. Where the market goes from here is almost certainly a question that will be decided by the resiliency of investor sentiment. The advance for the commodity today would come amid extraordinarily high levels of correlation between the different asset classes. This is an important distinction to make; because assigning responsibility for today’s oil advance to rumors surrounding a bailout for Greece would otherwise be too oblique to make sense. In the past month, the shift away from assets that depend on capital gains and volatility to financial safe havens has found a symbol of uncertainty in this single nation’s fiscal struggle. Naturally, evidence that suggests conditions will improve for Greece, will temper risk premium associated specifically with this isolated situation. However, that does not fundamentally alter the true source of market risk or even the broader perception of stability. Only time will tell whether optimism will truly recover or falter in its recent, temporary rebound.

From risk appetite to true supply/demand fundamentals, the pressure for a temporary rebound in crude is building up. Much of the Northeastern US is under a severe winter storm warning with significant snow accumulations expected for New York, Washington DC, Philadelphia and other major cities. Considering this region accounts for fourth-fifths of total natural gas demand in the United States; this storm will have no small impact on speculative interests. Speaking of speculative concerns, China Investment Corporation (the country’s sovereign wealth fund) reportedly invested in the US Oil Fund by buying 2 million shares of the ETF that represented 3.48 percent of the outstanding interest. Another story to monitor is the international focus on Iran. State-run media reported efforts to enrich uranium for research purposes had begun despite the threat of greater sanctions. As OPEC’s second largest oil producer, international relations with Iran are important. For the immediate future, traders will look to the US Energy Department’s numbers. The weekly inventories are scheduled for release tomorrow; but it is not clear whether the figures will be reported due to inclement weather conditions shutting the government down in Washington DC. The same goes for the Short-Term Energy Outlook whose release was deferred today.

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

Commodities – Metals

A Recovery in Sentiment and Drop in the Dollar Support Gold and Silver Prices

Spot Gold  -  $1,075.71   //  $13.86 //  1.30%

Rumor and speculation that officials would soon announce a bailout plan for Greece would spread quickly across the market. For gold, the commodity’s own status as a speculative asset would as well as its role as a dollar hedge would help the market eke out a meaningful advance on the day. However, it is notable that this specific metal’s reaction would be relatively limited compared to other benchmarks like the Dow Jones Industrial Average and the US dollar. At the height of risk appetite for the day, gold would advance only 1.9 percent – a far more limited move than the plunge last week. What does this mean? Perhaps it is a sign that fiscal stability for Greece is not the ultimate concern for global investors. Beyond this single economy, other EU members like Portugal, Spain, Ireland and Italy could be in next in line to face the critical eye of the skeptical market participant. On the other hand, this tempered response could be a factor of gold’s own value to the market. Aside from its use as a speculative asset, the precious metal is also considered an inflation hedge and relative safe haven. As for its dollar connections, today’s advance in sentiment weighed the benchmark currency down from eight-month highs. However, the greenback is finding fundamental strength on its own; and the concept of buying on the ‘cheap’ in anticipation of a broader market recovery is more difficult to justify for the still expensive commodity. Measuring the specific influence of risk appetite, the dollar and inflation will be important to defining trend going forward.

Spot Silver  -  $15.45 //  $0.45 //  3.00%

Just as surely as it would amplify silver’s losses, the commodity’s leveraged exposure to risk appetite and the US dollar would lead the metal to a more aggressive rally than its more expensive counterpart. The currency would suffer its biggest daily loss against its primary counterpart (the euro) Tuesday; and silver would respond in kind with its biggest rally since January 4th. From a traders’ perspective, the metal has a considerable way to go before reaching $16 once again. On the other hand, there are clear levels for other asset classes that could like a jumping point for underlying sentiment.

