inflation

European Equities’ Precipitous Stumble Erases 2010 Gains

Europe Session Key Developments

•    German and Euro-zone PMI Manufacturing Beats Expectations, Hints of Inflationary Pressures
•    U.K. Money Supply Expands at Slower Rate than Anticipated
•    Commodities Fall on Weaker Demand, Stronger Dollar

European markets continued their fall on Thursday, dropping the second consecutive day to erase this year’s advance. Early in the session, bearish appetite flourished following the Chinese Gross Domestic Product data, which showed 10.7 percent growth for the emerging market. Speculation arose that the output expansion, which exceeded analysts’ expectations, will trigger further interest rate tightening down the road. U.K M4 Money Supply data showed an expansion but less-than-expected, which fueled a Dollar and Euro rally against the Pound. Additionally, U.S. jobless-benefits claims, coupled with speculation, which held to accurate, on President Obama’s plan to reign in risk-taking by banks fueled bearish sentiment worldwide. Following the speech by President Obama, which occurred after the European session closed and suggested that banks would be strictly prohibited from running proprietary trading operations or investing in hedge funds and private equity funds, European market equity futures tumbled anywhere between one and three percent each.

Looking ahead, light economic data is expected to end the week. Midway through the session, investors will be looking at French Business Confidence for January (expected 90.0), as well as British Retail Sales data for December (expected 1.1 percent increase from November, expected 3.0 percent increase from December 2008).

FTSE 100                      5335.10                   -85.70               -1.58%
British stocks fell for the second consecutive day, dropping just over one and one-half percent to erase this year’s gains. Basic Materials and Financials fell the most, down 4.31 percent and 2.72 percent each, after data later in the session showed that American jobless claims increased, a sign that the U.S. unemployment situation may be worsening. With investors speculating on weak consumer demand for the next few months, eight of ten sectors fell on the FTSE, with five sectors posting losses greater than one percent. Anglo American and Kazakhmys, both mining companies, led shares lower amid doubt that high demand for commodities will continue. RBS, Lloyds Banking Group, and Barclays lost more than five percent each ahead of President Obama’s speech on bank regulation. Among the gainers on the day were airline companies EasyJet and British Airways, which posted 5.2 percent and 3.6 percent gains, respectively, amid data beating internal forecasts.

CAC 40                     3862.16                   -66.79                 -1.70%
Trading in Paris netted losses across all sectors, dragging the CAC below 3900 points. The 1.70 percent contraction, led by Basic Materials and Financials, marked the second time this week the index has fallen. Seven of ten sectors lost more than one percent, while four sectors lost more than two percent. Overall, ninety-five percent of all equity securities traded on the French index posted losses on the day. Societe Generale followed banking shares around the world down, ending the day in the red by 4.7 percent. Eiffage, France’s third largest construction company dropped 4 percent after its shares were downgraded to “neutral” at Exane BNP Paribas. Other movers on Thursday included ModeLabs, a French mobile-phone maker, which dropped 11 percent, and Icade, after Societe Generale cut its recommendation on the stocks from “hold” to “sell.”

DAX                         5746.97                    -104.56             -1.79%
German stocks posted the second largest decline across Western Europe on Thursday, down over one hundred points to 5746.97. Basic Materials dropped nearly three percent, while Financials, Technology, Industrials, and Consumer Goods fell by 1.71 percent, 1.90 percent, 1.92 percent, and 1.99 percent, respectively. Financials pushed lower later in the session amid American banking regulation concerns, with Commerzbank leading the losses at 3.8 percent. Deutsche Bank skid 2.5 percent, while Siemens fell 1.7 percent. Overall, all nine sectors posted losses on the day, pushing the DAX down 3.53 percent overall in the new year.

IBEX 35                     11444.00                   -265.00                 -2.26%
Spanish stocks fell the most among the five major European equity markets, down over two and one-quarter percent, a 265 point loss. As the IBEX now sits at 11444.00, it has lost 4.15 percent on the year and sits at its lowest level since November 4. Nine of ten sectors dropped on Thursday, with Consumer Goods posting a meager gain of 0.14 percent. Technology, Basic Materials, and Financials all dropped more than three percent, while seven of ten sectors lost more than one percent overall. The losses mark the second consecutive day of bearish movement for the index. Banco Santander fell the most since May, contracting 4.2 percent. Cementos Portland Valderribas, a unit of the Spanish builder Fomento de Construcciones & Contratas, dropped 2.2 percent, for its fourth loss in five days. Other movers included Gamesa Corporacion Tecnologica, which slumped 3.3 percent after its shares were cut to “hold” from “buy’ at Societe Generale.

