Macroeconomics

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

Macroeconomics

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

Macroeconomics

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

Macroeconomics

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

Macroeconomics

Daily Commodities Fundamentals: Commodities Close Lower to End Week

North American Commodity Update, Last Updated 8/7/2009 5:19 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Fall on U.S. Dollar Strength

Crude Oil (WTI)   $70.420                         -$1.500                             -2.09%
Crude traded lower after a choppy day of trading, losing roughly 2% by the session’s close. Today’s main market mover was the US Non-Farm Payrolls report, which led to a swing towards risk appetite but also a strengthening of the US dollar. The NFP revealed a loss of 247K jobs last month, a dramatic improvement when compared to the 328K analysts expected. The US unemployment rate actually fell from 9.5% to 9.4%; it was the first decline since April of 2008. The positive release out of the United States led to an impressive dollar rally. When the dollar gets stronger, dollar-denominated commodities like Crude lose. However, the better-than-expected NFP report heightened investor confidence, leading many to believe that the recession is over. If this is truly the case, demand for Crude would likely increase as the global economy begins to expand. Note that just Wednesday, the Department of Energy inventory figures showed a significant year-over-year decline in Crude demand, a threat to any sustainable economic recovery. It will be interesting to see what direction, if any, Crude prices take next week.

Department of Energy Inventories

Commodities – Metals

Precious Metals Retrace Slightly to End Week

Gold                   $956.900                           -$6.000                           -0.62%
Gold finished slightly lower today, leaving it nearly even over the past week at approximately $957-per-ounce. The reason for Gold’s decline today was certainly US dollar strength; the greenback closed higher against all of its major competitors (excluding the New Zealand dollar), specifically gaining over 2% on the Japanese Yen. As was the case with Crude, the US NFP report was the fundamental driving factor. Investors continue to regain confidence in the global economy, many of whom believing that the US will lead the world out of the recession. Gold losses were subdued today despite the dollar’s impressive performance because when speculators prepare for an economic recovery, inflationary fear sets in, helping to support Gold future prices. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. Expect Gold prices to increase next week due to heightened risk appetite and inflationary concern.

Silver                 $14.600                          -$0.045                          -0.31%
For the first time all week, Silver’s price move was less extreme than Gold’s. Silver future prices lost only 0.3% due to conflicting fundamental data that applied pressure on opposite sides of the metal. Usually, dollar weakness and risk appetite go hand-in-hand, leading to volatile swings in prices. In addition to serving as a precious metal, Silver also has an industrial application, which makes it particularly sensitive to a changing global economic outlook. Today’s better-than-expected US NFP report bid up the US dollar while still encouraging investors to re-enter higher yielding assets. Next week, the Bank of Japan and the FOMC are due for their interest rate decisions. Though they are both expected to maintain their respective key lending rates, the commentary that follows may provide some direction in the global marketplace, leading to changes in commodities.

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

Macroeconomics

Daily Commodities Fundamentals: Crude and Gold Trade Sideways, Silver Falls

North American Commodity Update, Last Updated 8/6/2009 3:50 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Pares Early Losses, Ends Near Even

Crude Oil (WTI)   $71.920                         -$0.050                             -0.07%
Crude Oil future prices closed nearly even today after paring more significant losses that had tested the psychological $70-per-barrel level. Prices began their initial descent right before the US trading session began, when both the Bank of England and European Central Bank released their Interest Rate decisions. Though neither bank decided to adjust its key lending rate, the meetings did have very differing results. Jean-Claude Trichet of the ECB expressed a sentiment of guarded optimism, hinting that a recovery is on the horizon. The Bank of England, however, decided to extend its Asset Purchase Program by an additional £50B, which indicated that the UK remains in a period of financial turmoil. The fear of a prolonged economic recession drove down Crude future prices by nearly $2. Also putting pressure on Crude was a weaker equity market in anticipation of tomorrow’s US Non-Farm Payrolls report. Risk aversion took control as investors await a clearer signal regarding the health of the global economy. Expect tomorrow to be a volatile day in the Crude market leading into the weekend.