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 oil

Oil Extends its Risk-Based Recovery with the Largest Single-Day Rally since November

North American Commodity Update

Commodities – Energy

Oil Extends its Risk-Based Recovery with the Largest Single-Day Rally since November

Crude Oil (LS NYMEX) -  $77.12  //  $2.69 //  3.61%

The recovery in yield appetite continued Tuesday, and the subsequent effects on the energy markets were pronounced. Feeding off the improvement in sentiment across other capital markets, crude oil easily cleared recent resistance around $75 in the biggest single-day rally for the commodity since November 16th. From a speculative perspective, this reversal was properly timed and finding the right level of momentum to potentially establish a meaningful trend. However, there is a notable lack in the volume that is supporting this budding reversal – an unusual situation if the market is indeed establishing a bullish footing. Looking at speculative interests outside the energy complex, the Dow Jones Industrial Average has marked a new weekly high and is now working to recover some of the lost ground in the three-day plunge beginning on January 20th. On the other side of the spectrum, the US dollar (the primary pricing instrument for oil) has corrected from six-month highs. Should investor sentiment maintain its influence over speculative markets, expect oil to keep its high positive correlation with stocks and negative correlation to the greenback.

As for fundamental considerations, the bullish influence of yesterday’s manufacturing data is still carrying the markets higher. However, with demand still significantly below the levels of just a year ago; it wouldn’t take much from supply-and-demand fundamentals to stall the market’s budding recovery. Today, the headlines for energy traders was somewhat mixed. The only market-moving piece of economic data crossing the wires was the US pending home sales report for December, which would subsequently fall in line with the consensus forecast. Long-term economic activity aside, demand in the US could be stoked by below-average temperatures for the East Coast predicted by the National Weather Service between February 7th and 11th. In contrast, the average price per gallon of gasoline reportedly fell for the 20th consecutive day. This gives us something to look forward to in tomorrow’s DoE inventory figures for the week ending January 29th. Crude and gasoline stores are expected to rise 400,000 and 1.4 million barrels respectively, while distillates are seen falling by 1.15 million barrels. Outside the US, OPEC Secretary General Abdalla El-Badri projected energy demand would not likely increase until the second half of the year. Furthermore, he said oil stocks were high at approximately 80 million barrels. His suggestion that investments would be hampered with crude prices below $70 per barrel means there is likely an unspoken level of support for the world’s largest energy producer.

Commodities – Metals

Gold Finds Strength in Sentiment, Dollar Weakness as Resistance Comes Into View

Spot Gold  -  $1,115.35   //  $9.85 //  0.89%

Though there are a few fundamental drivers supporting gold, the extended recovery in speculative interests is the lynchpin for the commodity’s strength these past few days. The metal put in for a second daily advance that would bring spot into the path of a tentative, descending trend developing from December’s record high. To prevent a possible bearish breakout within a week’s time, the market will have to overtake resistance and offset the breakout pressure in the wedge pattern that is currently forming. For fundamental drive, risk appetite is taking sole responsibility for gold’s bearing. The Dow put in for its biggest back-to-back rally these past two days since the two-day performance through October 6th. The impetus for this drive is sourced from the same catalyst that first weighed capital markets back on January 20th – cumulative speculative interest. Further leveraging the precious metal’s advance, the dollar would put in for its first consecutive daily declines in nearly three weeks. As one of the market’s favorite dollar-hedges, this is a considerable boon for gold bugs. For tangible fundamental drive, inflation expectations continue to buoy the value of gold. The iShares Treasury Inflation Protected Security Fund is hovering just below a two-month high. Adding to the global threat of price pressures, the RBA surprised the market by holding its benchmark lending rate at 3.75 percent and Chinese officials raised concerns over asset inflation by enforcing new rules on third mortgages. As policy officials maintain loose monetary policies to support the economic recovery, expect inflation risks to increase significantly over the coming months.

Spot Silver  -  $16.73 //  $0.06 //  0.36%

Despite the clear strength in underlying risk trends and a fading US dollar, silver would put in for a very modest advance through Tuesday’s session. Barely tipping into the green, the metal is struggling at $16.75 – a level that has historically caused troubled for momentum development. In this relatively reserved session, silver is showing a greater correlation to the dollar’s controlled decline and highlighting the fewer fundamental roles the asset plays in the financial markets compared to gold.

