Investment

European Stock Exchanges Position to Reverse Lower

Weekly Strategy

FTSE 100

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 4751, has been reached and is where the rally from 4096 is equal to 61.8% of the 3461-4521 rally.  The next level is 5156, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE is setting up a Rising Wedge chart formation indicative of a bearish reversal ahead. Negative divergence on the RSI oscillator bolsters the downward bias. Near-term support is seen at 4888.90.

DAX

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 5506, has nearly been reached and is where the rally from 4524 is equal to 61.8% of the 3589-5176 rally.  The next level is 6113, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

As with the FTSE, the German benchmark index is showing a bearish Rising Wedge with negative RSI divergence. A break of support at 55023 opens the door for a move to resistance-turned-support at 54420.

CAC 40

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 3535, has been reached and is where the rally from 2958 is equal to 61.8% of the 2466-3400 rally.  The next level is 3892, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Another rising wedge is seen on the CAC 40, again with negative RSI divergence. Near-term support is seen at 3668.40. A break below this will likely see a test of the psychologically significant 3600.00 handle.

IBEX 35

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 1124, has nearly been reached and is where the rally from 925 is equal to 61.8% of the 670-993 rally.  The next level is 1247, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Spanish shares fit in with positioning noted on other key exchanges: a Rising Wedge points to a bearish bias, and negative RSI divergence offers confirmation. A break below the wedge bottom at 1141.81 opens the door for a move to the 23.6% Fibonacci retracement level (1128.42).

FTSE MIB

Long-Term Technical Outlook

There are 2 levels that most likely produce a top and neither has been reached.  The first level, 22798, is where the rally from 17626 is equal to 61.8% of the 12332-20702 rally.  The next level is 25996, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE/MIB looks essentially the same as other European benchmarks, with a Rising Wedge and negative RSI divergence clearly in place. A move below the wedge bottom at 22609.38 will aim below the 22500.00 handle.

Investment

Australia Stocks to Send Commodities Plunging, Statistics May Show

When adjusting for a 10-month lag between commodities and Australian equities we find that the movement in the two have a correlation of 0.96. A simple linear regression between the effect of stocks and commodities, with a 10-month lag, yields estimated values which quite accurately mimic much of the action seen from stocks in recent months. To be more specific the equation that we get from our regression model presents itself as:

Commodities (10 months ahead) = 31.0755 + 0.047581 * ASX 200

Figure 2 presents the mentioned estimated values in green, following the actual values in red.

What can we conclude from this regression model?

For one, we could say that the plunge in Australian equities seen over the last year has not been fully priced into commodities. That is, price action on these earthly assets may still have further to go before hitting a solid bottom. According to the model, commodities might not hit a floor for another two months. Should this prove to be true, commodities are likely to surge ahead, possibly in January. A violent swing upward in the price of such goods would be consistent with the upside volatility that had been seen in equities throughout the Spring of 2009.

Note:

The RBA Commodity Price Index does not include energy. Any recent spikes in oil or historically low natural gas prices will not be factored into this model. The Index itself has the following weightings:

Rural Commodities: 29.1%
Beef and Veal: 9.6%
Wool: 8.6%
Sugar: 5.2%

Base Metals: 15.0%
Aluminum: 8.6%
Copper: 2.7%
Nickel: 1.4%

Other Resources: 51.8%
Gold: 16.3%
Coking Coal: 13.8%
Iron Ore: 9.3%

Written by Luis Gil, CFD Analyst

Investment

Do Sentiment and Fundamentals Support the Bullish Recovery From March?

Are we in a genuine bull market? The rebound in risk appetite across the major asset classes since March would suggest so. However, history has shown us that bear market rallies are common place; and the subsequent collapse from these false recoveries can be even more extensive than the initial decline.

Taking a closer look at the market mechanics and fundamentals that currently back this rebound, it becomes clear that is real reason to doubt a steady advance from investors’ favorite assets. But first, we should look to the positives. First and foremost, the worst credit and financial crisis since the Great Depression has eased; and we haven’t heard a major rumbling in at least six months. What’s more, the worst recession in the same period has slackened its pace and many developed or developing nations expanding or nearly there. Naturally, this combination is encouraging enough to draw side-lined capital back into the market to seek out returns to perhaps recoup some of the dramatic losses net wealth has suffered through the 2007-2008 plunge. The graph below represents the net capital in money market funds. This is traditionally where investors park their capital when looking to protect capital. Clearly there is a lot of capital that can be put back to work and naturally inflate asset prices as demand returns.

