Commodity Futures Snapshot

The green zone represents between 2 standard deviations above and below the commodity’s 50-day moving average, and moves above or below the green zone are considered overbought or oversold. 

As the dollar has risen in recent days, most commodities have pulled back quite a bit.  As shown, oil has pulled back sharply from the top of its trading range to the middle of its trading range.  Gold and silver have moved down to the bottom of their trading ranges, while corn and wheat are now below the green zone.  Platinum has also pulled back, but it’s still closer to the top of its range than the bottom.  Natural gas hasn’t gotten hit as hard as other commodities, and it is actually up a bit today.

Source: Bespoken Research

Stock Market Report 20-1-10

US stocks rose in a broad-based rally as investors bought healthcare shares on bets that a potential Republican victory in Massachusetts’ Senate race could stall President Obama’s reforms and remove a threat to profits in the sector.

The S&P Healthcare Index climbed nearly 2%. Drug maker Eli Lilly rose 5%. Health insurers Humana and Aetna gained 3.6% and 4%, respectively.

All 10 S&P 500 industry groups traded in positive territory.

The Dow also received a boost from McDonald’s, which gained 2.3% on an analyst upgrade. 3M was another notable mover, rising 2%.

Kraft Foods was the biggest drag on the Dow, declining 1.1% after it agreed to a revised cash-and-stock deal to buy Cadbury for about US$19.6B.

In other deal news, Tyco International agreed to buy Brink’s Home Security Holdings for US$1.9B. Brink’s shares surged almost 31.6%.

Large-cap technology companies buoyed the NASDAQ. IBM is expected to report its quarterly earnings after market close. Apple was up 4.2% while IBM advanced 1%.

Citigroup reported a fourth-quarter loss that met analysts’ expectations as the third-largest US bank took charges linked to repaying government bailout funds. On the upside, the company said consumer credit losses dropped in the quarter and that it also set aside less money for bad loans during the quarter. Shares gained 3%.

The Bank of America and Morgan Stanley will report on Wednesday. Goldman Sachs and Google will report earnings on Thursday.

S&P 500 earnings are expected to have almost tripled versus those a year ago and revenue is expected to have risen 7%. However, the jump is largely due to a spike in financial sector results versus an easy comparison to the fourth quarter of 2008 amid the height of the financial crisis. Without the financial sector, earnings are expected to be down 8% and revenue is expected to decline 1%.

Overseas Markets

Dow up 116 pts to 10,725 (10,592 – 10,730)

S&P 500 up 14 pts to 1,150 (1,136 – 1,150)

Nasdaq up 31 pts to 2,319 (2,291 – 2,320)

FTSE up 19 pts to 5,513 (5,431 – 5,532)

Nikkei down 90 pts to 10,765 (10,749 – 10,867)

Shanghai SE Comp up 10 pts to 3,247 (3,237 – 3,269)

Commodities

WTI Oil up 0.8% to US$78.66/bbl

Gold up 0.7% to US$1,138/oz

Sugar (NY) up 4.9% to USc28.98/lb

Corn down 2.6% to US$3.33/bushel

Wheat down 1.7% to US$4.70/bushel

Natural Gas (Henry Hub) down 2.7% to US$5.51/MMbtu

Silver up 1.0% to US$18.82/oz

Platinum up 1.7% to US$1,650/oz

Currency

A$ / US$ up 0.1USc to US$0.92 /A$

EUR / US$ down 0.9USc to US$1.43 /EUR

GBP / US$ up 1.1USc to US$1.64 /GBP

US$ / Yen up 0.4 Yen to 91.14 Yen/US$

Stock Market Report 19-1-10

US markets were closed for the Martin Luther King Day.

Major US companies reporting later this week include the Bank of America, Citigroup, Morgan Stanley, Goldman Sachs, IBM, General Electric and Google.

European shares rose, lifted by a rally in mining and oil shares on the back of firmer commodity prices.

National benchmark indexes gained in all of the 18 western European markets, except Greece, Iceland and Luxembourg. Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC 40 rose between 0.7% and 0.8%.

Trading was subdued, as US markets were closed for the Martin Luther King Day. Volumes on the European index were just 65% of its 90-day daily average volume.

Miners topped the gainers’ list as commodity prices advanced. BHP, Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose between 1% and 4%.

Cadbury rose 1.8% on media reports that the Kraft Foods will increase its offer to at least 820 pence per share. Kraft Foods must make a revised bid for Cadbury by Tuesday. The Hershey Co., which is reportedly working on a possible bid as well, has until Saturday to make a bid under UK takeover rules.

International Power dropped 3.4% after saying talks with GDF Suez on combining some assets are no longer continuing. The biggest UK-based electricity producer had earlier rallied on speculation that GDF Suez is considering a tie up with International Power that may lead to a partnership.

Greece’s ASE Index slid 2.5%. Finance ministers from the 16 nations using the euro are meeting in Brussels as Greece struggles to cut a 2009 budget deficit that may reach almost 13% of GDP. Among notable movers, Titan Cement, Greece’s largest cement maker, sank 7.9%. Alpha Bank, the country’s third-largest bank, tumbled 7.7%.