S&P/MIB                        22876.46                     -249.56                 -1.08%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

inflation

European Equities Surge Back to 15-Month High

Europe Session Key Developments

•    British Inflation Surges as Interest Rates Remain Low
•    European Economic Sentiment Deteriorating amid Greece Debt Situation
•    Commodities Rebound as Dollar and Pound Advance against Euro

European markets gained for the second time this week despite declining sentiment of a full-recovery spreading throughout Europe. The German ZEW Survey of Economic Sentiment showed a decrease in January, dropping to 47.2 from 50.0, while the Euro-zone ZEW Survey for the Current Situation in January dropped to -56.6. The biggest news on the day, however, was the release of the Consumer Price Index, which showed that prices rose 2.9 percent in December. As the Bank of England winds down its Asset Purchase Programme next month, investors are beginning to worry whether or not the economy can afford higher interest rates to fight inflation just yet as the economy remains weak and unemployment continues to rise.

Looking ahead to tomorrow, a slew of economic data released midway through Wednesday’s session should help boost trading volume and swing sentiment among investors. German Producer Prices from December are expected to show weak inflationary pressures (0.2 percent expected), while data relative to the year previous is likely to show considerable deflation (-5.1 percent expected). The two most important releases of the session will come from Great Britain, as Jobless Claims Change data from December (-4.6K expected) and Bank of England Policy Meeting Minutes from the January 7 meeting.

FTSE 100                      5513.14                   +18.75               +0.34%
Trading in London resulted in the second consecutive day of gains for the British Index, up 0.34 percent to 5513.14. Gains were led by the Health Care and Utilities sectors, up 1.70 percent and 1.27 percent, respectively. Overall, nine of ten sectors gained, with Financials posting the only contraction following Citigroup earnings in the middle of the trading session. Barclays, Britain’s second biggest bank, fell 1.8 percent after Credit Suisse Group speculated that it would need to raises over 17 billion Pounds in order to meet new capital requirements. Burberry surged to its highest level in more than two years after gaining 8.3 percent following reported sales. Chocolate company Cadbury added 3.6 percent after it agreed to a revised $19.7 billion offer from American company Kraft.

CAC 40                     4009.67                   +32.21                 +0.81%
French stocks continued their rebound after a poor second week in the new year, jumping 32 points on Tuesday, the second consecutive day of gains for the index. All French sectors pushed higher, collectively gaining 0.81 percent. Basic Materials, Health Care, Telecommunications, and Oil & Gas all gained more than one percent, while Financials lagged behind, only gaining 0.27 percent. Alstom, the world’s second-largest train maker dropped 2.5 percent after it announced that its third-quarter sales fell short of analyst’s expectations. Other losers on the day included Renault, which fell 2.2 percent after its recommendation was cut to “neutral” at Nomura.

DAX                         5976.48                    +57.93             +0.98%
Despite German investor confidence falling for the fourth consecutive month in January, trading on the German index resulted in the second consecutive day of gains, adding just under one percent to 5976.48. The German ZEW Survey, a measure of Economic Sentiment, dropped to 47.2 in January as worries begin to spread about Euro strength and the sustainability of the recent surge in asset prices. Eight of nine sectors gained on Tuesday, with Consumer Goods posting a one-half of one percent loss. Telecommuncations, Health Care, Utilities, Basic Materials, Financials, and Technology all posted gains greater than one percent. Dialog Semiconductor, a semiconductor maker, advanced 2.7 percent after it showed a 60 percent increase in its cash balance at year end from the year previous.

IBEX 35                     12022.60                   +151.90                 +1.28%
Spanish equity securities rose for the second straight day on Tuesday, posting the biggest gain among the five major European equity markets, up 1.28 percent. Nine of ten sectors posted gains on the day, with Technology leading the surge, up 2.33 percent. Overall, six sectors gained more than one percent. The Health Care sector posted the only loss, down 0.41 percent on Tuesday. Banco Santander added 1.9 percent after it announced plans to sell 1 billion Euros of covered bonds. Enagas jumped just under one percent after it was rated “overweight” at HSBC Holdings. Other movers on the day included Abengoa, which gained 2.4 percent, and Iberia Lineas Aereas de Espana, which gained for a fifth consecutive day to its highest price since December 4.

