Sentiment

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

Sentiment

Gold Ends the Week in Congestion as Risk Appetite Struggles to Advance

Commodities – Energy

Crude Oil Closes a Fourth Week of Gains at 12 Month Highs

Crude Oil (WTI) -  $80.86  //  -$0.33  //  -0.41%

Week-over-week, oil has offered another strong performance. The key commodity has closed its fourth consecutive bullish week, extending the initial surge sparked last week, pushing to new 12-month highs. Taking a more granular approach to the market’s health however, doubts and suspicions have started to bear down on the steady rally. We can see the hesitation in carry prices to new highs with the past two days worth of price action where congestion below the recent high of $82 and the trend low $80. A break is inevitable; but direction is up in the air.

The fundamental bearing on the oil has not been very clear lately. If underlying supply and demand were the only facet of price determination, crude would likely have collapse these past two weeks rather than rally to new highs. This past week’s US Energy Department inventory figures reveal the glut of supply that has refiners reducing imports. Through the week ending October 16th, crude stockpiles rose 1.31 million barrel to 339.1 million – 9.4 percent above the average levels for this period over the past five years. Further down the refinement line, gasoline supplies unexpectedly contracted 2.3 million barrels to 8.95 million; yet supplies are still significantly higher than the five year average. If demand were robust enough to absorb excess inventories while production levels continued unchanged, there would be a reasonable argument to be made for further appreciation. However, demand for fuel actually dropped 1.4 percent last week and consumption has largely struggled to recover despite the consensus that an economic recovery is underway.

So, while supply and demand imbalances will be a background concern, the true catalyst for price action will almost certainly be investors’ taste for risk and the pace of the US dollar. With the broader market recovery, confidence has led funds not only to yield bearing assets but also to those that can only provide capital gains. An optimistic outlook for steadily advancing markets is the foundation to stability. Should risk appetite falter, profit taking and a fundamental equilibrium set well below current price would act to accelerate crude’s plunge.

Commodities – Metals

Gold Ends the Week in Congestion as Risk Appetite Struggles to Advance

Spot Gold  -  $1055.40 //  $2.00  //  0.19%

Gold may have closed its fourth consecutive weekly advance; but the pace on the rally to record highs has certainly cooled. The commodity has yet to significantly retrace its surge over the past two weeks and yet neither have we seen a new record high after the $1,070.80 benchmark was set back on the 14th. A steady, rising trend channel calls up congestion at the end of a very prominent bull run. This is the same general chart pattern that can be seen in the Dow Jones Industrial Average and (the inverse of) the US dollar. From this, it is clear that all three are responding to the same driver: sentiment. Should optimism give way, the lack of any yield income to offset the potential capital losses will mean a sharp correction through profit taking. At these levels, demand is largely speculative. According to the COT figures, commercial positioning is 383,718 short contracts to 86,225 long. In contrast, non-commercial long positions have hit a record high of 286,864 contracts.

Spot Silver  -  $17.69  //  $0.02  //  0.11%

Congestion in silver prices is as absolute as it is for gold. However, in contrast to its more expensive counterpart, positioning in silver is not pushing an extreme. Commitment of Traders statistics show net non-commercial interest actually slipped from last week’s 15-month high. On the other hand, net commercial positioning of 66,004 shorts marks the most extreme differential since the week ending July 25th, 2008. Among the largest silver-based ETF’s, the iShares Silver Trust’s holdings were unchanged for yet another session at 8,612.57 metric tons while ETF Securities reported assets rose 0.5% to a record 6,625 metric tons.

Sentiment

3Q Earnings Season May Draw More Skeptics This Time Around

Few have forgotten the impact that the US second quarter earnings season had on the markets. Better-than-expected earnings reports were the norm and the impact on sentiment was clear. Risk appetite was feed and stocks rallied for the weeks afterwards. However, the accounting for that period was special as it confirmed the recovery was taking place for the corporate sector. This time around, enthusiasm will be generally more muted. No longer are we merely looking for a rebound from the worst of the crisis; instead, market participants will analyze the data for the pace of the recovery. And, should the market reflect on the numbers with a little more skepticism; they may very well be disappointed by what they see.