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 oil

Oil Initiates its Biggest Rally in a Month as Manufacturing and Risk Appetite Improve

North American Commodity Update

Commodities – Energy

Oil Initiates its Biggest Rally in a Month as Manufacturing and Risk Appetite Improve

Crude Oil (LS NYMEX) -  $74.65  //  $1.76 //  2.41%

A bounce in capital markets and subsequent slip for the US dollar helped leverage a significant rally from oil Monday. This substantive rally, from the floor of a long-term rising trend, would punch in as the largest single day advance since December 23rd (back when the commodity was in the midst of its steady advance to new yearly high). And, while there was plenty of fundamental fuel to support the session’s strength; the real source of optimism would come through underlying investor sentiment itself.  Equities were off to a slow start in the Asian session; but by London and New York trading hours, the benchmark asset was on a steady footing for a pickup from the multi-month lows the markets left off on this past Friday. On the other side of the coin, the US dollar reacted through its funding currency / safe haven status that sent the currency lower. As the primary valuation tool of the commodity, this slip for the greenback would only further crude’s bounce. However, it is important to note that today’s modest advance doesn’t necessarily usher in a definitive trend reversal. There is plenty of event risk scheduled this week that can alter the course of risk appetite over the coming days; but in the end, it is the threat of what can’t be foreseen that is always the greater source of market anxiety.

Turning from sentiment to tangible shifts in supply and demand, the economic docket was tipping the scales on consumption forecasts. Manufacturing activity surveys from the United States, China, the Euro Zone and the United Kingdom were all scheduled for release Monday; and each would add to the picture of economic recovery and growing fuel consumption. For the world’s largest energy consumer, the January ISM Manufacturing report offered a clear bearing for fundamental oil traders. The 58.4 reading was not only the strongest in over six years; but the clear improvement in production, orders and employment component figures suggest the sector’s strength is not simply a temporary hiccup. Along similar lines, China (the second largest consumer of fuel) saw its manufacturing survey hit a record high, the UK reading notched a 15-year high and the Euro Zone’s reading was revised up to a fresh two year high. This pickup in activity has not yet translated into recent inventory readings; but last week’s DoE crude report (for the week ending January 22nd) did report a sharp 3.89 million barrel drop. The consensus forecast for this week’s reading is pointing to no change.

Commodities – Metals

Gold Posts its Biggest Rally Since October as the Dollar Slips

Spot Gold  -  $1,105.13   //  $24.28 //  2.25%

The many fundamental faces of gold were all lining up in support of the commodity today, leading the metal to its biggest single-day rally since October 6th. Among the different drivers that contribute to a complete picture of fundamental gold demand, the asset’s speculative appeal was bolstered by a boost in risk appetite that would buoy stocks and other commodities. This shift in investor sentiment would further have repercussions for gold through its connections to the safe-haven US dollar. The funding currency eased back from six-month highs against the euro this morning as data impressed and traders looked to recover some of the losses the capital markets have incurred this past month. The currency’s influence over the metal would actually go a little deeper (and perhaps draw connections to gold’s value as an inflation hedge). US President Obama proposed the 2010 budget, which would lead to a record $1.6 trillion budget gap. Not only does this diminish the appeal of the US dollar (as it would entail greater credit risk and an increase in the money supply); but the implications for government-derived inflation pressures further necessitates a hedge for purely financial assets. In the end, today’s rally was aggressive; but the market’s appetite for risk has not fully recovered. Gold bugs should keep a close eye on $1,075.

Spot Silver  -  $16.64 //  $0.43 //  2.65%

After its 15-plus percent tumble these past two weeks, silver was poised for a hearty rebound to start this week off. The subsequent rally was the biggest in four weeks and would officially forestall the break of a five-month range floor near $16. For fundamental drive, the combination of a weakened dollar and a bounce in risk appetite would produce a steady advance throughout the day. However, it is worth mentioning that despite the strength in the underlying, volume in the active silver futures contract on the NYMEX exchange was lower today than the activity that was associated with last week’s congestion.