S&P/MIB                        23705.67                     +195.91                 +0.83%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

inflation

European Equities Rebound Ahead of Earnings Week

Europe Session Key Developments

•    British Housing Market Showing Signs of Recovery
•    Italian Trade Balance Suffers
•    Trading Volume Lighter Ahead of Inflation Data

European markets moved higher on Monday on speculation of better-than-expected earnings later this week from banks across the globe, a strong indicator of which direction global financials will move towards over the next few months. Data proved light on the day with markets closed in the United States for the Martin Luther King, Jr. Federal holiday, though bullish sentiment prevailed ahead of data releases later this week. Highlighting the rebound were data from Britain that showed a rebound in price in the housing sector, which has been mired in its worst slump of the past 25 years. Elsewhere, the Euro continued to falter against the Dollar regarding the debt situation in Greece, resulting in finance ministers from 16 European nations to meet to debate whether or not a currency intervention may be necessary. However, given the recovery state of the broader euro area economy, the European Central Bank’s Nowotny was quoted in an interview later in Monday’s session as saying that a currency intervention remains unlikely.

FTSE 100                      5494.39                   +39.02               +0.72%
British stocks advanced on Monday as nine of ten sectors rebounded following the first weekly decline in 2010. Basic Materials and Consumer Goods led the resurgence, up 1.75 percent and 1.27 percent each. Markets were boosted in the premarket as the Rightmove House Prices gauge showed 0.4 percent increase in house prices from December, while up 4.1 percent from January 2009. Despite this, Taylor Wimpey, Britain’s second-largest home builder, fell 2.1 percent on news that it sold fewer homes last year following the worst housing crisis in Britain in 25 years. Tullow Oil gained 2.2 percent after it announced it would move to purchases assets from Heritage Oil. Other winners on the day included Cadbury, which gained 1.8 percent after Kraft Foods said it was considering raising its bid for the chocolate company.

CAC 40                     3977.46                   +23.08                 +0.58%
Trading on the French exchange led to a gain just over 23 points, up 3977.46. Seven of ten sectors gained, with Oil & Gas climbing 1.60 percent. Alcatel-Lucent dropped 1.7 percent after two consecutive days of gains. Following two consecutive days of losses, L’Oreal, the world’s biggest cosmetics maker was raised to “buy” at Deutsche Bank. Other gainers on the day included PPR, up 1.9 percent to its highest level since October, while Zodiac Aerospace jumped 5.4 percent, its first gain in five days.

DAX                         5918.55                    +42.58             +0.72%
German stocks rose the most among the five major European equities, advancing 0.72 percent for its biggest gain in two weeks. As corporate earnings are expected to show improvement given the releases due over the next week, the DAX rebounded after lasts weeks losses, which were the worst losses since October. Ahead of the earnings, six of nine sectors gained, with Basic Materials and Consumer Goods rising the most, up 1.54 percent and 1.35 percent, respectively. Telecommunications was the only sector to drop more than one percent on the day. Continental, the second-largest European auto-parts manufacturer gained 3.2 percent on Monday after it was upgraded to “outperform” at Credit Suisse. BMW, the world’s largest maker of luxury automobiles, gained 1.5 percent, while Daimler rose 1.7 percent.

IBEX 35                     11870.70                   +25.70                 +0.22%
Following choppy trading last week, the Spanish index rose for only the second time in three days, up just under one-quarter of one percent on Monday. Six of ten sectors posted gains, with Technology suffering the most, down 1.03 percent. Consumer Services gained the most, up 0.71 percent during trading hours. Banco Espanol de Credito fell 1 percent as data showed that the number of bad loans in November rose from the same period in the previous year. Grupo Tavex surged 11.0 percent, pushing its total gains for the month to 41 percent. Spain’s biggest airline Iberia lineas Aereas de Espana gained for the fourth consecutive day as it was upgraded to “outperform” at Credit Suisse.