Taking a look at the general cut of the second quarter earnings numbers, it is safe to say that cash flows, revenue, invest and all other relevant measures of health are far below the figures we had come accustomed to up through 2007 and even 2008. The full brunt of the recession and financial seizure has severely stalled economic activity; and in turn demand for goods and services has naturally shriveled. With domestic US demand continuing to shrink as wages wither and unemployment marches higher, tight credit conditions prevents expansion and economic hardship and protectionist measures cool exports; the outlook for corporate earnings over the coming years (much less the past three months) looks anemic.

What should we look for specifically to gather a sense of direction from this data? The most important consideration is how the markets respond to the data. Better-than-expected or not, if the general consensus is one of skepticism for the future, sentiment can collapse under its own heights. At the same time, the surprises as compared to forecasts will act as a good catalyst for market activity either way. We should watch the numbers from the biggest corporations – those that represent the entire business sector. This is the first week for major releases; so expect the volatility to begin here (if at all).

It is especially important to watch the announcements from the four major US banks this week. While the rest of the firms’ numbers will be reasonable measures of economic health; the banks health is a necessary measure for growth, credit conditions and financial stability amongst other things. Write downs are especially important. The IMF has projected that the world’s banks have only accounted for half of their losses (and the US specifically 60 percent). Accounting rules may have allowed for roll over losses; but defaults and mortgage security-based losses will factor in sooner or later. Also, as the catalyst for the bullish drive during the second quarter season, Goldman Sachs will likely be under greater scrutiny than its peers.

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

Sentiment

Daily Commodities Fundamentals: Demand Fears Persist for Crude, Metals Enjoy Newfound Economic Optimism

North American Commodity Update, Last Updated 7/14/2009 3:30 PM EST (GMT = EDT +5:00)

Commodities – Energy

Despite Some Positive News, Weak Demand Expectations Move Market Lower

Crude Oil (WTI)   $59.400                         -$0.290                             -0.49%
Increased optimism in the global market failed to boost Crude future prices during today’s session. Crude was trading back around the $61-per-barrel level this morning but has completely retraced. Goldman Sachs’ earnings, which rose 65% this quarter to $4.93-per-share (analysts expected $3.48), sparked the early gains in the US session. Johnson & Johnson’s profits also beat expectations (though profits still declining 3.5%). US Advance Retail Sales, usually a market moving economic indicator, improved this month to 0.6% against an expected 0.4% largely due to auto sales.  Whereas the prospect of a global recovery drove indices in Asia and Europe higher today, weak demand for Crude muted any gains. In its monthly report, OPEC announced that Crude demand will decline in 2009 but increase in 2010, a prediction consistent with the International Energy Agency’s July 10th report. Tomorrow, the Department of Energy will release its inventory counts; analysts anticipate Crude Inventory levels fell another two million barrels, whereas Gasoline and Distillate Inventories both rose.

Upcoming Department of Energy Inventories

Commodities – Metals

Precious Metals Gain on Newfound Global Optimism, Fear of Inflation

Gold                   $924.200                           +$1.700                           +0.18%
Gold prices bounced back today amid inflation speculation and dollar weakness. The US Producer Price Index (MoM) for June was 1.8%, which was more than twice expectation (0.8%). Investors fear that the increase in prices may be a signal for inflation, which could potentially weaken the US dollar. Recall that Gold and the greenback often trade inversely as investors use Gold to hedge against inflation/dollar weakness. The dollar was generally weaker on the day, losing nearly 1% to today’s winner, the Canadian dollar continues to gain strength after yesterday’s Business Outlook Future Sales (2Q) figure and today’s Crude performance. If the economy does rebound, inflation concern could keep Gold future prices going upward.

Silver                 $12.880                    +$0.095                          +0.74%
Silver future prices were bullish during today’s session due to the release of numerous encouraging global reports. Early this morning, Australia put out better-than-expected Business Conditions and Business Confidence reports, which added to positive investor sentiment from yesterday’s rise in Japanese Industrial Production (5.7% from April to May). Silver also benefitted during intraday trading from gains in US Retail Sales and a contraction in Business Inventories. A decrease in Business Inventories can be an indicator for immediate production increases, which would certainly drive up Silver futures. If optimism in the marketplace remains present, expect Silver to continue to climb.