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 oil

Crude Oil Rises for the First Time in Six Days on Thin Liquidity

North American Commodity Update

Commodities – Energy

Crude Oil Rises for the First Time in Six Days on Thin Liquidity

Crude Oil (LS NYMEX) -  $78.25  //  $0.25 //  0.32%

Constrained liquidity helped crude traders snuff out a burgeoning bear trend Monday. With the US market offline for a bank holiday, the benchmark oil contract was able to post its first bullish close in electronic trading in the past six trading days. However, it is because of this limited speculative interest that we have to take this opening move with a grain of salt. Nonetheless, there were fundamental considerations to work with for those that were still trying to make trades in the thin market conditions. First and foremost, for those that are monitoring inter-market correlations; modest dollar weakness through the day encouraged a tempered strength from the speculative asset. On the other hand, it bears mention that the benchmark currency has not defined a clear direction for itself in nearly a month. Considering the greenback’s association to underlying sentiment and its role as the primary pricing instrument for commodities, it is worthwhile to await a clear bearing on this instrument before marking a definitive trend on oil.

Through more mundane and definable channels, supply-and-demand fundamental would also be in play Monday. In the early trading ours, China Oil, Gas & Petrochemicals issued forecasts for Chinese imports to increase up to 15 percent through 2010 as the nation enters the second phase of its plan to build strategic reserves. Perhaps more influential however were remarks from the Qatar Energy Minister who speculated the Organization of the Petroleum Exporting Countries (OPEC) would not raise output through the year, as current supply levels would be sufficient. However, looking through the rest of the week, output and consumption considerations may not work in bulls’ favor. This past week the Department of Energy reported a 3.699 million barrel increase in crude inventories despite frigid temperatures that would have theoretically boosted demand. Should this week’s stockpile report (due Thursday) issue another increase in holdings, it would be a sign that excess capacity can easily fill in should a temporary spike in demand present itself. The level of true fundamental demand is important to set against speculative interest as well. This past week, the CFTC’s Commitment of Traders update reported speculative long positions hit their highest levels since 1983 (at 135,669). Is this a leading indicator or simply a lagging reaction to the aggressive run up through the opening week of January?

Commodities – Metals

Gold Gears Up for Possible Breakout as Liquidity Fills out and Speculation Recovers

Spot Gold  -  $1,133.60   //  $2.68 //  0.24%

Though there was plenty of activity in speculative markets through the Asian and European sessions, gold as little moved through Monday’s session. Considering the terminal congestion pattern the commodity has worked its way into over the past few weeks, it comes as little surprise that traders would defer a decision on market direction for when US liquidity is back on line. As for background fundamentals, there was plenty for traders to contemplate through today’s restrained session. At the front of traders’ minds was the modest decline in the US dollar. As for speculative interests, there were moderate trends developing amongst the larger indices in the world’s more liquid markets – though they would essentially offset each other. Asian equities would tumble on the day with the Nikkei leading the way with a 1.2 percent slump through the opening day. In contrast, European indexes were on the rise with a 0.72 percent advance from the FTSE 100.  Looking ahead to deeper and more active markets for Tuesday, we may actually see the metal’s function as an inflation hedge come into play. This morning, Australian consumer and UK housing sector inflation figures boosted price pressures. Tomorrow, UK and New Zealand CPI indicators will add to the mix. However, everything considered, speculative interests hold the greatest potential for volatility.

Spot Silver  -  $18.64 //  $0.23  //  1.25%

Silver would work its way even further into a congestion pattern Monday with thin trading discouraging a clear bias on price action. That being said, the return of market depth Tuesday could encourage a rebound in volatility. If there is in fact an increase in activity, there is little room for this metal to move before spot threatens a potential breakout. Speculative traders will be particularly sensitive to volatility through the first full trading day of the week and will look to key market benchmarks (like The Dow and US dollar) for guidance.