S&P/MIB                        23509.76                     +37.65                 +0.16%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

inflation

A Drop in Crude Inventories Pushes Oil to the Brink of a Breakout but Hesitation Persists

North American Commodity Update

Commodities – Energy

A Drop in Crude Inventories Pushes Oil to the Brink of a Breakout but Hesitation Persists

Crude Oil (WTI) -  $79.54  //  $0.40 //  0.51%

As expected, the steady build in inventories was temporarily halted last week owing to the disruption by Hurricane Ida (the first significant storm to pass through the Gulf of Mexico). However, it seems market participants were prepared for the bullish supply-side data because oil has so far been unable to capitalize on the announcement to catalyze a meaningful break from its month-long, descending congestion pattern. Top news this morning was the US Department of Energy’s stockpile figures for the week ending November 13th. The headline figures were exactly what bulls needed to mount an assault on the steady, falling trend that has developed since the late-October high. Expected to rise a modest 300,000 barrels following the previous week’s 1.762 million increase; crude inventories actually dropped 887,000 barrels. Gasoline stores dropped 1.755 million barrels against a forecast of a 25,000 decrease while distillate inventories fell less than expected by 328,000 barrels. Historically, these are relatively modest contractions and surprises; but the data’s impact was rendered even more impotent by yesterday’s API numbers. According to the industry group’s measurements, crude inventories plunged 4.37 million barrels. In fact, the typically less-market-moving report would further outshine its government counterpart by showing crude output levels at its highest levels in four years through October while gas deliveries (a sign of demand) fell for the first time since May. Consumption through the first 10 months is down 4.5 percent from the same period a year ago.

What will be the lasting effect of this week’s DoE and API reports? These two reports showed exactly what was expected considering imports through the Gulf of Mexico dropped 16 percent due to the storm. And, just as surely as inventories contracted in response to the weather, stockpiles will rebound as things return to normal. Demand is the primary concern at this point in the game as the world’s major energy producers have indicated that they were comfortable with current levels of output as they try to offset the drop in prices on revenue by bolstering output. Taking a look at speculative trends for the day, we could have seen a very different outcome if risk appetite had advanced with any significant momentum. However, both the Dow Jones Industrial Average and US dollar would carve a path for tepid risk aversion. Considering the 20-day moving average (approximately a month) for volume is near a record high – surpassing activity through the peak in 2008 – a trend revival or reversal will likely be a major event.

Commodities – Metals

Gold Hits another Record High above $1,150 before Risk Appetite Stalls

Spot Gold  -  $1,143.70  //  $2.40  //  0.21%

Volatility would ease slightly for gold Wednesday and the session would essentially lack a defined sense of direction; but momentum would nonetheless sweep the precious metal to a new record high on an intra-day basis and through the close. However, despite the relatively stable pace for the commodity, fundamental interest actually received a boost through the session. A report released by the World Gold Council said investment in gold-based ETFs rose 68 percent in the year through the end of the third quarter to $55.5 billion. This could still be a construed largely speculative interest that has already been over-extended. Yet, today hedge fund manager John Paulson announced he plans to launch a new gold fund on January 1st with $250 million – meaning there is still speculative interest to push the market even higher.  Besides its role as a speculative asset, the metals value as an inflation hedge was bolstered by an ongoing recovery in the US consumer-based inflation data. The annual pace is now showing a modest 0.2 percent contraction – a substantial improvement from the near, six-decade low set only this past July.

Spot Silver  -  $18.52  //  $0.10  //  0.53%

Silver, keeping with the strength of its more expensive counterpart, showed considerable resiliency Wednesday to the late-session pull-back in sentiment. The commodity rose to a high of $18.84 – its highest level since July 17th last year – before retracing nearly three-fourths of its gains to close the day. For specific asset demand, ETF Securities reported its silver holdings rose another 0.1 percent to a record 22.535 million ounces.