L’Oreal, Nokia and Zodiac Aerospace advanced on analyst upgrades. L’Oreal added 2.1%, Nokia was up 1.6% and Zodiac Aerospace gained 5.4%.

Overseas Markets

FTSE up 39 pts to 5,494 (5,454 – 5,504)

Nikkei down 127 pts to 10,855 (10,781 – 10,895)

Shanghai SE Comp up 13 pts to 3,237 (3,202 – 3,238)

Rio Tinto plc up 0.89% to A$63.68 eq.; a 19% discount to prev Aust close A$78.32

BHP plc up 1.47% to A$36.54 eq.; a 16% discount to prev Aust close A$43.44

Commodities

WTI Oil down 1.8% to US$78.00/bbl

Gold up 0.3% to US$1,134/oz

Silver up 1.2% to US$18.64/oz

Platinum up 1.4% to US$1,622/oz

Currency

A$ / US$ down 0.5USc to US$0.93 /A$

EUR / US$ down 1.1USc to US$1.44 /EUR

GBP / US$ down 0.1USc to US$1.63 /GBP

US$ / Yen down 0.5 Yen to 90.74 Yen/US$

Weekly Commodity Update – Futures Trading

After the New Year rush to initiate long positions commodity markets ran out of steam this week. The CRB index showing a flat return after a near four percent gain during the first week of trading.

The “frost” premium that helped drive energy prices higher at the beginning of the month has begun to evaporate as forecast for milder weather combined with another rise in inventories has taken prices lower. Market moves caused by weather shocks are by nature temporary but the surge in demand has helped reduce booming inventories somewhat.

The Energy information Administration (EIA) this week released their monthly OPEC surplus oil production capacity data. Excluding Nigeria and Iraq they now have 4.7 million barrels per day of surplus capacity, the highest level since 2002.

Despite robust demand from Emerging markets the slower than expected recovery among the developed economies leaves little room for further upside near term. With the current surplus capacity OPEC has signaled satisfaction with current price levels knowing that higher prices might damage the ongoing slow recovery. On top of this we have the risk of potential overheating of the Chinese economy, something that the government took the first steps to address this week by reining in lending , and raising the cost of funds for lenders.

The long awaited report from the CFTC on how they would curb excessive risk taking in energy markets were released on Thursday. The new rules would affect crude oil, natural gas, heating oil and gasoline but as it turned out the new limits would probably only impact the ten biggest position holders. So a pretty measured response with the main impact being felt by hedge funds and index-funds.

Technically Crude Oil for near month delivery made a new 15 months high at USD 83.95 but the subsequent strong sell off indicates that the market is not currently ready for an attempt on USD 85 and beyond. Considering the 18.5% rally since the middle of December last year a correction was overdue. We are currently looking for USD 78.08 and USD 76.27 as good support levels in a market that increasingly looks like it wants to range trade around USD 80 until we see further reduction in the overhang of supply.

The Gold rush of 2009 was put into perspective this week as a leading precious metals consultancy said that the investment demand for gold had doubled to 1,820 tons last year, while jewellery purchases fell 23% to 1,687 tons. This is the first time in three decades that investment demand exceeded that of jewellery demand and it highlights the huge role that investors played in driving gold to a record high in 2009.

Jewellery demand is expected to stay subdued above USD 1,000 according to traders, which puts the focus firmly on the need for continued investment demand in order to drive prices higher over the coming months. Global mine supply only rose by 6% to 2,553 tons, a six year high while net sales from central banks dropped 90% to 24 tons, the lowest level in more than twenty years.

Overall new net investments into commodities rose by USD 50 billion, a new record according to JP Morgan. It illustrates clearly how this growing asset class is being viewed by investors and currently the expectations are for a similar amount to be invested into the sector in 2010.

Gold like energy prices failed to hang onto the gains made early this week. On one hand it is being supported by continued investment interest but worries about a potential revival of the dollar on the back of European woes could hurt the EUR and thereby potentially gold as well. The economic problems facing countries around the Mediterranean and Ireland is well known and a continuation of the dollars month long slide can no longer be taken for granted.

Gold/silver ratio:

Overall the uptrend is still intact above USD 1,055 but gold looks to be in a consolidation phase for the time being. Look for support towards USD 1,115 followed by USD 1,086 and resistance at USD 1,146 and USD 1,162. Silver meanwhile has managed to hold onto its recent gains showing a near 11% gain so far this month with USD 18 proving to be a major support level. The gold to silver ratio has dropped from 65 to 61.2 currently with additional room for silver outperformance down towards 60.

The major moves of the week took place among grain and oilseeds products which tumbled on Tuesday after the USDA released their WASDE report (World agricultural supply and demand estimates), in which they surprisingly raised yield forecasts to record highs. Planting delays last year which delayed the growth window were more than offset by a mild summer and a warm dry September which helped the delayed crop to maturity.