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

Sentiment

Daily Commodities Fundamentals: Crude Stays Near Even, Speculation Drives Metals Higher

North American Commodity Update, Last Updated 7/13/2009 3:32 PM EST (GMT = EST +5:00)

Commodities – Energy

Investor Concern Leads to Crude Stagnation

Crude Oil (WTI)   $59.750                         -$0.140                             -0.25%
Crude prices remained near even today but declined slightly to continue last week’s near 20% decline from earlier highs. A small bounceback initially seemed plausible, but poor fundamental data and an unclear economic outlook dragged down Crude futures. Whereas last week was filled with leading economic indicators pointing towards a prolonged recession, today’s price movement was mainly speculation-based. Traders remain wary to enter any long Crude positions before this week’s earnings reports. Disappointing corporate earnings would likely result in a Crude sell-off into the lower $50’s, whereas positive reports may result in a retracement of last week’s losses. Regulation speculation continues to loom large, adding to Crude’s sell-off as investors gather more information. CFTC Chairman Gensler intends to limit position sizes on oil speculators, hoping to reduce unwarranted volatility in the commodities markets. He has said restrictions could be in place by late October. Expect the Crude decline to continue in the short-term, though technical Fibonacci support exists near 58.50.

Upcoming Department of Energy Inventories

Commodities – Metals

Gold and Silver Both See Slight Gains

Gold                   $919.200                           +$6.700                           +0.73%
Gold prices finished higher during today’s trading session after falling in early trading. Equity markets in Europe all closed higher on the day, leading some investors to enter riskier assets and leave the relatively safe US dollar behind. Recall that Gold and the US dollar often trade inversely as investors use the metal as a hedge against dollar weakness. The greenback fell across the board today (excluding the Japanese Yen), which led to Gold’s slight increase today. The upcoming earnings reports will drive Gold prices as investors await a clearer signal regarding an economic turnaround. Like Crude, Gold future prices will also be impacted by the CFTC’s decision regarding commodity speculation.

Silver                 $12.760                    +$0.120                          +0.95%
Silver future prices saw gains during today’s trading, benefitting from the weaker US dollar and stronger global equity indices. The dollar weakened across the board (excluding the Japanese Yen) as investors head towards riskier assets on the prospect of positive corporate earnings releases. Note that unlike Gold, Silver is particularly influenced by global industrial reports. The Canadian Dollar outperformed all of its major competitors after the release of the Canadian Business Outlook Future Sales (Q2), which was better than expected. Improved business sentiment often leads to larger gains in Silver future prices than gains in other commodities.

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

Sentiment

European Daily Fundamentals: Markets Flat After Sentiment From US Session Weighs On Equities

Europe Session Key Developments

• European Shares Decline Toward End Of Session Despite Modestly Better PMI Release
• Prospect For Near-term Recovery Remains Dim In US And Other Trading Partners
• ECB officials Reiterate Expectations for Weakness to Continue Well Into 2010

European shares reversed gains in late trading as negative sentiment from the US pulled spilled into the markets. While equities gained initially due to a slightly more positive Euro-zone Purchasing Managers Index, they were unable to withstand the general trend of sentiment. While slightly better, the data was little evidence of a near-term recovery. In fact, there is evidence of risks that could lead to further contraction. Financials for example remain exposed to a plethora of securities that present greater probability of losses during an extended recession. While credit spreads have improved somewhat, If losses balloon again they will deteriorate again and cut off the lifeblood for recovering businesses. Meanwhile employment issues vary wildly for country to country in the Euro-zone as some countries have heavily regulated labor markets. What this could mean is that jobs already lost are likely the ones with least protection. On the other hand, jobs with greater protection will keep wages high and make it harder for employers to expand positions in larger numbers. As new job creation lags, this will weigh on consumer spending and place further pressure on the European economy. Meanwhile, export demand will continue to decline as major trade partners continue to struggle with their own recessions. So far, evidence lays more in favor of extended weakness to last well into 2010. Equities are more and more exhibiting signs of returning to bearish sentiment. Given conditions, equities will likely decline for the medium-term.

FTSE 100                       4230.02        -4.03        -0.10%
UK Equities closed lower for the day with weakness in a number of sectors. Financials declined 1.09% as investors worries resurface on earning potential for the second quarter. Given continued global contraction, UK banks may be exposed to further losses, both domestically and internationally. The outlook for this sector remains weak. Utilities and Basic Materials also declined 0.76% and 0.43% respectively impacted by revised expectations for lower demand for energy and materials use. Since the index is up considerably in the quarter compared to the other indexes, it may be due for a sharper pullback if bearish sentiment indeed takes hold.