On the other hand, fundamentals are not so straightforward. Sure the global recession is stabilizing and the lack of another credit seizure is enough of a draw to pull capital back into the market. However, we need to look beyond the benchmark where the waters are merely safe enough to return to. To facilitate a true bull cycle, there must be a strong and stable expansion in economic activity (and indirectly inflation). Yet, the general accepted consensus among economists and policy officials is that beyond a positive turn in growth, it will be some time before expansion takes hold. With unemployment still trending higher, trade severely diminished, government intervention prevalent and the corporate sector still cutting costs; the world’s economy will have to accept a lower, natural level of potential. This means less credit, less capital investment, restricted investor wealth and little hope for yields (rates) to rapidly advance.

There are signs of these underlying doubts in many of the asset classes that are showing such impressive recoveries on the surface.

Equities

Few other asset classes are as prized as stocks as a symbol for risk appetite. This is a relationship that is easy to believe given the progress the benchmark Dow Jones Industrial Average has enjoyed since the first quarter of this year. The trend is unmistakable. However, momentum is questionable. What is truly concerning is the volume that has accompanied this tremendous rally. While the index tests new highs for the year, fewer and fewer investors seem to be joining the rally. In the end, one trend will have to break.

Crude

Commodities are more sensitive to true fundamental trends due to their use as a raw material in production; but they too have a speculative role to play. Rather, the premium that buffers crude and other natural goods is speculating on economic activity and investor activity. Here, we see that the rebound has been far more prominent with a 120% advance from the lows carved out between December and February. However, open interest for futures have generally trended lower over the same period. For a commodity that is considered a severely limited resource, a lack of demand is a surprising sign.

Treasuries

Treasuries are the safe haven asset of the broader markets. When other risk-based assets are on the rise, capital usually finds its way back to this stalwart. The steady trend lower in face value for the benchmark 10-year note has been far less aggressive; but it also began far earlier. Here, we should expect to have a mild warning sign of a possible trend change in investor sentiment because there is a greater number of alternative assets to invest in that do not have the stigma of a record deficit behind them. Nonetheless, we see that open interest has started to perk up over the past two months and the T-note future contract eye its consistent trend and 200-day SMA.

Written by: John Kicklighter, Strategist for CFDTrading.com
Questions? Comments? Send them to John at jkicklighter@cfdtrading.com.

Investment

U.S. Stocks Lose Most in Six Weeks on Fed, Treasury Report

US Session Key Developments

• Federal Reserve and Treasury Says Credit Conditions Worsened
  
• TALF Program to Be Extended Three Months
• Foreign Cash Flows to U.S. Collapsed in June
  

U.S. stocks declined by the largest amount since July 2 after a new Federal Reserve report showed that bank lending contracted in the second quarter. Indeed many had not been prepared for this announcement as surging equities may have led many to perceive that pain-staking conditions in the credit markets had been alleviating. Indeed, the Fed added that it would be extending its emergency TALF program by three months. TALF loans collaterlized with newly issued Asset-Backed Securities (ABS) and older Collaterlized Mortgage-Backed Securities (CMBS) will continue to be issued through the end of March 2010 while those backed by newly issued CMBS will be extended through the end of June 2010. Investors quickly sold shares once it was made clearer by the Fed that further stimulative action would be required of them. If that wasn’t enough to inspire the selling spree, the level of investment driven to the U.S. from abroad collapsed in June. Total Net Treasury International Capital (TIC) shrank $31.2 billion in June, wildly undershooting the consensus estimate of a rise in such flows of $23.0 billion. The unsettling may lead many to believe that the world’s trust in the American bond market may bay dwindling.

DOW 30   9135.34               -186.06                   -2.00%

Dow stocks took a beating today, with the worst of its sectors, Basic Materials, plummeting 4.73%. Alcoa, one of the two sector’s members, led the free-fall when it shed 6.48% on an indication from the Fed that the economy might not be performing as well as many had anticipated.

SPX 500   979.73              -24.36                   -2.43%

Financials were the second-hardest hit sector in the S&P 500 with Wells  Fargo and Bank of America declining 5.16% and 4.77%, respectively. Word that credit tightness in the second quarter had actually grown worse shook investors’ confidence in the banking sector. Implied volatility on the benchmark, as shown by the VIX index, rose to it’s highest level in five weeks. In percentage terms, the VIX, rose by the largest amound since April 20.