This surprise change in forecast prompted a dramatic sell off across the board with Corn reaching the allowed down limit for the day and continued lower the following day. Because the US exports half the world’s corn, a third of the world’s soybeans, and a fifth of the world’s wheat, changes in output there have a major impact on global prices.

The reason why the upward revision came as such a surprise is due to the bad weather that the Midwest has experienced during these past few months. For exact this reason some worry that the next figures due in March could be revised lower as a portion of this season’s corn crop remains stuck in the ground due to unusually wet weather.

We see some upside to Corn now after speculative long positions have been reduced but favor a relative value trade versus wheat around the current ratio of 0.72 going for a target towards 0.79. Corn will be supported by the continued use in ethanol production while wheat supplies are abundant.

Corn/Wheat ratio

Stock Market Report 15-1-10

US stocks traded slightly higher on Thursday, led by the technology sector.

Market breadth was positive. On the NYSE, winners beat losers by four to three. On the NASDAQ advancers topped decliners eight to five.

The technology sector led gains on the back of positive brokerage comments on Oracle and ahead of an expected profit report from Intel. Shares of Oracle, the world’s second largest business software maker, gained 2.5% and led gains on the NASDAQ. Dow component Intel Corp, the world’s largest chipmaker, is expected to report a quarterly profit after market close. Its stock advanced 1.6%. Analysts expect the company to report earnings of 30cps, compared with 4cps in the previous year. IBM and Hewlett-Packard shares also advanced.

The KBW bank index was up 1.4%, led mainly by regional and midsize banks. President Obama proposed a fee to make big banks repay taxpayers for bailouts. Bank shares had declined earlier in the week on concern about the fee, but on Thursday the sector was higher.

On the downside, US economic data appeared to cast doubt on the strength of the economic recovery. Sales at US retailers unexpectedly fell in December and applications for jobless benefits rose last week. A government report showed that retail sales fell 0.3% in December. Economists were expecting sales to have risen 0.5%. Retail sales excluding autos fell 0.2% versus expectations of a 0.3% rise. Helping to soften the blow, the National Retail Federation said holiday sales for the November – December period rose 1.1%, which was better than the retail group’s expectations for a 1% decline.

The number of American’s filing new claims for unemployment rose last week to 444,000 from 433,000 the previous week. Economists expected claims would rise to 437,000. Continuing claims, a measure of Americans who have been receiving benefits for a week ore more, fell to 4.596M from 4.897M in the previous week.

On the positive side, business inventories rose slightly more than expected in November, up 0.4% as businesses re-stock.

Overseas Markets

Dow up 34 pts to 10,715 (10,667 – 10,724)

S&P 500 up 3 pts to 1,149 (1,144 – 1,150)

Nasdaq up 11 pts to 2,319 (2,303 – 2,323)

Russell 2000 up 3 pts to 647 (642 – 648)

SPI 200 Futures up 11 pts to 4,890 (4,874 – 4,899)

FTSE up 25 pts to 5,498 (5,473 – 5,522)

Nikkei up 173 pts to 10,908 (10,774 – 10,910)

Shanghai SE Comp up 43 pts to 3,216 (3,166 – 3,219)

Commodities

WTI Oil down 0.3% to US$79.39/bbl

Gold up 0.4% to US$1,141/oz

Sugar (NY) down 1.0% to USc27.76/lb

Corn down 0.9% to US$3.45/bushel

Wheat down 1.8% to US$4.95/bushel

Natural Gas (Henry Hub) up 2.8% to US$5.77/MMbtu

Silver up 0.4% to US$18.71/oz

Platinum up 2.1% to US$1,612/oz

Palladium up 5.3% to US$447.13/oz

Copper (NY) down 0.3% to US$3.38/lb

Currency

A$ / US$ up 1.1USc to US$0.93 /A$

EUR / US$ up 0.1USc to US$1.45 /EUR

GBP / US$ up 1.6USc to US$1.63 /GBP

US$ / Yen up 0.1 Yen to 91.07 Yen/US$

Stock Market Report 14-1-10

US stocks rose on Wednesday as investors bought financial and technology shares ahead of earnings results from Intel Corp and JPMorgan later this week.

Market breadth was positive. Winners beat losers over two to one on both the NASDAQ and the NYSE.

The healthcare sector was buoyed by a brokerage upgrade of drug maker Merck & Co. Shares in Merck & Co rose 4.4%.

The consumer sector was aided by an upbeat outlook from Kraft Foods, gaining 0.4%. Chocolate maker Hershey is still considering a potential bid for Cadbury, but has not decided whether it will proceed with a formal offer.

JPMorgan, up 1.8%, led gains in the KBW bank index. JPMorgan reports its results later this week. In other news in the sector, the White House is debating taxing companies that took bailout funds to make sure they pay the money back. President Obama is expected to announce the plan on Thursday.

Tech shares gained, with Advance Micro Devices up 5.3% and Intel adding 1.5%. The semiconductor index gained 1.2%.