CAC40                          3116.82        -6.43        -0.21%
The French index declined as well with technology and financial stocks selling off the most, falling 1.67%, and 1.47% respectively. Consumer Services gained 1.24% and offset some of the declines. Technology is typically one of the hardest hit sectors during a downturn as consumers fear losing their jobs and curtail spending. Weakness in this sector will likely continue if contraction in the economy extends into 2010. French financials are likely to continue to decline as their interconnected nature with other countries combined with domestic exposures will weigh in on earnings.

DAX                        4707.15        +13.75        +0.29%
The German index was one of two to gain modestly for the day. Consumer Goods gained 2.16%and Utilities gained 1.48%, offsetting declines in the Industrials and Technology sectors, which declined nearly 1.0%. The rebound in consumer goods is likely to be temporary. A rising Euro will boost domestic demand but demand for exports will likely decline for the same reason. Meanwhile, the German IFO institute expects contraction to continue for the economy. Since a large portion of the economy is centered around producing exports, this does not bode well for most of the gaining sectors of the day. German financials are heavily exposed to international exposures, especially in Eastern Europe. Given the extended nature of global contraction, this could weigh heavily on results for the quarter.

IBEX35                        9348.70        +10.20        +0.11%
The Spanish Index was the second to gain modestly for the day. Weakness was seen in most sectors including basic materials, financials and consumer services, which declined 1.06%, 1.04%, and 0.57% respectively. These declines fall in line with expectations for further contraction but gains of 1.83% in Utilities and 1.07% in telecoms buoyed the index. Since Telefonica makes up such a large portion of the economy, eyes will be on how the firm performs in the coming months as a sign of an increase in consumer activity. Given Spain’s rigid labor market rules however, lost jobs may rebuild slowly and hamper spending on such goods and services.

FTSE MIB                       18464.06        -77.24        -0.42%
The Italian Index declined the most of the indexes, pushed down by a sharp 4.57% decline in technology stocks and a 1.77% decline in the Oil&Gas sector. Strength was seen in the Consumer Goods sector however, which helped offset some of the declines. Italy remains one of the more hard-hit members of the Euro-zone following the crisis. Unemployment remains high and wages will likely stagnate for some time. In this regard, gains will likely reverse in the near-term.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Sentiment

European Daily Fundamentals: European Shares Modestly Positive After US Session Boosts Optimism

Europe Session Key Developments

• European Shares Bounce on US Data and Geithner Comments Toward End Of Session
• European Releases Show Contraction Continues, Financial Sector Remains At Risk
• Fundamental Weakness Will Continue Well Into 2010, Rallies Unlikely To Continue

European shares bounced from modest declines toward the end of the US session as US manufacturing data showed contraction at a less than expected pace. This compounded some of the optimism raised by yesterday’s more positive trade balance and construction output figures. While some say the releases may point to some level of easing in the pace of contraction, continuing claims does not account for those that no longer are eligible for further unemployment claims. As such, these lukewarm releases are far from signs of a full-fledged recovery. In the meantime, the real economy continues to contract and several sectors remain exposed to major risks. Financial institutions for example hold several types of securities tied to such loans as commercial mortgages, student loans, consumer credit, and others. All of which contain greater probability of losses as the recession lingers for such an extended period. For consumers mounting job losses and tightened credit conditions will hamper spending and keep the European economy subdued until well into 2010. Looking forward, there is little evidence pointing to improving conditions that would justify further equity rallies. Given these conditions, equities will likely begin to pull back for the near-term.

FTSE 100                       4280.86        +2.40        +0.06%
UK Equities closed with modest gains as Retail Sales unexpectedly fell 0.6%. Some sectors gained however with Telecoms, Consumer Goods, and Technology sectors leading gains. Vodafone pushed up Telecoms gaining 2.4% as news crossed of possible pledge for stake in the company by Essar. Unilever gained 1.55% as their Net Income rose to $7.53 million. Lloyd’s Banking also gained 3.28% after being raised to neutral by Macquarie.

CAC40                          3194.06        +32.92        +1.04%
The French index gained modestly as Basic Materials sector rose1.83% boosted by Arcelor Mittal’s 2.10% gain following its announcement that its Czech unit would not pay dividends for 2008. Utilities also gained 1.79% as EDF rose 3.09% following announcements by the company that striking employees were “gradually” returning back to work. Financials gained 1.78% as several institutions continued gains after announcements of debt sales.