NAS 100   1930.84              -54.68                   -2.75%

NASDAQ stocks performed the worst of the three U.S. benchmark equity indices, with Technology shedding 2.81%. Apple, one of the day’s biggest losers, declining 4.26%, lost out after Dell announced it would be devloping a smart phone for China Mobile Ltd.

Written by Luis Gil, CFDTrading Analyst

For questions and comments email lgil@fxcm.com

Investment

Daily Commodities Fundamentals: Crude Retraces, Metals Push Forward

North American Commodity Update, Last Updated 8/4/2009 4:05 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Retrace Slightly Due to Profit-Taking

Crude Oil (WTI)   $71.220                         -$0.360                             -0.50%
Crude Oil future prices fell marginally today, losing roughly 0.5% after adding nearly 13% during the previous three sessions. It is suspected that profit-taking is likely responsible for today’s slight decline, as investors who are satisfied with recent gains escape the market. The strategy is understandable; tomorrow’s Department of Energy Stockpile report will cause significant volatility, just as it did last week. Recall that last Wednesday, Crude future prices fell 6.5% after a disappointing US inventory figure that indicated continued weak demand. The concept of supply and demand remains a threat in the Crude market; investors have bid up Crude prices recently despite questionable fundamental support for such greenshoots. Propping up Crude prices during early trading was an encouraging report out of China indicating heightened demand for the commodity. Many expect China to be the first country to successfully emerge from the recession, so its increased demand may contribute to bullish sentiment. Regardless, the market will get moving at 10:30 AM EST when the inventory figures are released.

Department of Energy Inventories

Commodities – Metals

Precious Metals Push Forward, Extend Yesterday’s Gains

Gold                   $966.300                           +$7.500                           +0.78%
Gold managed to build on yesterday’s gain, adding another 0.8% during intraday trading. Recently, dollar strength/weakness has been the main reason for any Gold price action. However, today’s $7.700-per-ounce increase comes despite a slightly stronger dollar. After falling to new lows against nearly all of its major competitors, the dollar managed to build a minor retracement, but nothing substantial. It remains on the brink of a continued breakout, one that would only add to future price increases. Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness. Inflation has not been of much concern in the commodity market, as the global recession proves to be difficult to escape. Friday’s NFP report will provide a clearer picture regarding the health of the US economy, and in turn, the next direction for Gold prices.

Silver                 $14.560                    +$0.308                          +2.16%
As predicted, today marked another volatile day for Silver future prices. Silver gained an additional 2.3% during today’s trading session, marking a near 6% increase already this week. Silver’s notable gain was not due to dollar weakness or any inflationary concern; rather, specific fundamental data releases contributed to Silver’s ascent. In addition to serving as a precious metal, Silver also has an industrial application that makes it particularly sensitive to global economic growth indicators. For example, the US Pending Home Sales figure, which came in at 3.6% compared to an expected 0.7%, pushed Silver future prices higher. A rebound in the housing market is often a leading indicator of an economic recovery. Also having an impact was the US Personal Spending growth rate, which increased in the month of June by 0.4%, while US Personal Income fell by 1.3%. Overnight, UK Industrial Production figures are due, while at 10:00 AM EST, US Factory Orders for June will be reported. Both could be potentially market moving for Silver.

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

Investment

S&P 500 Breaks 1,000 For First Time Since November

US Session Key Developments

• S&P 500 Breaks and Closes Above 1,000 For First Time Since November
  
• China Manufacturing Activity Hits 12 Month-High
• U.S. Manufacturing Slows at Tighest Rate Since August
• Construction Spending in U.S. Rises for Only Second Month Since September
  

S&P 500 Breaks 1,000 For First Time Since November

Stocks in the S&P 500 managed to break through and close above the psychological 1,000 mark for the first time since November 4, after both domestic and global data releases pointed toward an upcoming economic recovery. Indeed, China’s Purchasing Manufacturing Index roses to 53.3, the second-highest level since May 2009. Wall Street took special notice to the “new orders” portion of this figure, which rose to the highest mark in 14 months. Purchases of new equipment and merchandise from China sparked hope that a rise in consumer demand was being reflected by the data. Similarly, manufacturing activity in the U.S. began to show signs of a recovery. While still remaining below the 50 level – the break-even point at which manufacturing is either expanding or contracting – the U.S. PMI showed that such activity slowed by the tightest pace in 12 months. If these two bits of data were not enough to spark confidence, Construction Spending rose for only the second month since September, sending Alcoa surging 7.14%

Dow 30              9286.56             +114.95                        +1.25%

Industrials took off today after various indicators of manufacturing and building activity showed signs of hope. Basic Materials was the strongest performing sector in the index after Alcoa and Dow Chemical jumped 3.14% and 7.14%, respectively.