Google fell 0.9% after the company said it may shut down its China operations over censorship and hacking. Google said on Tuesday it may shut down its Google.cn site after discovering an attempt to gain access to Gmail accounts of Chinese human rights activists. The company said it is one of at least 20 companies that have been attacked. Shares of rival Chinese search engine Baidu jumped 13% and had the biggest percentage gain on the NASDAQ 100. According to figures from tracking firms comScore and Analysis International, Baudi currently controls 64% of the search market in China while Google has 31% of the market.

Energy stocks were under pressure as crude prices slipped. Chevron was the biggest drag on the Dow, falling 0.9%.

The Federal Reserve said in its Beige Book report of economic conditions that while economic activity was at a low level, conditions have improved modestly, and those improvements were broader geographically compared with the last report.

The December Treasury budged showed a deficit of US$91.9B versus $120.3B in November, roughly in line with forecasts for a deficit of US$92B.

Overseas markets

Dow up 74 pts to 10,702 (10,614 – 10,709)

S&P 500 up 11 pts to 1,148 (1,133 – 1,148)

Nasdaq up 30 pts to 2,312 (2,274 – 2,313)

SPI 200 Futures up 27 pts to 4,879 (4,826 – 4,879)

FTSE down 25 pts to 5,473 (5,451 – 5,510)

Nikkei down 144 pts to 10,735 (10,730 – 10,867)

Shanghai SE Comp down 101 pts to 3,173 (3,165 – 3,233)

Commodities

WTI Oil down 0.9% to US$80.08/bbl

Gold up 0.7% to US$1,138/oz

Sugar (NY) up 2.5% to USc28.04/lb

Corn down 8.7% to US$3.48/bushel

Wheat down 6.7% to US$5.02/bushel

Natural Gas (Henry Hub) up 0.7% to US$5.61/MMbtu

Silver up 2.1% to US$18.63/oz

Platinum up 0.4% to US$1,577/oz

Palladium up 0.0% to US$424.00/oz

Copper (NY) up 1.5% to US$3.39/lb

Currency

A$ / US$ down 0.6USc to US$0.92 /A$

EUR / US$ down 0.1USc to US$1.45 /EUR

GBP / US$ up 1.7USc to US$1.63 /GBP

US$ / Yen down 0.6 Yen to 91.48 Yen/US$

Richard Russell (Dow Theory Letters): Silver – “poor man’s gold”

“They call it ‘the poor man’s gold’. But don’t turn your nose up at silver. The dollar was originally defined in terms of silver. When precious metals are on the rise (as now), silver tends to be seen as a monetary metal. When times are bad, silver is seen as an industrial metal. Silver has a huge number of industrial uses, silver is the best conductor of electricity. Unlike gold, silver is actually used (and used up) in industry. Thus, a large amount of silver is lost every year. In contrast, 85% of all the gold ever mined in all history is still around; it’s in your teeth or in your sweeties’ bracelet or in that ancient Egyptian ring that you see in your local museum.

“Historically, when silver gets going, it tends to make huge percentage moves. I think you can see that from the long-term chart below. For instance, back in November 2008, silver was selling for 8.65 an ounce. Today an ounce of silver is selling for 18.10 an ounce, more than double.

“Silver is now climbing back from a drastic correction, as you can see via the chart below. In December silver hit a high of over 19 dollars an ounce. Back in 1980 (and I remember this well) silver climbed wildly (limit up day after day), and it hit $50 dollars an ounce around January of 1980.

“Silver is now in an erratic bull market. How high it may go I don’t know, but I would not be shocked to see silver ultimately climb above its 1980 price of $50 bucks an ounce. Historically, once ounce of gold will buy around 15 ounces of silver. Today an ounce of gold will buy 62 ounces of silver. Silver compared with gold is dirt-cheap today.

“How to invest in silver? I like the 100 ounce bars if you can find them (they weigh about 8.5 pounds each). Or buy the 10 ounce bars. Or you can buy the exchange traded fund SLV.

“Yesterday, both gold and platinum closed at new highs for the move. Silver is lagging behind, but when silver finally catches up, it may be a stunner. Over the last year the price of silver doubled; gold didn’t perform that well.

“Below I show a point & figure chart of silver. The white metal is now in a well-established rising trend. The upside target is the 21 box. If silver hits the 22 box, that will light the fuse. If silver hits the 22 box, I will view the whole structure that you see on this chart as one huge base.

“To put it briefly, I like silver. Gold has one advantage over silver, every central bank owns some gold, and most want more.”

Source: Richard Russell

Weekly Commodity Update 11-1-10

Commodity markets kicked off the New Year by making strong gains as exceptionally cold weather across the Northern hemisphere gave energy and other sectors a boost.

This time of year everyone from hedge funds through to the private investors get back into the markets looking for profitable investment opportunities. Given the strong performance of commodities in 2009 where the CRB index rose by 30% and investment flows into the sector rose by more than USD 60 billion it was and is expected that the sector will have another year with positive returns.