DAX                        4837.48        +37.50        +0.78%
German rose modestly as well with the Telecom, Financial and Utilities sectors leading the way. Deutsche-Telekom gained 2.89%, boosting the sector following announcement that it would increase its Hellenic Telecom stake by another 5%. Financials also gained 2.76% with Deutsche-Bank RG leading the way with a 3.45% gain following its unveiling of the world’s first “carbon-counter” that would monitor greenhouse gas emissions. The utilities sector also gained 1.49% as E.ON AG jumped 2.31% following its announcement of carbon transfer partnership with Donjiang in China.

IBEX35                        9384.00        +100.80        +1.09%
The Spanish Index gained the second most of the five, led by a 1.67% gain in financials, a 1.24% gain in Telecoms, and a 1.14% gain in Utilities sectors. Banco Santander gained 2.43% despite Swiss Government probes in to its involvement with the Madoff fraud and bad-loan ratios for April month gaining. Telefonica gained 1.24% following announcement of Spinvox winning agreement with the company. A 3.26% gain in Enagas boosted utilities following its announcement that its Balearic Islands Pipe project would be finished by the third quarter.

FTSE MIB                       19233.79        +210.74        +1.11%
The Italian Index gained the most out of the five with Financials, Consumer Services, and Technology sectors leading the way. The three sectors gained 1.80%, 1.71%, and 1.69% respectively. Unicredit Spa gained despite a possibility of downgrades from Moody’s Investors. Mediaset Spa boosted consumer services with a gain of 3.39% following a revision to “buy” by Royal Bank of Scotland. The Technology sector was boosted by a 1.69% gain in STM Microelectronica after winning an “Electron D’Or” award for best power converting product.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Sentiment

European Equities: Technical Outlook

FTSE 100

Long-term Technical Outlook

The FTSE is at risk of at least a pullback if not an outright reversal as daily RSI has rolled over from overbought territory.  The rally from 3461 is likely to extend much higher over the summer months.  But, will the advance carry more or less in a straight shot from current levels or will a pullback occur before the next advance?  Remaining above 4295 keeps the FTSE 100 on a path towards 5106-5495 (50% and 61.8% of previous decline).  A drop below 4295 would lead to a deeper decline in what is probably a B wave.

Short-Term Technical Outlook

The FTSE is setting up a double top at 4520.82, bouncing lower to find support at the lower boundary of a rising channel. A break lower eyes support at 4270.63, the 23.6% Fibonacci retracement level.

DAX

Long-term Technical Outlook

The DAX pattern is the same as that of the FTSE 100.  Staying above 4653 keeps the index headed higher towards 5870-6409.  These levels are defined by the 50% and 61.8% retracements of the decline from the 2007 high.  The 100% extension of the first leg of the advance (wave A, from 3589-4980) is in this zone at 6045.

Short-Term Technical Outlook

German shares have put in an Evening Star bearish reversal candlestick formation at resistance below 49850. A break below channel support at 48480 will target the 23.6% Fibonacci retracement at 46580.

CAC 40

Long-term Technical Outlook

The decline from the 2007 high in the CAC 40 is in 5 waves and either wave 1 or 5 is extended.  It seems more probably that wave 5 is the extended wave because if wave 1 were extended then wave 2 would be uncommonly small.  Either way, the index is most likely headed significantly higher over the next several months.  The target zone is the former 4th wave, which is 441-5142.  The 61.8% is in the middle of this zone at 4754.  Near term, staying above 3115 keeps the trend pointed up.  Coming under there would lead to a deeper decline in what is probably a B wave.

Short-Term Technical Outlook

The French benchmark index looks to be setting up a double top. Near term support is seen a t3183.41, the lower boundary of a rising channel. A break lower will target the 23.6% Fibonacci retracement (3145.79).

IBEX 35

Long-term Technical Outlook

Same story with the IBEX 35.  The rally from the low (6703) is corrective but has more room to run.  Staying above 8829 keeps wave C headed higher towards 1137-1247.  This zone is defined by the 50%-61.8% retracements of the decline from the 2007 high.  Wave C would equal wave A near the lower end of this zone at 1159.

Short-Term Technical Outlook

The IBEX is reversing lower having re-tested a previously broken support at a rising channel bottom, setting up a double top at 94603. Near term support stands at 88094, the 23.6% Fibonacci retracement level.