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

inflation

Oil Finally Marks a Critical Break but Risk Aversion will have to Step up for a Bearish Trend

North American Commodity Update

Commodities – Energy

Oil Finally Marks a Critical Break but Risk Aversion will have to Step up for a Bearish Trend

Crude Oil (WTI) -  $76.35  //  -$0.59 //  -0.77%

Though it wasn’t the catalyst for a trend reversal that it could have been, oil looks to have marked a clean breakout from a near month-long wedge formation in Friday’s close below $76.75. The hesitancy on follow through is a reflection of two contrasting forces: supply-and-demand fundamentals that maintain the theoretical value of the commodity and speculative interests that actually set price. Saudi Arabia’s Oil Minister Ali al-Naimi alluded to this confliction in a speech he gave in the early Asian session. He said that volatility and price extremes are a consequence of a lack in regulation on commodity exchanges, which diminishes the role of fundamentals in price action. Measuring speculators interests, the CFTC reported open interest for crude from Index Funds (more often than not a vehicle for speculation). According to the report, interest grew to 464,000 contracts through the September 30th period from 430,000 in the second quarter and 448,000 in the first. The regular, weekly Commitment of Traders  report showed some level of moderation, however, showed some level of moderation from extremes. Net non-commercial interest fell back from its 20 month high for a second week by 15,772 contracts to 88,045. At the same time, net commercial positions ticked up for the first time in five weeks from its more than 2 year extreme short bearing.

Speculative interest in crude aligns itself closely to the underlying influence of broader risk appetite. Investor optimism has more or less stalled in the past few weeks and this is perhaps the only reason that this vital commodity has been able to developed a bearish bias (though it is mild). In the absence of a bid for capital gains, we are left with a massive overhang of excess supply that would likely drag futures prices much lower. On Thursday, The Department of Energy reported US crude inventories rose 1.762 million barrels to a level that is 7.5 percent above the average for the period. Today, the EIA reported natural gas inventories rose 25 billion cubic feet in the week through November 6th to its highest level on records (going back to 1993). For this energy product, inventories typically start to tumble starting the second or third week of November on season demand; so we whether demand can soak up the excess. Though considering the DoE’s data showing fuel consumption was at a June low and the unexpected drop in the US University of Michigan confidence gauge (a reasonably accurate measure of consumer spending); the bearish fundamental pressure will remain.

Commodities – Metals

A Rebound in Sentiment Offers an Amplified Reversal for Gold

Spot Gold  -  $1,116.70  //  $12.90  //  1.17%

An article in the Daily Telegraph published earlier this week quoted Barrick Gold (the world’s largest producer of the precious metal) President Aaron Regent as suggesting global production has been on the decline since the beginning of this decade. This is a long-term, bullish pressure for a commodity that is already running at record highs. However, the highs that gold has recently forged are almost solely the influence of speculation rather than any real supply/demand imbalance. The market received a boast through Friday’s session from a rebound in risk appetite that was measured in equities and currencies and which subsequently allowed the spot market to almost completely retrace its losses from the previous day. In the fray of today’s rally, aggregate volume and open interest on the active futures contract hit its highest level since October 15th. Offering some moderation to speculative interests, non-commercial interest according to COT edged back for a fourth consecutive week to 238,060 – though it is still very close to its recent record high. As for its anti-dollar and inflation hedge roles, the dollar was off significantly for the session and iShares TIPS fund ended the session relatively unchanged after a volatility session.

Spot Silver  -  $17.39  //  $0.17  //  0.99%

Silver tentatively broke range support early Friday; but the bullish pressure that built up through the US trading hours would help the commodity to close near its session highs. However, it is notable that despite the strong bullish updraft, both aggregate volume and open interest eased off from the previous few session. Here, we can see speculative interests are far more tempered than that of its dearer counterpart. Though non-commercial interest behind gold has fallen four consecutive weeks, they were very modest contractions. In contrast, the same group has seen its net long position drop 21 percent in the past three weeks (though the speculative specific filings actually rose to a 15-month high, net 20,792 long contract position).

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<at>dailyfx.com

inflation

Oil, Metals May Correct Higher But Beige Book, Earnings Threaten Volatility

Commodities – Energy

Crude Validates Near-Term Bearish Outlook, Beige Book Now in Focus

Crude Oil (WTI)        $78.70        -$0.42       -0.53%
Crude prices behaved in line with yesterday’s technical forecast, breaking below support at the lower boundary of a bearish Rising Wedge formation to stall near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month after failing to build traction above the psychologically significant $80/barrel level. As expected, disappointing US construction sector data catalyzed the decline (the industry is the world’s largest consumer of crude). Tomorrow’s release of the Federal Reserve Beige Book, a survey of current conditions combined by the central bank’s regional branches, may further fuel downward pressure if traders see that the economic recovery is not as strong as seems to be priced given the breakneck pace of the rally in risky assets since March. Mortgage applications data is also due for release, but any weakness here may already be priced in after the housing data that has already crossed the wires this week. Finally, the Department of Energy is expected to report a jump in crude inventories, which points to ample supply and could weigh on prices. Continued bearish momentum from here will target just below the $76 handle.