Friday’s unemployment data showed another steep drop in unemployment and gave the market a clear indication that the recovery among developed nations could become a long drawn out event and that we have to look towards the emerging economies for support.  

On that note speculation emerged during the week that the Chinese government would begin to tighten their monetary policy to reduce inflationary risks after a record gain in lending. This could lead to a reduced demand for raw materials and will be watched very closely once it occurs.  What it highlights is that the risk of reversals despite the general bullish attitude to commodities is ever present.

These expectations combined with very cold weather this winter have meant that particularly the energy sector began the week strongly with Crude testing the 2009 highs and Heating Oil breaking well clear and making new highs.  Crude Oil began its rally three weeks ago rallying 18% to a new high of USD 83.52 before profit taking occurred before and after the US unemployment data. The weekly storage numbers did not have a major impact but the cold weather no doubt have given market bulls an extra argument for buying the black gold.

Technically WTI Crude Oil for February delivery reached overbought territory during the week which left the market exposed to a correction. Given the current weather situation support should not be far away. Initial support is located at USD 80 which also coincides with the level OPEC has seen as being sustainable and acceptable given the current economic level of activity. Below that next level is USD 77.80 followed by USD 76.05. Resistance can be found at USD 83 followed by the psychological level of USD 85 and trend line at USD 87.10.

Gold began the week with less conviction than the energy sector but the strong correction seen towards the end of 2009 has given new buyers a better level to enter and some upside pressure to prices was seen during the week. Resistance at USD 1,142 ahead of 50% retracement of the recent sell off at USD 1,151 needs to be negotiated before a new attack on the USD 1,200 level can be initiated. Before that happens look for the market to range trade with support coming in at USD 1,171 ahead of USD 1,142.

 HG Copper continued its strong 2009 performance into 2010 reaching USD 350 on weather and a strike at Codelco, the world’s largest Copper producer before profit taking and the news about a potential fiscal tightening in China saw sellers emerge. The impressive rally that began back in March 2009 looks intact as long we stay above the December high at USD 325.

Commodity Snapshot

Below we highlight our trading range charts for ten major commodities.  For each chart, the green zone represents between two standard deviations above and below the commodity’s 50-day moving average.  Moves above or below the green zone are considered extremely overbought or oversold. 

As shown in the first chart, orange juice has spiked above its trading range in recent days as Florida freezes.  OJ has been in a strong uptrend since the middle of 2009, so traders seem to have expected the cold, cold winter that the US has seen so far.

Most commodities are trading at or near extreme overbought territory at the moment.  Both oil and natural gas are right at the top of their trading ranges, and the same goes for platinum, copper, and corn.  After moving down to the middle of their ranges at the end of 2009, gold and silver have had a strong start to 2010 as well.

Source: Bespoken Research

Byron Wien’s ten Stock Market surprises for 2010

Dead on target at the beginning of the new year, 76-year-old Byron Wien again published his annual list of surprises to expect in 2010. Wien, Vice Chairman of Blackstone Advisory Services and one of Wall Street’s best known veterans, has been publishing his list of economic, market and political surprises since 1986.

Reviewing Wien’s 2009 list, he was very accurate with the direction of most of his predictions.

He foresaw a second-half recovery in the US economy, and the S&P 500 Index rising to 1,200 (up from 903 at the end of 2008 to 1,115 by December 31, 2009). He also predicted: “The ten-year US Treasury yield climbs to 4% [up from 2.24% to 3.84%]. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.” Spot on.

Wien also expected the gold and oil prices to climb to $1,200 and $80 respectively – a feat accomplised in December.

He believes his ten surprises have at least a 50% chance of occurring at some point during the year. Although this is not a very high probability, his predictions nevertheless make for stimulating reading. His list for 2010 follows below.

1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%. Exports, inventory building and technology spending lead the way. Standard and Poor’s 500 operating earnings come in above $80.

2. The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy. In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end.

3. Heavy borrowing by the US Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. Obama says, “The suits are finally listening”.

4. In a roller coaster year the Standard and Poor’s 500 rallies to 1,300 in the first half and then runs out of steam and declines to 1,000, ending where it started at 1115.10. Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors.

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. Longer term prospects remain uncertain.

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Obama wants to reduce that to 25% by 2020.

8. The improvement in the US economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. In the November Congressional election the Democrats only lose 20 seats, much less than expected.

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the US market.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the US and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal.

Source: PR-inside.com

Weekly Commodity Update 21-12-09

The dollar continued to strengthen reaching the highest level in 3 months and in the process triggering additional profit taking among some commodities.

The move has been driven by a combination of year end position squaring, a more upbeat tone from the U.S. Federal Reserve Bank and not least the cut in Greece’s credit rating.

News this week that Standard & Poor’s had cut the credit rating of Greece, as it struggles with a huge budget deficit, highlighted the risk ahead for the Euro zone with other countries finding themselves in a similar situation. The ten year yield spread between German and Greek government debt rose above 2.5% putting the nine year old currency under some pressure as we head towards 2010.

