Posts Tagged ‘Commodities’
Dollar’s Rebound Won’t Sustain as No Rate Hike from Fed Soon
Crude oil trades narrowly in European morning. As USD rebounds after Fed Chairman Ben Bernanke’s speech about policy tightening, commodities pare gains. In the energy complex, WTI crude oil pulls back to 71.3, heating oil to 1.836 and RBOB gasoline to 1.766. In the precious metal complex, Comex gold retreats to 1050 while silver and platinum fall to 17.6 and 1345 respectively.
Investors viewed Bernanke’s speech at a Board of Governors conference yesterday in Washington as a sign of potential tightening. However, there’s nothing new compared with the views he expressed in a WSJ article on July 21: ‘At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner’.
In fact, it’s not likely for the Fed to increase interest rate anytime soon. In an interview, Dallas Fed President Fisher said that ‘we are going to move when we have to move. But it’s not now. Things are fragile but they’re moving in the right direction. If you step back, it is going to take a long time to heal from the kind of severe shock we had, the severe correction we had. There is more confidence but it is not anywhere near robust in the job creating private sector’.
Although the dollar reverses ground after Bernanke’s speech, the rally will not be sustainable. Global fundamentals should continue to weigh on the dollar. Bloating US trade deficit and strength in emerging market currencies such as RMB, should continue to pressure the dollar.
Natural gas rose +69 bcf, compared with consensus of +60 bcf, to 3658 bcf in the week ended October 2. According to the US Energy Department, storage stayed +15% above 5- year average. However, gas price climbed for a second day yesterday, partly driven by broad-based rally in the energy complex and partly amid expectations that demand will increase as we enter the winter heating season.
Among the several factors driving gold’s rally, including dollar’s weakness, limited central bank sales, reserve diversification and inflation expectation, we believe the most prominent one is dollar’s weakness. The chart below shows that gold has broken the 2008 record high on October 6 only in dollar term while price remains well below historic high when denominated in other currencies.
Source: Oil n Gold Report
Gold Declines After the 5-day Rally. Correction Should Be Short-lived
Gold price rallied to 1062.7 before settling at 1056.3, +1.1%, as USD plummeted and crude oil soared. The yellow metal retreats to 1049 in Asia Friday, the first decline after surging for 5 days. We believe a correction is warranted as recent rally might have been overextended. However, any pullback should be short-lived. We remain bullish on gold in the long-term.
Investor Jim Rogers said that will not buy gold at current price as fundamentals do not support. However, he reiterated his long-term bullishness on bullion and anticipated it would reach 2000 in the next decade.
Crude oil price rallied to an intra-day high at 72.55 Thursday after the US reported a drop in initial jobless claims. Moreover, weakness in dollar against major currencies spurred demand for commodities. WTI crude oil finished the day +3% higher at 71.69. RBOB gasoline surged +3.5% to 1.78 and heating oil jumped +3.8% to 1.847.
Initial jobless claims fell to 521K in the week ended October 3 from 554K in the prior month. Apart from beating consensus of a fall to 540K, the reading has also reached the lowest level since the beginning of year. 4 week average also fell -9K to 540K from a week ago. The downtrend in claims is encouraging and should signal gradual improvement to employment conditions.
USD declined against major currencies as investors turned to stock markets and higher-yield currencies. The dollar index plunged to 75.68 before rebounding. Against the euro and pound, the greenback slid -0.7% to 1.48 and 1.6067 respectively. Against Australian dollar, the dollar plunged -1.9% to 0.9067 as unemployment rate in Australia surprisingly dropped to 5.7% in September.
According to Financial Times, a number of Asian central banks began intervention to curb the appreciation of their currencies. ‘Asian central banks intervened heavily in the currency markets…to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China. The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China’s decision in effect to re-peg the RMB to the dollar since July last year’. However, this did not seem to halt USD’ weakness.
Today, crude oil price retreats and USD rebounds after the Fed Chairman Ben Bernanke said the central bank will be ready to tighten policy when the economy ‘has improved sufficiently’. However, Bernanke stated at current stage ‘my colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period’.
Source: Oil’n'Gold
Crude Oil Recovers after the Plunge. Nr-term Outlook Remains Worrisome
WTI crude oil plummeted after a 2-day rally as petroleum product inventories increased more than expected. The benchmark contract slid -1.8% to close at 69.57. Others in the energy complex also dropped with heating losing -1.7% and RBOB gasoline falling -2.8%.