S&P/MIB

Long-term Technical Outlook

The FTSE MIB (Milan) index took the same structure as the CAC 40 on the way down from its 2007 high.  The index is currently testing the 200 day SMA, which should give way as the target zone for the index is not until 30062-34711 (former 4th wave….wave 5 is extended).  Remaining above 18752 keeps the trend pointed higher.  Coming below there would lead to a deeper decline (next support would be 17133) before the next leg up.

Short-Term Technical Outlook

A triple top on the Italian benchmark index appears to be in the works. An extension of bearish momentum will target the 23.6% Fibonacci retracement at 19438.

Sentiment

European Markets Daily Fundamentals: Europe Shares Trade Flat As Sentiment Pushes And Pulls Between Optimistic News And Pessimistic Jobs Data

Europe Session Key Developments

• Optimism Stalls As Unemployment Jumped To 9.2%
• US Releases Revive Optimism Somewhat
• Can Rallies Continue Into The Short-term?

European shares fluctuated for most of the day ending off largely flat as positive news from the US wrestled with rising unemployment. Positive sentiment hit a barrier with the announcement of the jobs release, which showed unemployment rising to 9.2% in April. Equity rallies of the past few months ignore a slew of economic risks that have the potential to disrupt an economic revival. The rise in unemployment is a troubling reminder of such risks. Going against the current of outsized optimism, the release may be a more solid indication of the real state of the economy. Later in the trading day however, optimism was revived somewhat after Pending Home Sales Data in the US showed a much larger increase than expected. The news adds to a list of economic releases that show better than expected results but traders should be careful in making too much out of the releases. A minor jump in confidence and slight rebounds in data that remains at historical lows does not necessarily translate into a turnaround. Take for instance the current perception of US bank health. A release from the US Federal Deposit Insurance Corporation shows a starkly different picture than sentiment seems to be following, with a report listing 304 banks considered “problem” banks, increasing by 34 more than the previous quarter, a clear sign that financial weakness has continued, if not deepened. Despite all the fanfare, there is very in the ways of economic releases that could truly support the current wave of optimism gripping equity markets. With this in consideration, as the rally approaches key resistance levels traders will begin to search for more solid data to support such strength. When they do so, they will likely find very little if at all, that would do so. As such, equity rallies may be due for a pullback in the near to medium-term.

FTSE 100                       4477.02        -29.17        -0.65%
The UK index was the only one to show a decline lead by weakness in Financials, Health Care, and Technology sectors. The three declined 3.49%, 1.43%, and 1.41% respectively. Barclays declined over 13.52% after as Abu Dhabi’s royal family has sold over €1.4billion of their stake through the International Petroleum Investment Corporation. Other financials declined as well with Lloyd’s Banking and RBS both declining over 4.1%. Advertising firm WPP Plc also declined 4.3% after announcing lower sales for the quarter and a round of job cuts.

CAC40                           3378.04        -1.450        +0.04%
The French Index traded flat for the day as outsized weakness in Telecoms (a decline of 5.47%) was offset by strength in Financials and technology sectors which gained 1.11% and 0.84%. Dexia SA gained over 10.92% after being raised to ‘buy’ from hold by Deutsche Bank AG. France Telecom declined over 4.8% after announcing it would only be able to bid for up to 3% of Mobinil. STMMicroElectronica also gained 3.47% despite announcement that free cash flows had turned negative for the month.

DAX                                5144.06        +1.500          +0.03%
The German Index also traded flat as Weakness in Financials and Telecoms, which declined 2.05% and 1.05% respectively was offset by gains in the Consumer Goods and Technology sectors, which gained 3.34% and 1.46% respectively. Deutsche-Telekom declined 1.15% after announcing it would fight Vodafone’s bid for Orange. Deutsche-Bank AG declined 1.98% after it sold €1billion in seven-year mortgage pfandriere but would not call $650million of Tier 1 bonds. Thyssenkrupp AG continued to gain 2.11% as well.

IBEX35                        9664.80        +33.90        +0.35%
The Spanish Index showed the largest gain of the day, buoyed by gains in the Oil&Gas and Consumer Services sectors. The two gained 2.25% and 2.14% respectively. Gains were offset however by weakness in the Health Care and Technology sectors, which declined 1.37 and 1.32% respectively. Gamesa SA declined 8.64% after Iberdrola SA sold off 10% of its stake. Iberdrola SA conversely gained 1.14% on the news. Repsol SA gained 2.25% after Citigroup raised its price estimate after news that indigenous protesters had left its installations.