The timing of the downgrade had maximum impact as markets are slowing down ahead of year end thereby leaving it extra exposed to adverse news. The continued dollar weakness that had been expected as an almost certainty has come under renewed scrutiny and over these past few weeks a more balanced view on the dollar has begun to emerge.

Gold in particular has been struggling with the continued dollar strength. This has got to be viewed in the context of how the market has been performing over the past few months with large flow of funds moving into a crowded space. The USD 1,100 level was tested this week which represents a near 11% correction from the highs made some two weeks ago.

Technically the USD 1,100 represents a decent level of support but continued dollar strength could trigger additional position squaring with the October high at USD 1,070.80 providing the next level of support followed by USD 1,030 which is trend line support from the October 2008 low. Upside resistance is firm at USD 1,142 for the time being and a close above is required before a new push to the upside can be established.

Until we know for sure why the dollar has found some traction, getting out of commodities as an automatic reaction seems premature. If it happens on renewed hope of a U.S. recovery it should be viewed positively and a decoupling of the inverse relation between strong dollar weak commodities could come to an end. Given the time of year it is too early to speculate and the main thing for investors are to have their exposure at comfortable levels.

The energy sector found some support this week as the inventory data showed big draws in crude and distillate as imports stayed low and demand began to pick up helped by colder weather. The most strikingly impact from colder weather in the U.S. has been the performance of natural gas which have rallied 33% this month most recently helped by a larger than expected reduction of NG in storage. The October to November downtrend has been broken and the January high of USD 6.24 is next level of resistance.

Crude oil found support and rallied on the storage data. Focus on the stronger dollar and sluggish outlook for Q1 2010 have so far kept prices under pressure during December but renewed optimism about the prospect for a global economic recovery helped prices put in the biggest weekly gain since October. Support was found below USD 70 and resistance is located at USD 75 on the front month continuation. Next week sees the expiry of the January contract with February becoming the new front month.

We have seen big differences in performance among commodities in 2009. This is worth keeping in mind ahead of the annual rebalancing from S&P GSCI and DJ-UBSCI between the 5^th and the 9^th business day in January. In order to keep the same base weighting between commodities in their portfolio they have to reduce positions of strong performers and add positions of weak performers from 2009.

Given the current performance this rebalancing will have the biggest negative impact on WTI crude and HG copper and positive impact on natural gas and corn. Given that total asset under management in these two commodity funds stands above USD 65 billion some impact can be expected.

Weekly Commodity Update 11-12-09

End of year position squaring has begun with some commodity markets suffering heavy losses.

As highlighted over the last couple of weeks this time of year quite often brings reversal in the market. Especially when the direction has been so one sided for the past few months. It all kicked off last Friday as U.S. unemployment surprised the market by being better than expected. The chain reaction that followed led to a dramatic reversal in commodities with a strengthening dollar being the main catalyst for the move. 

Recent reports have talked about a substantial short dollar position having been built up over the past few months and it got to the point where investors were watching each other for the first move. As the unemployment numbers hit the screens a scramble for dollars began which over the next couple days saw the dollar strengthen by 2.7% versus a basket of six major currencies.

The commodities that have seen the largest build of long position over the past few months were also one of the sectors that have been hurt the most by this correction. Gold in a matter of days lost more than half of the November rally, falling by 9% while silver which tend to track gold but with a built in accelerator fell by 12%.

The gold to silver ratio which over the last year has been favoring silver broke out of its downward trend which short term at least indicates that gold could outperform silver. As long we stay above 64.40 (gold price / silver price) further upside can be expected.

Looking at gold the long overdue correction has now occurred. Over the next few weeks the main focus will be on the risk for additional profit taking primarily driven by a reduction in dollar short positions.

The 9% correction seen over the past week have already been met by new buying interest so given the general positive outlook for 2010 current levels may turn out to be a good area to begin re entering the market from. It is also worth mentioning that the recent sell off have brought us closer to the level where IMF sold 200 metric tons to India back in early November. The recent move lower could attract renewed interest from  another central bank to buy the remaining 200 tons that the IMF still have on offer. Such a sale would undoubtedly be viewed positively as it removes a potential overhang over the market and confirms Gold status as storage of value.

Technically gold short term looks vulnerable to further weakness for move towards USD 1,100 and potentially USD 1,085. However given the strong investor demand over the last few months and the positive outlook for 2010 short term sellers will most likely meet good buying interest. Resistance can be found at USD 1,160 and look for a renewed push to the upside on a break above USD 1,172.  

The energy sector have been one of the less convincing sectors over the past few months with the spot month of crude now trading some 15% down from the October peak. The sector have been hit by double trouble as end of year profit taking and continued storage building in the U.S. have hurt sentiment.

The stock building at Cushing, the delivery hub for WTI Crude, has continued to rise with the most recent DOE report showing a build of 2.5 million barrels. This is a total build of almost 8 million barrels over the last five weeks and given that we are roughly another 5 million barrels away from capacity this is hurting spot month prices.