Crude inventory drew -0.98 mmb with declines seen mainly from the East Coast, Midwest and the Gulf Coast. Cushing stocks also fell -1.4 mmb during the week. Refinery runs were flat from the previous week and we expected to see reduction in coming weeks as weak demand and weak margins should discourage refiners.
Doubling the builds anticipated by analysts, gasoline inventory rose +2.94 mmb although demand rose to 9.27M bpd. Imports rebounded back over 1M bpd. Distillate stockpile also gained +0.68 mmb, compared with market expectation of a draw. Demand increased to 3.53M bpd during the week.
Despite the macroeconomic recovery, the underlying fundamentals in energy market remain weak. Total oil demand will contract on annual basis. On the supply side, non-OPEC countries such as Russia are producing excessive while compliance from OPEC is slipping.
Today in Asia, energy prices rebound as the dollar weakens. Crude oil recovers to 70.1 but we see limited upside as price should falter below 75.
Although Comex gold pulled back from intra-day high of 1049.7, price rallied for a 4th straight day and settled +0.5% higher at 1044.4. It’s impressive that gold remained strong despite dollar’s rebound yesterday. However, trading volume was rather thin and investors should beware of a retreat.
Today in Asia, the yellow metal extends gains and surges to 1051.8, another record high as the dollar resumes decline. Over the past 5 days, the yellow metal has risen +5%. Record high gold price should continue to weigh on physical demand. At the same time, rise in gold price should induce sales of scrap which in turns gold supplies. We worry that higher supply and lower physical demand would trigger price correction. That said, any correction should be short-lived and investors can consider accumulating the yellow metal on pullbacks.
On the macro front, BOE and ECB meetings are the focuses. The BOE meeting will likely be a quiet one as policymakers should maintain the policy rate at 0.5% and the asset buying program at 175B pounds. Since the meeting in September, economic data released signaled the UK’s economic condition has improved and the downturn should have ended in the third quarter. However, these improvements were not sufficient to trigger a BOE tightening.
The ECB should also keep its main refinancing rate at 1%. We expect the ECB President Trichet to comment on the euro’s strength.
Crude Oil Daily Technical Outlook
Nymex Crude Oil (CL)
Crude oil retreats sharply after rising to 7.197 and hit near term trend line resistance. With 4 hours MACD crossed below signal line, intraday outlook is turned neutral for the moment. Nevertheless, another rise is still mildly in favor with 68.16 support intact. Above 71.97 will bring rise resumption. Further break of 73.16 will indicate that fall from 75.0 has completed at 65.05 already. The corrective structure will in turn indicate that medium term rally is still in progress for another high above 75.0 before completion.
On the downside, below 68.16 will suggest that rebound from 65.05 has completed and will flip intraday bias back to the downside. Break of 65.05 will reaffirm the original bearish view that crude oil has topped out at 75.0 already and will bring fall resumption towards 58.32 key support next.
In the bigger picture, the lack of follow through selling so far dampens the bearish view that crude oil’s medium term rise from 33.2 has completed at 75.0. Nevertheless, risk remains on the downside as long as 73.16 resistance holds. A break below 65.05 support will solidify the case the crude oil has topped out in medium term again. In such case, deeper fall should be seen to test on 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) first and break will target a retest of 33.2 low. However, a break of 75.0 will indicate that rise from 33.2 has resumed for 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) instead.
Nymex Crude Oil Continuous Contract 4 Hours Chart
Nymex Crude Oil Continuous Contract Daily Chart
Natural Gas Daily Technical Outlook
Nymex Natural Gas (NG)
Natural gas is staying in tight range today and some sideway trading might be seen. But after all, further rise is expected with 4.351 minor support intact. Current rebound from 2.409 is still in favor to extend further to 38.2% retracement of 13.64 to 2.409 at 6.7 next. However, considering mild bearish divergence condition in 4 hours MACD, break of 4.351 will indicate that a short term top is formed and bring longer consolidations before resuming the rise from 2.409.
In the bigger picture, medium term fall from 13.69 is treated as part of the long term consolidation pattern that started at 15.78 back in 2005. The whole consolidation might have completed at 2.409 after meeting 100% projection of 15.78 to 4.593 from 13.69 at 2.50. We’re looking at the prospect of medium term rise to 61.8% retracement of 13.64 to 2.409 at 9.38 in medium term.