FTSE MIB                  20523.71        +12.00        +0.06%
The Italian index gained slightly as gains in the Technology and Consumer Goods sectors of 2.92% and 1.41% were offset by decline of 3.77% in the Telecom sector. Weakness in telecoms came as Bernstein and UBS both lowered outlooks to “underperform” and “neutral” for the company. Fiat SPA showed a modest rebound from prior losses as news came that its appeals process would be expedited. Saipem SA gained 3.76% after winning contract on a $1billion offshore contract in Kazakhstan.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Sentiment

European Shares Flat After Volatile Session

Europe Session Key Developments

• Optimism Quelled By Negative US Data
• Three Month Rally Has Been Built On Positive Expectations
• Given Dearth Of Positive Economic Data, Is Market Due For a Pullback?

European shares traded higher for most of the day but ending mostly flat as negative news out of the US quelled optimism. In this regard, equities have held on to optimistic gains for the past three months, despite signs of steepened economic contraction. This may change as European indexes are approaching a significant resistance level. Investors may reevaluate their positions, focusing on expected economic conditions rather than sentiment indicators. If so,  economic data that point toward extended weakness could lead to a sharp reversal for markets. Furthermore, a recovery in Europe will depend to a large degree on a recovery in the US. A rebound in the states cannot happen until financial institutions are fully stabilized and able to lend. In this regard, expectations are not very promising. With such securities as those backed by or related to commercial mortgages, credit card loans, student loans, or even from residential mortgages, the possibility for further losses is real, and outlook remains insecure. Fitch ratings agency today mirrored this possibility with a negative outlook for major US financial institutions. In turn, current equity optimism without major solid data to anchor it will eventually subside. Given the ratio of negative to positive data pointing to further weakness, bearish sentiment could overtake the markets and lead to declines for the short to medium-term.

FTSE 100                       4417.94        +30.40        +0.69%
The UK index showed the most gains for the day despite weakness in all sectors except for Basic Materials, Financials, and Oil&Gas sectors, which gained 3.35%, 1.72%, and 1.18% respectively. Strength came for basic materials as Xtrata PLC and Anglo-America PLC gained over 5.1% on prospects of a merger between the two. Barclays also gained as it completed first sale of 600,000m  metric tons of UN emissions reduction credits. Overdraft rates for the company were also cited to be raised by 4%. Lloyd’s added to financial strength as it rose 4.2% as it redeemed €5.5million of notes due in 2010.

CAC40                          3277.65        +13.95        +0.43%
The French Index modest gains as well led by the Financials, Oil&Gas, and Technology sectors, gaining 1.89%, 1.70%, and 1.49% respectively. Technology was raised by STMMicroElectronics, which gained 4.47% despite reports that its EBITDA for the quarter dropped to -€64,000,000. Société Générale helped buoy Financials, gaining 3.02% after confirming preference share sale of €1.7billion. transportation services company, Dexia SA rose 3.10% after announcing it planned to add 200 new commercial employees.

DAX                        4940.82        +7.94        +0.16%
The German index showed modest gains with modest strength in the Financials, Basic Materials, and Consumer Goods sectors, which gained 1.09%, 1.07%, and 1.03% respectively. Bayer AG gained over 3.55% as the market weighed possibility of having blood clot drug Xerotol denied approval in the US by the FDA. Deutsche Borse gained 2.7% after being added to the “most preferred” list at Bank of America.

IBEX35                        9424.30        -11.20        -0.12%
Oil&Gas and Consumer Services Sectors gained 1.93% and 1.89% respectively. The two sectors offset declines in all sectors with health care showing the most weakness declining 1.01%. Major movers were Mapfre which gained 4.68% after being revised to “buy” by Deutsche-Bank AG. Cintra also gained 2.91% after posting a first quarter profit of €12million despite expectations for a loss from analysts. Iberdrola declined 0.84% after announcing that energy supplier margins might have dropped this quarter.

S&P/MIB                       19884.00        -226.00        -1.32%
The Italian Index declined the most out of the indexes. Weakness was primarily in the Utilities sector which declined 4.18% Consumer Goods and Consumer Services sectors followed closely behind with declines over 2.3%. Enel SPA declined 5.59% after announcing sale of 80% of its gas network to infrastructure fund F2i Spa. Fiat Spa declined 4.15% after comments from CEO Marchionne that he would not attend meeting today, possibly foreshadowing Fiat’s pullout in bidding for General Motor’s European arm, Opel.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com