SPX 500              1002.63                 +15.15                        +1.53%

The VIX index, a measurement of fear indicated by the volaility on options on the S&P 500, declined by the largest percentage amount since July 22 after the index surged ahead and closed above 1,000 for the first time since November 4. Price action throughout the day opened and remained in postive territory throughout the entire session.

NAS 100             2008.61                +15.15                          +1.53%

NASDAQ closed above 2,000 for the first time since October 1 after macroeconomic data boosted Technology stocks. Google and Apple rose 2.06% and 1.86%, respectively, after the former’s Chief Executive Officer, Eric Schmidt, announced his resignation from the board of Apple.

Investment

Daily Commodities Fundamentals: Commodities Open Week on a High Note

North American Commodity Update, Last Updated 8/3/2009 4:06 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Gain due to Chinese Consumption, European PMI Figures

Crude Oil (WTI)   $71.420                         +$1.970                             +2.84%
Crude Oil future prices shot up above $72-per-barrel during intraday trading, starting the new week by gaining an additional 3%. Crude prices begin climbing early on in Asian trading, as new reports emerged that Chinese consumption of Crude, which accounts for nearly 45% of all Asian consumption, had increased. Many analysts expect China to be the first country to successfully escape the global recession, so the country’s improved figure may be perceived as an indicator for near-term global growth. The European PMI figures exceeded expectations today, led by the UK number that reached 50.8. A reading above 50 actually indicates expansion as opposed to contraction; the reading had been below 50 since late last year. The PMI reports heightened risk appetite in the futures market, as any signal of near-term economic expansion will likely increase demand for Crude. However, recall that just last week, US Crude inventories were largely disappointing, leading to a substantial 6.5% decline in Crude future prices. If Wednesday’s new stockpile report reveals heightened demand for Crude, the market could see significant upside.

Department of Energy Inventories

Commodities – Metals

Precious Metals Push Forward Hit Recent Highs

Gold                   $959.300                          +$3.500                           +0.37%
Gold future prices reached a 2-month high today after closing up around $4 to $960. Prices increased marginally by 0.3%, significantly less than the gains realized by Crude and Silver. Widespread dollar weakness was most responsible for Gold’s increase today, as the greenback fell across the board (excluding the Japanese Yen). The Dollar Index appeared to experience a breakout during today’s trading, as numerous currencies (including the commodity-correlated Australian and Canadian dollars) hit new yearly highs. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness. Fundamental data does not seem to be supportive of Gold’s increase of late, as inflation remains subdued and physical demand remains low. Regardless, as long as risk appetite remains, investors could choose to ignore the facts and extend the rally. If they become satisfied with the price increase, supports could falter leading to a significant retracement.

Silver                 $14.250                           +$0.310                            +2.22%
Although prices retraced slightly since reaching 7-week highs during intraday trading, Silver futures traded upwards of $14-per-ounce after adding nearly $0.300. Like Gold, the dollar’s weakness contributed to Silver’s gain, but other factors played in that led to the metal’s significantly more notable price increase (about 2.5% compared to Gold’s 0.3%). In addition to serving as a precious metal, Silver also possesses an industrial application that makes it more sensitive to positive industrial reports. As mentioned, the European PMI figures exceeded expectations and heightened risk appetite. The US ISM Manufacturing report also came in better-than-expected, which further advanced Silver future prices. Tomorrow may be another volatile day for commodities; The RBA’s rate decision is due overnight, along with Swiss CPI. At 8:30 AM EST, the US Personal Income and Personal Expenditure reports could be market-moving.

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

Investment

Global Macro Weekly: Treasury Price Action More Reflective of Underlying Fundamentals

With the exception of the 10-Year, all other markets are pushing to fresh 2009 highs as investor risk appetite improves following the release of much better Q2 earning results and a more solid outlook for the global economy. However, we continue to remain suspicious of any rallies in risk appetite as reflected in the global macro markets. While we have seen some impressive buying back into risk, we still hang onto the idea that market participants will once again look to pare back risk, as the reality of uncertainty within the global economy persists. As such, we contend that price action in the 10-Year is more reflective of the underlying fundamentals.