Nymex Natural Gas Continuous Contract 4 Hours Chart
Nymex Natural Gas Continuous Contract Daily Chart
Crude Oil Daily Technical Outlook
Nymex Crude Oil (CL)
While intraday upside momentum in crude oil is not too convincing, further rise is still in favor with 68.16 minor support intact. Break of 73.16 will indicate that fall from 75.0 has completed at 65.05 already. The corrective structure will in turn indicate that medium term rally is still in progress for another high above 75.0 before completion. On the downside, below 68.16 will suggest that rebound from 65.05 has completed and will flip intraday bias back to the downside. Break of 65.05 will affirm the original bearish view that crude oil has topped out at 75.0 already and will bring fall resumption towards 58.32 key support next.
In the bigger picture, the lack of follow through selling so far dampens the bearish view that crude oil’s medium term rise from 33.2 has completed at 75.0. Nevertheless, risk remains on the downside as long as 73.16 resistance holds. A break below 65.05 support will solidify the case the crude oil has topped out in medium term again. In such case, deeper fall should be seen to test on 58.32 cluster support (38.2% retracement of 33.2 to 75.0 at 59.03) first and break will target a retest of 33.2 low. However, a break of 75.0 will indicate that rise from 33.2 has resumed for 76.77/90.24 fibo resistance zone (38.2% and 50% retracement of 147.27 to 33.2) instead.
Nymex Crude Oil Continuous Contract 4 Hours Chart
Nymex Crude Oil Continuous Contract Daily Chart
Natural Gas Daily Technical Outlook
Nymex Natural Gas (NG)
Natural gas’s rise lost some steam after taking out 4.975 but after all, further rise is expected with 4.351 minor support intact. Current rebound from 2.409 is still in favor to extend further to 38.2% retracement of 13.64 to 2.409 at 6.7 next. However, considering mild bearish divergence condition in 4 hours MACD, break of 4.351 will indicate that a short term top is formed and bring longer consolidations before resuming the rise from 2.409.
In the bigger picture, medium term fall from 13.69 is treated as part of the long term consolidation pattern that started at 15.78 back in 2005. The whole consolidation might have completed at 2.409 after meeting 100% projection of 15.78 to 4.593 from 13.69 at 2.50. We’re looking at the prospect of medium term rise to 61.8% retracement of 13.64 to 2.409 at 9.38 in medium term.
Nymex Natural Gas Continuous Contract 4 Hours Chart
Nymex Natural Gas Continuous Contract Daily Chart
RBA’s Tightening Boosts Sentiment. Investors Seek Risks Again
Commodities rally in European morning as RBA’s surprising rate hike suggested global economic recovery is on the way. WTI crude oil price surges to 71.15 while gold price rallies to as high as 1029, only $5 below the 1033.9 high made on March 2008.
At the October meeting, the RBA announced to raise its policy rate by 25 bps to 3.25% as global economy is resuming growth. According to the accompanying statement, ‘the recovery will likely continue during 2010 and forecasts are being revised higher. The expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis. Prospects for Australia’s Asian trading partners appear to be noticeably better. Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. For Australia’s trading partner group, growth in 2010 is likely to be close to trend’.
Stock markets also strengthen across the board. In Asia, the MSCI Asia Pacific Index gained +1.4% after falling for 3 days. Japan’s Nikkei 225 Stock Average added +0.2% while Hong Kong’s Hang Seng Index rose +1.9%. Rise in Australia’s S&P/500 200 Index shrank as rate hike will increase the borrowing costs of corporations.
In European morning, UK’s FTSE 100 Index and France’s CAC 40 surge +1.5% to 5099 and 3729 respectively while Germany’s DAX Index adds +1.64% to 5599. Good signs from Australia shadowed weak economic data in the region. UK’s industrial production declined -2.5% mom in August after rising +0.5% in the previous month. In Switzerland, CPI stayed flat in September, following modest gain of +0.1% a month ago.
Saudi Arabia’s central bank denied the news that it has been discussing with China and other countries regarding trading oil using a basket of currencies. Governor Muhammad al-Jasser said that the news is ‘absolutely incorrect and there’s ‘absolutely nothing’ regarding the issue was being discussed.
3 straight days of rally has not only sent the Comex gold futures +2.6% higher, but also helped it made a fresh 18-month high today. As commodities have gathered strong trading momentum these 2 days, it’s likely for the yellow metal to break the record high level of 1033.9 soon.
Investment demand in gold stays robust. Bullion holdings in SPDR Gold Trust have risen for 3 consecutive days to 35.3M oz. This represented an increase of +1.9% from a month ago and +47.5% from a year ago.
Commodities Strengthen as USD is Prone to Head Lower
After weak trading earlier in the day, WTI crude oil rebounded strongly after release of better-than-expected US ISM non-manufacturing index. The front-month contract climbed +0.66% to settle at 70.41 with the intra-day high at 71. Advance in stock markets also lifted price.