Commodities – Metals

Metals May Correct Higher But Beige Book, Earnings Threaten Volatility

Gold       $1056.60       +$1.40       +0.13%
As we noted in yesterday’s forecast, gold prices put in a double below $1070 after showing a Bearish Engulfing candlestick formation, breaking below resistance-turned-support at the top of a minor rising channel pause just above the $1050 figure as PPI figures proved disappointing. As with oil, the Fed’s Beige Book will be important in setting the trajectory for risk appetite and the US Dollar, guiding gold trading by extension. A wealth of earnings reports is also on tap, with the triple threat of Morgan Stanley, Wells Fargo, and US Bancorp of note in particular after a disappointing result from Bank of America sunk capital markets earlier in the week. Continued bearish momentum will target near $1045. Equity index futures are pointing higher ahead of the opening bell in Europe so a bit of a bullish correction (at least) before Wall St comes online may be in the cards.

Silver       $17.47       -$0.02       -0.10%
Silver behaved much the same as gold yesterday and the fundamental drivers are analogous to its more expensive counterpart going forward. Technically, the $17.15–24 region remains critical, with sustained break below that paving the way for a move below the $17 handle to challenge $16.75.

inflation

Oil Loses Steam Ahead of $80, Metals May Falter on US PPI

Commodities – Energy

Crude Loses Momentum Ahead of $80, US Construction Data Looms Ahead

Crude Oil (WTI)       $79.26        -$0.35       -0.44%
Crude prices have turned lower after failing to build traction above the psychologically significant $80/barrel level. The fundamental landscape offers room for further losses with September’s US Housing Starts and Building Permits data set to cross the wires. The American construction sector is the world’s largest consumer of oil, and positive readings here could add a much-needed story about rising demand to the more portfolio-driven catalyst of US Dollar weakness and inflation hedging. While expectations do in fact point to slightly higher figures from the previous month, yesterday’s unexpected drop in the National Association of Home Builders (NAHB) measure of construction-sector confidence may be hinting at a disappointing outcome. Technically, prices are testing below the lower boundary of a near-term Rising Wedge formation with momentum studies still negatively divergent coming down from overbought territory, which opens the door for a move to test support near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month.

Commodities – Metals

Metals Trading Focused on Risk, US Dollar but PPI Could Make a Splash

Gold       $1063.57       -$0.63        -0.06%
Gold rebounded test resistance below $1070 but prices now look on pace to form a double top, showing a Bearish Engulfing candlestick formation. Near-term support is seen at the top of a minor rising channel that was broken earlier, with a move lower to target just above the $1050 figure. The fundamental picture remains closely linked with equities and the US Dollar: A slew of high profile earnings reports are due late into European hours before the opening bell on Wall St, with positive outcomes likely to weigh on the greenback and boost optimism about the global economic recovery, both of which are gold-positive. That said, tomorrow’s US PPI figures may present potential for a downswing. A disappointing outcome (particularly in the Core PPI reading that excludes food and energy) would help to ease some near-term concerns about future inflation and help validate technical positioning.

Silver       $17.23        -$0.11       -0.62%
Fundamentally, the drivers remain much the same as with gold. The technical picture looks a bit less bearish, however, with prices unable to re-test the previous swing high above $18 and faltering below the figure. The $17.15–24 region remains critical, with sustained break below that paving the way for a move below the $17 handle to challenge $16.75.

inflation

Daily Commodities Fundamentals: Commodities Close Lower Entering the Weekend

North American Commodity Update, Last Updated 8/14/2009 3:51 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Sold Following a Disappointing Consumer Confidence Report