EUR/USD
EUR/USD – Price action remains extremely choppy with the market whipsawing between 1.4000 and 1.4340 in recent trade. However, at this point it appears as though bulls are winning out, with any pullbacks easily met by intense buying. A closer look at the weekly suggests that we are on the verge of another major upside break following consolidation since May, which if broken, would project gains towards 1.5000. Look for a break above 1.4340 and close above the 100-Week SMA to confirm. Strategy: STAND ASIDE

S&P 500 INDEX

S&P 500 Index – The market is now trading back to some consolidation highs from October and November of 2008, and with daily studies trading into overbought territory, the greater risks from here are for a significant corrective pullback over the coming days/weeks. The broader trend is still bearish and a medium-term lower top is now sought out ahead of the next drop. At a minimum, more consolidation is to be expected which should result in a sell-off towards 850-900. Strategy: LOOK TO SELL

CRUDE OIL

Crude Oil – A minor sell-off in the previous week has now been fully negated with the market intent on retesting the 2009 highs above $73 from late June. At this point, daily studies still show room to run and we would expect to see a break back above $73 to fresh 2009 highs in the $75 area over the coming sessions. However, once $75 is reached, we would recommend looking for opportunities to fade and additional rallies. A break back below $63 is now required to take pressure off of the topside. Strategy: LOOK TO SELL

10-YEAR TREASURY

10-Year Treasury – While a compelling argument can be made for some bearish consolidation here ahead of the next major drop below the 2009 lows at 114-08, we continue to favor the bullish side, arguing for the formation of a major base. However, the market will need to break back above 119 to confirm our constructive outlook with the break to trigger a double bottom that will project fresh upside back towards the 124 area over the coming weeks. Below 114-08 negates. Strategy: LOOK TO BUY

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
If you wish to receive Joel’s reports in a more timely fashion, e-mail jskruger@fxcm.com and you will be added to the “distribution” list.

Joel Kruger publishes 6 daily pieces:

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Investment

Daily Commodities Fundamentals: Commodities Bounce Back After Yesterday’s Steep Declines

North American Commodity Update, Last Updated 7/30/2009 2:01 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Bounce Back 5% After Yesterday’s Steep Decline

Crude Oil (WTI)   $66.560                         +$3.210                             +5.07%
Volatility has been the story in the market for Crude Oil futures as yesterday’s 6.5% freefall was followed by a 5% price increase  to spike above $67-per-barrel during intraday trading. Yesterday’s Department of Energy stockpile report, which revealed a 5.15 million barrel increase in Crude Oil inventory as opposed to an expected 1.50 million barrel contraction, trimmed nearly one third of the commodity’s gains since mid-July. Demand for Crude has been historically weak this summer as companies limit their consumption. However, Thursday’s encouraging fundamental data releases and better-than-expected corporate earnings reports returned Crude to its winning ways of late. In early morning trading, the Housing Industry of Australia’s New Home Sales MoM figure for June was 0.5%, up from -5.6% in May. An increase in home sales signals a growing housing market, an essential component of a global economic recovery. In Germany, the Euro-Zone’s largest economy based on Nominal GDP, the unemployment rate was held constant since last month. The Euro-Zone’s Economic Confidence Indicator beat expectations, coming in at 76.0 (75.0 expected).  The positive fundamental news from the global economy heightened investor demand for risk appetite, leading to an increase in Crude future prices despite yesterday’s demand concerns. However, perhaps the most market-moving factor in Crude trading on Thursday was the barrage of optimistic corporate earnings releases that hinted towards an end to the global economic recession. This quarter in particular, projected EPS figures have been reduced so significantly that companies have managed to exceed expectations by simply cost cutting. As a result, nearly 80% of the S&P 500 companies that have reported their 2Q earnings beat expectations. And while the trend continued today, numerous companies not only posted good earnings but also improved their economic outlook for the remainder of 2009.  As we approach the end of a volatile week for Crude, the psychological $65-per-barrel level remains in the rearview mirror. The CFTC hearings have come to a close, but Chairman Gensler seems determined to regulate commodity speculation, saying that “inaction is just not acceptable.” Lingering concern of government regulation will continue to impact the broader commodity market.