Gold price rallied to as high as 1018.9 before settling at 1017.8, +1.3%. Others in the precious metal complex also surged with silver rising +1.9% to 16.54 and platinum gaining +1.4% to 1301.8. The dollar’s weakness against major currencies as G-7 leaders seemed to be comfortable with depreciation in USD. Against the euro and Swiss Franc, the dollar plunged -0.8% and -0.9% respectively. Against commodity currencies, the greenback got bigger hit with NZDUSD rising +2.1%.
Today in Asia, momentum in commodities continues to be strong. WTI crude oil extends gains to 70.6 while gold futures also surges above 1020.
ISM non-manufacturing index rose to 50.9 in September, compared with consensus of 50, from 48.4 in the previous month. This is the first reading above 50 since September 2008 and suggested the services sector in the US has been expanding again. Look into details, the new orders component surged to 54.2 from 49.9 while the business activity component rose to 55.1 from 51.3. Surprisingly, the employment component also improved to 44.3 from 43.5.
Stock market advanced. In the US, the Dow Jones Industrial Average added +1.2% to 9599.8 while S&P 500 Index gained +1.5% to 1040. In Europe, UK’s FTSE 100 and Germany’s DAC climbed +0.7-0.8% while France’s CAC 40 closed flat.
The dollar was pressured after Gulf Arab states are planning to switch to a basket of currencies for oil trading. News said that Gulf Arab states are planning along with China, Russia, Japan and France to end USD’s dealing for oil. Instead, the proposed currency basket will include Japanese yen, the euro, RMB, gold, etc. This would certainly be negative news for USD as major resources commodities have been priced in USD for many years. However, we do not think the ‘basket’ will be a ‘non-dollar’ one.
The dollar plunged against major currencies after Japanese Finance Minister said that he told the G-7 policymakers that countries do not need to devalue their currencies against the dollar. This sent USDJPY below 90.
RBA announced to increase the policy rate by 25 bps to 3.25% today. In the accompanying statement, Governor Glenn Stevens said ‘with growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy’. The tightening widens the interest rate spread between Australia and the US and should weaken the dollar further.
Crude Remains Under Pressure as Recovery Worries Linger
Crude oil trades below 70 in Asia Monday as Friday’s employment data fueled concerns on economic recovery. Weakness in stock market despite renewed decline in USD suggests investors are refraining from taking risks for the moment.
The MSCI Asia Pacific Index slides -0.4% today. In Japan, the Nikkei 225 Stock Average loses -0.1% to 9724. In Singapore, the Straits Times plunges -3% to 2583 while South Korea’s KOSPI drops -1.5% to 1620. Asian equities are catching up the decline Friday after US’ unemployment rose to 9.8% in September with the number of non-farm payrolls plummeting -263K units.
Economist Nouriel Roubini said last week that stock and commodity prices may fall in coming months as the pace of economic recovery does not justify strong rallies in recent months. Roubini said ‘markets have gone up too much, too soon, too fast. I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year’.
Gold price edges slightly higher after a strong rebound in NY session Friday. Currently trading at 1005, the yellow metal’s trading momentum has been helped by weakness in USD. The dollar dropped against major currencies after Boston Fed President Eric Rosengren said last week that the Fed funds rate should be kept at record low until economic recovery is proved to be sustainable. Several Fed presidents will be speaking this week with the NY Fed President William Dudley speaking at New York today and Kansas Fed President Thomas Hoeing speaking tomorrow.
The dollar plunges to 1.46 against the euro after rising to 1-month at 1.448 Friday. In contrary to the market’s expectation, leaders at the G-7 meeting did not criticize about dollar’s weakness.
Commitments of Traders
- Crude Oil: Net speculative long positions dropped one-third to 42142 contracts in the week ended September 29. After rising for 3 consecutive weeks, net long positions in crude should have peaked at 62216 contracts.
- Natural Gas: Net shorts dropped another week to 145 951 contracts as natural gas price rose during the week. Record high in gas storage should continue pressure on the cash market which in turn forces the futures market to move lower.
- Gold: Net speculative long positions declined slightly after soaring for the 5th consecutive week.
- Silver: Although net speculative long positions for silver rose 47 410 contract, the pace of increase has moderated as we expect net longs in silver to decline in the coming week
- Platinum: Net long positions dropped after surging to a record level of 18.2K. Decline in US auto sales in September fuel pessimism in the market again
Source: Oil n Gold Report