Crude Oil (WTI)   $67.530                         -$2.990                             -4.24%
Crude Oil future prices plummeted today, ending the week with a 3.5% decline back below the psychological $70-per-barrel level. After a week’s worth of important fundamental data releases including the FOMC rate decision and Bank of England Quarterly Inflation Report, the University of Michigan’s Consumer Confidence report turned out to be the main market mover. While this may seem strange, it is not that surprising when put into context; recent data releases have encouraged investors to re-enter higher yielding assets in hopes of a global economic recovery. Equity markets have rallied, which has translated to a bid up of Crude future prices as speculators predict a short-to-medium term hike in demand. Many believed that the United States would be one of the first countries to successfully escape the prolonged global recession; however, today’s consumer confidence figure revealed that Americans are not willing to take the lead. Consumer confidence was expected to increase from 66.0 to 69.0, but upon release, the report showed that the figure had actually dropped to 63.2. As a result, Crude future prices faced a severe sell-off as investors return towards safer assets and wait for an economic turnaround. Looking towards next week, crude could potentially retest the $70-per-barrel level before giving in to the true, market-moving fundamentals.

Department of Energy Inventories

Commodities – Metals

Stronger Dollar and Bearish Outlook Drive Precious Metals Lower

Gold                   $949.000                      -$7.500                           -0.78%
Gold future prices finished lower to close out the week, again losing as the US dollar strengthened. After a worse-than-expected US Confidence Report, the greenback gained across the board as investors flocked towards the relatively safe dollar and fled from higher-yielding assets (equity markets fell significantly). Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. Simultaneous to the dollar’s advance, today’s Euro-Zone and US CPI reports revealed that inflation is not likely to be of concern in the near-term. This fact was already suggested in numerous global bank statements during the last two weeks. Though Gold’s correlation with the dollar index is not remarkably high, dollar strength should continue to be an indication for Gold price action. Therefore, any encouraging fundamental releases that heighten risk appetite will likely translate into future price increases as well.

Silver                 $14.675                    -$0.312                           -2.08%
Silver futures could not hold on to yesterday’s gains during a volatile day of trading; the metal lost nearly 2% as investors turned bearish following the University of Michigan’s Consumer Confidence report. Though Silver is considered a precious metal like Gold, it has seen far more drastic price action due to its other application. Because Silver doubles as an industrial input, it is particulary sensitive to any changes in global economic outlook. Despite a better-than-expected US Industrial Production figure (0.5% actual vs. 0.4% expected), investors’ recent bullish forecast was not carried into the weekend. As for next week, expect Silver to follow investor sentiment; only time will tell which direction that will be.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

inflation

Daily Commodities Fundamentals: Commodities Advance Following Euro-Zone GDP, Dollar Weakness

North American Commodity Update, Last Updated 8/13/2009 4:03 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Finishes Higher but Falls From Intraday Peaks

Crude Oil (WTI)   $71.010                         +$0.850                             +1.21%
Crude Oil future prices remained higher at day’s close despite falling significantly from intraday highs. The market for Crude had already been rather bullish following yesterday’s FOMC report; in its statement, the committee hinted that we are seeing a much slower rate of economic contraction and perhaps a turnaround in the near-term future. Future prices managed to surpass the $72-per-barrel level following the Euro-Zone GDP report – the EZ reported a 0.1% contraction for the 2nd quarter, a figure that exceeded the expected 0.5% contraction and last quarter’s 2.5% pullback. Speculators interpreted the report as a leading indicator for heightened Crude demand as the region escapes the prolonged economic recession (note that the IMF has forecasted the Euro-Zone’s recovery to be at a far slower pace than the United States). The commodity could not hold onto its gains through the US session, as prices fell back significantly following the US Advanced Retail Sales figure. Analysts had predicted a growth in retail sales by 0.8% only to find that, in reality, sales actually shrunk by 0.1%. the disappointing result is likely due to the expiration of government stimulus programs, removing a main source of disposable income for American consumers. Crude future prices should remain relatively stable tomorrow due to a shortage of market-moving fundamental data releases.

Department of Energy Inventories

Commodities – Metals

Gold Manages Slight Gain While Silver Wins Big

Gold                   $956.700                           +$4.200                           +0.44%
Gold future prices pushed higher during intraday trading, gaining an additional $4 to reach the $956-per-ounce level. A strong Euro-Zone GDP report coupled with a weak US Retail Sales figure did not bode well for the greenback, which lost against all of its major competitors (most noticeably to the high-yielding Australian and New Zealand dollars). Because Gold is a dollar-denominated commodity, it has historically traded inversely with the greenback as investors use the metal to hedge against dollar weakness/inflation. Yesterday’s BOE Quarterly Inflation Report and the FOMC’s statement both pointed towards low levels of inflation, which had temporarily applied downward pressure on Gold future prices. As we predicted yesterday, risk appetite/aversion guided the Gold market and will likely continue to do so barring any exceptional fundamental release or technical breakout.