Meanwhile North Sea Brent Crude has outperformed WTI reaching a premium of USD 2.5 this week which is the widest premium in more than 3 months. Historically WTI trades above Brent at premium between USD 1 – 2. The reason behind this reverse situation is three fold, strong demand in Asia, OPEC’s production cuts and not least the above situation with swelling crude inventories in the U.S.

Technically Crude oil is back into the USD 70 to USD 75 range with a continued downside risk towards USD 65 which should provide a solid floor for now. End of year position squaring together with continued focus on the storage situation will drive prices. Next week sees the expiry of the January contract and currently rolling longs into February comes at a cost of USD 1.80.

This week we launched our Emissions CFD which is based on the price of EUA Carbon emissions from the European Climate Exchange. This will provide investors with increased transparency into the cost and price of Carbon Emissions which is strongly related to energy prices such as Oil, Natural Gas and Coal.

The price of carbon emissions has plunged from EUR 30 per tons in July 2008 to only EUR 8 in beginning of 2009 as the recession hit across Europe and thus slowed the industrial production. In the last 6 months the price has been ranging between EUR 12 and EUR 16. A positive outcome of COP15 should have a positive impact on prices.

 A break above EUR 15.20 would target EUR 19.65 followed by EUR 25. Until the break has been confirmed expect continued range trading with support at EUR 12.85.

Weekly Commodity Update 23-11-09

Currency and stock market movements combined with a massive flow of investment into commodities continues to set the overall tone of commodity markets.

This week was the last full trading week ahead of the U.S. Thanksgiving holiday next week. This normally signals the beginning of the winding down for year end. After that time many traders and funds begins to focus on year end and on how they should be positioned into the normally quiet month of December.

Some risk fatigue began to emerge towards the end of the week with energy and base metals giving up some of their recent gains. Whether it is that or just early position squaring time will tell.

The wall of money floating around in the financial system continues to benefit commodities as a way of diversifying portfolios and in order to shield investments from a non-negligible risk of a US debt and currency crisis.  A research note from a major bank sees flows into commodities this year of USD 60 billion which will bring the total amount invested up towards USD 240 billion at year end.

Most precious metals and some base metals made new highs for the year and the Baltic Dry bulk index, which indicates the cost of shipping dry bulk commodities around the globe, rallied sharply. Gold still catches most of the headlines as it despite moving into a very overbought situation continues to make new highs reaching USD 1.150, a 12.3% rally since the news about India buying IMF gold broke some weeks ago.

We see the break above the 2008 high as a signal that a new rally has been initiated which could take the price of gold towards an initial target of USD 1.300 followed by a potential 5 year target of USD 1.500. Gold still has a long way to go – both in terms of price appreciation and in terms of years of increases. It will at times be volatile, experiencing quarterly declines, but the overall direction will be higher

Near term however gold has moved into an extreme overbought situation which has not been seen for many years and we urge new investors to be patient as a correction back towards USD 1,120 and maybe even USD 1,100 is increasingly likely. The trigger for a correction could be the upcoming U.S. holiday next week as positions in correlated markets like the EURUSD could run into profit taking and thereby remove some of the recent support.

The energy sector continues to be driven by present reality versus future expectations as the overall demand situation still remains weak. Good demand from emerging economies continues to be off-set by continued weak demand from the developed economies.

On this basis the overall investor appetite for commodities is still the main driver of energy prices as investors seeks shelter and a hedge from the falling dollar. This tuck of war has kept Crude Oil range bound over the last month with USD 75 to 80 being the current range.

The global economic pick up over the last few quarters is still happening on the back of continued job losses and that leaves a big question about when and by how much consumption will pick up. For now though the worries about dollar weakness and future inflation should be enough to keep the prices supported over the coming weeks and months.

Technically the front month Crude of January is currently stuck in a bullish flag pattern between USD 75 to 80 range and just the last few days some risk adversity has been seen on the back of a stronger dollar. A greater bullish potential remains as long prices stays above USD 75, otherwise there is a risk of returning to the recent USD 65 to 75 trading range. Some position squaring ahead of the US holiday next week will probably be the main focus into the early part of next week.

Richard Russell: Six reasons to invest in gold

“There are a number of items favoring higher gold now.

(1) Interest rates are at zero, which means the ‘opportunity cost’ of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.

(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to ‘jump start’ the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money – any quantity at will, but it cannot direct where that money will go. So far, the money is not going into the economy, banks remain reluctant to lend and consumers are reluctant to spend. The newly-created money has been going into bank reserves and into the stock market. Stocks have been rising on an ocean of liquidity. The sinking dollar has been a huge help to the big Dow-type stocks which benefit from their ability to export. This is resulting in world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.

(3) The world’s central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold. In today’s Wall Street Journal we see the headline, ‘Central Banks Join A New Gold Rush’. This is indeed ironic. In swapping their own paper for gold, many central banks are admitting that gold is superior to the very paper they are creating out of thin air.

(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves. The US has the largest ratio of gold to junk fiat paper, 77.4%. But the US stupidly only places the value of our gold at $42.22 an ounce. If the US marked our gold to market, it would be a tremendous help to our government’s balance sheet. But the US prefers to live in a fantasy world where gold is worth less than $50 an ounce!