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 oil

Crude Oil Drops Below $82, Threatens to Reverse Strong Bull Trend

North American Commodity Update

Commodities – Energy

Crude Oil Drops Below $82, Threatens to Reverse Strong Bull Trend

Crude Oil (LS NYMEX) -  $80.80  //  -$1.72 //  -2.08%

Is the rally over? Oil prices on the active WTI NYMEX contract marked their biggest one-day decline since December 9th; and in the process, the spot rate would tumble below $82. This is a strong case for a reversal; but the qualifications for such a tide change are still open to debate. For fundamental considerations, there was an argument to be made on both sides of the coin. For downtrodden bears, the most convincing argument on to sell at these heights is the changing weather forecast. In the preceding four-week advance that preceded today’s tumble, a key catalyst for bulls was the disruptive storms and frigid temperatures that descended on the US. While many of the world’s industrialized centers are still dealing with a low thermostat, the Northeastern section of the United States (which accounts for approximately 80 percent of the nation’s heating oil consumption) is expected to experience a figurative heat wave. According to weather services, the region is predicted to maintain above-average temperatures from January 13th through 25th. This lowers the outlook for consumption, which has already been marred by recent inventory figures. In fact, according to figures from the American Petroleum Institute (API), stockpiles of crude jumped 1.206 million barrels in the week through January 8th while those for gasoline surged 6.824 million barrels. The forecast for tomorrow’s DoE reading is calling for a 1.5 million barrel increase in oil holdings.

Despite these disappointing factors for demand, there is still an argument to be made for the commodity to fend off a larger trend reversal. For the supply-and-demand aspect of pricing, we US Energy Department released its monthly update on the Short-Term Energy Outlook report for the country. On a “slightly more optimistic” outlook for the economy, the group raised their target for WTI oil to average $79.83 this year from the $78.67 forecast released last month. Looking ahead to 2011, the appreciation is expected to continue with an average of $83.50.  Consumption was also boosted. US demand was expected to increase 220,000 barrels per day to 18.9 million barrels while global consumption was expected to run 85.18 million barrels a day. Considering these numbers are from the world’s largest consumer of energy, the implications for price is global.

Commodities – Metals

Gold Tumbles More than Risk Perhaps Warrants

Spot Gold  -  $1,129.00   //  -$22.85 //  -1.98%

Gold reported its biggest down day in three weeks Tuesday through underlying risk trends were showing greater restraint. From a comparison of asset classes, commodities reported the largest declines overall – suggesting a front running on an expected, market-wide rally has fallen apart. Indeed, more traditional indicators of risk appetite have failed to support the precious metal’s strong upswing. The Dow Industrial Average has maintained its three-month, 300-point range with a distinctive drop through today’s session. Also, the US dollar seems to have put a temporary floor underneath a nascent bear wave. Without a clear shift in risk appetite from these liquid asset classes, there is a big disconnect between gold and investor sentiment. With the commodity’s risk and dollar-hedging roles accounting for, that leaves its role as an inflation anchor to account for. This is a driver that is providing steady bullish interest. Looking at bond spreads and inflation adjusted Treasury products, the threat of rising prices and limited Fed response is building. However, when it comes done to a primary driver, risk trends and the dollar hold far greater clout amongst the speculative crowd.

Spot Silver  -  $18.23 //  -$0.33  //  -1.78%

The strongest run in spot silver in four months finally came to a close today with a 1.78 percent drop through the end of the US session. Considering the dollar index was little changed (actually slightly lower on the session) and equities were looking at an otherwise reserved decline for the session; the metal’s weakness more likely an unwinding of built up risk premium in the past two weeks’ rally. Looking at the futures market for a ‘normalized’ view on activity, volume has been extraordinarily slow to recover from the holiday period and open interest is still struggling to pick up from four-month lows.

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

Next Page »