Silver                 $14.970                          +$0.385                          +2.64%
Silver was the big winner during today’s trading session, testing the psychological $15-per-ounce level by adding another 2.5%. Price action happened early following the Euro-Zone’s GDP report and was sustained throughout the US session despite the disappointing Retail Sales figure. In addition to serving as a precious metal, Silver has its own industrial application that makes its price particularly sensitive to any changes in the global economic outlook. Within the EZ, both Germany and France had specifically encouraging GDP reports that showed QoQ growth by 0.3%. We could see moderate Silver price action tomorrow following the Euro-Zone and United State’s CPI reports. The US is also set to release July’s Industrial Production figure, but it will likely not be ultimately market-moving.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

inflation

Daily Commodities Fundamentals: Crude Loses, Precious Metals Trade Sideways

North American Commodity Update, Last Updated 8/11/2009 2:52 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Falls Near 2% During Intraday Trading

Crude Oil (WTI)          $69.360                         -$1.240                             -1.76%
Crude Oil future prices fell below the psychological $70-per-barrel level after losing nearly 2% during intraday trading. In order to avoid significant event risk surrounding tomorrow’s FOMC Interest Rate Decision, speculators are selling off their Crude positions, taking profits and waiting for a clearer signal regarding a potential  global economic recovery. Today’s sell-off did not face much resistance, as fundamental data supporting Crude’s recent surge has been hard to come by. demand for the commodity remains extremely low; just last week, the Department of Energy’s Crude stockpile report revealed a larger-than-expected in Crude inventory, pushing down future prices. The US Wholesale Inventories report revealed that inventories had plummeted by 1.7%, signaling that demand for Crude may remain weak as companies face diminished demand for their products. Tomorrow’s new DOE report will show any changes in Crude demand; this report combined with the FOMC Interest Rate Decision at 2:15 PM EST should yield significant price action tomorrow. Though no change of the key lending rate is expected, the commentary surrounding the event has potential to be market moving.

Department of Energy Inventories

Commodities – Metals

Precious Metals Waver, End Near Even

Gold                   $947.700                      +$0.800                           +0.08%
Gold future prices closed near even today, consolidating around the psychological $950-per-ounce level as speculators await tomorrow’s FOMC Rate Decision. US dollar activity has been a useful contrarian indicator for Gold price movement, as the two tend to trade inversely. Investors often use the metal to hedge against a weaker greenback or inflation. The commentary following tomorrow’s FOMC decision should provide better insight regarding near-term inflationary concern. If the Fed chooses to maintain the key lending rate (which it will) but continue to purchase treasuries as an economic stimulus, speculators may buy Gold to avoid a weaker greenback resulting from uncontrolled inflation. However, if the Fed hints that a rate hike may be in the near future, the US dollar would strengthen, potentially applying downward pressure on Gold. At 5:30 AM EST tomorrow, the Bank of England will release its Quarterly Inflation Report, which could also be market-moving for commodities.

Silver                 $14.325                    -$0.030                          -0.21%
Silver future prices traded sideways during today’s session, failing to rebound from yesterday’s small decline. As was the case for Gold, speculators seem to be waiting for tomorrow’s abundance of fundamental news reports that could all be potentially market moving. In addition to the FOMC Interest Rate Decision, we mentioned the Bank of England’s Quarterly Inflation Report. Historically speaking, this news release has been used as an opportunity for the Bank to make implications regarding its future monetary policy. The report is a broad assessment of various economic indicators in the UK, but the fact that the Bank’s Rate Decision was just last week may prevent significant market movement following the release. UK Unemployment is also expected to come across the wires; any changes in the UK job market could scare investors into relatively safer currencies such as the US dollar. Because Silver serves as both a precious metal and as an industrial input, it is particularly sensitive to the aforementioned fundamental reports. With that in mind, tomorrow has potential to be an eventful day for Silver future prices.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

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