Department of Energy Inventories

Commodities – Metals

Gold Trades Sideways, Silver Loses

Gold                   $965.600                      -$0.700                         -0.07%
Gold future prices also traded flat by the day’s close despite a volatile US session. Gold prices had peaked above $974-per-ounce before completely retracing and falling all the way down to near $958. The US dollar was stronger across the board, making it difficult for Gold to sustain any gains. Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar inflation and/or weakness. During tomorrow’s trading, Switzerland, Canada, and the United States all release their respective unemployment rates. These figures will likely guide the market, determining whether or not investors will return to risk aversion remain generally bullish on the global economy forecast.

Silver                 $14.575                        -$0.185                            -1.25%
As has been the case for weeks, Silver futures have proved to be much more volatile than Gold futures. Whereas Gold remained even on the day, Silver lost over a full percentage point as risk aversion dominated the marketplace. Silver’s industrial application, in addition to its function as a precious metal, makes the commodity particularly sensitive to any news regarding the global economic outlook. The commentary surrounding the two interest rate decisions likely contributed to Silver’s decline, as investors remain wary about the prospect of a near-term economic turnaround. Traders flocked en masse to the relatively safe US dollar in anticipation of tomorrow’s fundamental data releases.

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

Macroeconomics

Daily Commodities Fundamentals: Commodities See a Choppy Day of Trading

North American Commodity Update, Last Updated 8/5/2009 4:45 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Prices Retrace Manage Slight Gains

Crude Oil (WTI)   $71.830                         +$0.570                             +0.57%
Crude Oil future prices managed to close higher after a choppy day of trading. Crude opened the day on a high note as the Asian markets internalized the encouraging fundamental US data from the day before. Soon thereafter, the United Kingdom released its own Industrial Production report that pointed towards economic expansion, a good sign for Crude bulls. However, Crude fell nearly two dollars following the release of the Department of Energy stockpile figures. Crude Oil inventory were expected to climb by 600K barrels, when in reality, it climbed by 1670K barrels. Gasoline inventory fell by less than expected; Distillate inventory fell despite an anticipated increase (see below). The report showed that despite the recent bid up of future prices, demand for the commodity still remains weak. OPEC has hinted towards a decrease in output for the month of September as a result. Though it was predicted that a disappointing report like this one would lead to a reversal of Crude’s recent upswing, prices pushed even higher. Investors seem to be confident that the global economic recession is coming to a close and as a result, consider today’s Crude cheap.

Department of Energy Inventories

Commodities – Metals

Precious Metals Near Flat, Waiting for Direction

Gold                   $967.300                           -$2.400                           -0.25%
Gold future prices remained mostly flat during today’s trading session, failing to establish a new direction for the remainder of the week. Though nothing too extreme, the dollar was mixed against the major currencies today, beating the Australian and New Zealand dollars but losing most to the British Pound, the outperformer on the day due to their encouraging Industrial Production report. The majors continue to float around YTD highs against the dollar; a catalyst could determine whether or not the dollar breakout from Monday is sustained or retraced. Expect the Bank of England and European Central Bank’s Interest Rate Decisions to indirectly impact risk sentiment and the US dollar, which will in turn, swing Gold future prices.

Silver                 $14.750                    +$0.055                          +0.37%
Silver future prices remained mostly flat also on the session but ended higher on the day. The UK Industrial Production report had pushed Silver higher during early trading, but poor fundamental data from the world’s largest economy pared any gains. In the US, Factory Orders fell by more than expected (not completely surprising after last week’s Durable Goods Orders figure). The ADP Employment Change also came in worse than expected; this report is often considered a precursor for Friday’s NFP report, which will be a market mover for commodities.  Volatility may arise in the Silver market before Friday however, as tomorrow’s interest rate reports may provide future direction for prices.

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

Macroeconomics

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

Macroeconomics

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.

Macroeconomics

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

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