Department of Energy Inventories

Commodities – Metals

Precious Metals Push Forward, Accelerate at US Session Open

Gold                   $936.000                           +$6.300                           +0.68%
During yesterday’s trading session, Gold future prices managed to avoid heavy losses by only losing 1%. Risk aversion had bid the US dollar against its major competitors as investors fled from higher yielding currencies towards the “safe-haven currency.” Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness and/or inflation. Today’s rise in equities (the S&P hit its highest level in 9 months while the NASDAQ broke through 2,000 during intraday trading) and encouraging fundamental data reports renewed investment in  riskier assets, particularly the commodity-correlated Australian dollar, which outperformed all of its major competitors. The prospect of a global economic recovery carries with it inflationary fear, which may be confirmed by this evening’s Japanese Consumer Price Index report. Gold future prices saw nearly a full percentage point gain as a result, perhaps signaling a short-term re-test of the psychological $950-per-ounce price level.

Silver                 $13.460                          +$0.202                          +1.52%
Silver successfully bounced back from yesterday’s 3.5% decline, paring losses to close near the $13.500-per-ounce level. As was the case with Gold, dollar strength drove Silver prices downward yesterday. However, in addition to functioning as a precious metal, Silver holds its own industrial applications that make its future price particularly susceptible to fundamental data reports concerning global production. Yesterday’s disappointing US Durable Goods Orders figure (-2.5% actual vs. -0.6% expected) contributed to the metal’s steep decline; because Durable Goods last over three years by nature, they can be used as an indication of economic optimism regarding near-term growth.  During today’s trading session, fundamentals seemed to point in the opposite direction. Japanese industrial production increased for the 4th straight month, which got the market moving. In the US session, the advancement of equities kept Silver strong throughout the day. The US 2Q GDP report will be the main market mover tomorrow; GDP is expected to contract an additional 1.5%, indicating a reduced pace of recession after the 1Q 5.5% contraction. If GDP manages to beat expectations, Silver could see significant upside.

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

Investment

Daily Commodities Fundamentals: Crude Loses 6.5%, Leads Other Commodities Downward

North American Commodity Update, Last Updated 7/29/2009 4:20 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Tank Amid Continued Demand Concern

Crude Oil (WTI)   $62.890                         -$4.340                             -6.46%
After adding nearly $10-per-barrel over the past two weeks, Crude Oil future prices plummeted straight through the psychological $65 level to close below $63. The 6.5% decline marks the biggest intraday loss for the commodity since mid-April. Crude’s descent continued from yesterday, picking up steam early in the US session following the release of a disappointing US Durable Goods Orders report, which showed a 2.5% pullback as opposed to the expected -0.6% change . Durable Goods, by definition, last over three years, so many investors use their growth rate as an indication of future growth. At 10:30 AM EST, the Department of Energy published its Crude Oil Inventory figure, which was the catalyst for today’s extreme price movement. Stockpiles increased by nearly 5.5 million barrels last week despite analyst expectations of a 1.5 million barrel reduction. Demand for Crude had already been week this summer, but investors had ignored this fact when bidding up future prices; the alarming figure from the DOE forced the market to succumb to the basic economic principle of supply and demand. Though slight retracements have been well-documented after such significant price declines the fundamental concerns remain; Crude could begin to fall back to mid-July lows and re-test $60 later this week.

Department of Energy Inventories

Commodities – Metals

Gold Slips, Silver Falls on Weak Day for Precious Metals

Gold                   $929.400                           -$9.700                           -1.03%
Relatively speaking, Gold prices held steady during today’s trading, losing only 1% intraday. After a new batch of disappointing fundamental data reports, the dollar began to climb against its major competitors as investors favored risk aversion. The prospect of a prolonged economic recession scared investors out of higher yielding currencies and muted any existing inflationary fears after last week’s encouraging global news. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. As the CFTC hearings rage on, the broader commodity market may continue to suffer. Just as Gold did not see as substantial gains as Silver last week, it will likely withstand substantial losses as well.

Silver                 $13.295                          -$0.445                          -3.24%
Monday’s $14-per-ounce level for Silver future prices is certainly a thing of the past; continuing from yesterday’s decline, Silver slumped an additional 3.5% today. The US Durable Goods Orders report weighed on Silver future prices, as the prospect of a prolonged economic recession is becoming increasingly probably and may be confirmed by Friday’s US GDP report. Depressing fundamental data is taking control over future price speculation, especially amid the CFTC hearings as traders maintain a “wait and see” approach. Tomorrow’s German unemployment rate and Japan’s CPI report should be the main market movers for Silver, as investors will have new insight into the health of the global economy.

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

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