Germany has 69.2% of its reserves in gold.

Italy has 66.6%.

France has 70.6%.

UK has 17.6% (after idiotically selling most of its gold near the low below $300 an ounce).

Japan has 2.3% of its reserves in gold.

India has 4.0%.

Russia has 4.3%.

China has 1.9%.

It’s easy to see that Russia, India and China are low on gold. All three would like to at least double the percentage of gold in their reserves. The race is on for these central banks to accumulate gold without running the price of gold sky-high.

(5) In the US, literally no one owns gold. Rather, US citizens are selling their gold (jewelry) to companies who are advertising that they’ll buy ‘your overpriced’ gold for cash.

(6) A few nations are actively promoting the ownership of gold. China, the world’s biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod’s department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.”

Although gold certainly looks bullish on a medium- to longer-term horizon, one must be cognizant of the precious metal perhaps having risen too much too soon for the moment. David Fuller (Fullermoney) said: “On a very short-term technical basis, gold is temporarily overbought following its steady march higher ever since the market was surprised by India’s purchase. Today’s small key day reversal suggests that a pause and consolidation may now occur, possibly similar to the small reactions and trading ranges seen in September and October. However, we may also see a briefer and shallower consolidation, as is often the case when a trend becomes more widely recognised and therefore attracts participation.”

Sources: Richard Russell

Gold bullion surging in all currencies

With the gold price scaling fresh peaks and closing in on $1,100, it would certainly seem as if renewed interest in the yellow metal is being stirred up, especially subsequent to the purchase by India’s central bank of 200 metric tons of gold from the International Monetary Fund.

As printing presses are running at full speed to produce ever-increasing quantities of fiat money as governments engineer the greatest asset price reflation in human history – and the US greenback is heading South – the longer-term fundamental case for the yellow metal is arguably positive.

“The gold bug has caught several big hedge fund managers this year including John Paulson of Paulson & Company, Kyle Bass of Hayman Advisors and David Einhorn of Greenlight Capital, who believe enormous monetary and fiscal stimulus that has been injected into the global economy will eventually result in hyperinflation,” said The New York Times.

The gold price is not only making headway in US dollar terms, but also in most major (and minor) currencies as illustrated by the table and graph below. This is a manifestation of increased investment demand, whereas the initial rise in the gold price from its low in 2001 ($250) was mostly a reflection of US dollar weakness.

Illustrating the message even more vividly, is the chart below of gold expressed in a basket of emerging-market currencies by dividing the dollar bullion price by the Wisdom Tree Dreyfus Emerging Currency ETF (CEW).

The shorter-term technical picture is also looking interesting.

Seasonally, the period from November to December has traditional been good for gold, with average gains ranging from more than 1% to almost 2.5% since 1970.

I remain bullish on gold in the medium term, especially as I believe the vast money printing by central banks could set off strong inflation pressures down the road. I will not be surprised to see bullion remaining in a secular uptrend in the medium term. Add bullion to your portfolios, but given the notorious volatility of the metal only do so on pullbacks.

Research: Prieur du Plessis

Gold Soars to New Highs

The price of gold has broken out to another new high this morning following news that India’s Central Bank purchased 200 tons of the metal from the IMF. Previously, the IMF had announced that it would sell around 400 tons, raising speculation that the planned sale would cause a glut of gold in the market. Based on India’s $6.7 billion 200-ton purchase, the market may have an easier time digesting the increased supply than previously thought. The average price per ounce for the Indian Central Bank’s purchase works out to around $1,045. With gold now trading at $1,079, they have already made $218 million (3.25%). Not bad for a few days work!

Source: Bespoken Research

Trading Gold

Price of Gold in Dollars (Record High), Euros (-10%), and Yen (-10%)

The price of gold closed at record highs today exceeding $1,040 per ounce throughout the day.  While gold is at record highs in dollar terms, the commodity is still down 10% from its highs when priced in Euros and Yen.  As shown in the charts, the price of gold is up considerably over the last five years, but the recent run has only been strong in dollar terms.  This indicates that the strength is solely a function of a weaker dollar rather than any real pickup demand.

Gold Analysts Are Far From Gold Bugs

Below we highlight a price chart of gold since the start of 2008 along with the median price estimates of gold analysts across Wall Street going out to 2013.  The price estimates shown are quarterly through the first quarter of 2011, and then yearly from the end of 2011 through the end of 2013.  Based on these estimates, gold analysts don’t seem too worried about a falling dollar and rising inflation. 

Their current estimates for the end of 2009 are at $960, and they get up to $1,000 by Q3 2010 before progressively dropping all the way down to $800 by the end of 2013.  This isn’t to say that there aren’t analysts expecting gold to be higher than it is now in the coming years, but the collective estimate is currently for the metal to head lower.

Commodity Snapshot

Below we provide charts of ten major commodities.  In each chart, the light green shading represents two standard deviations above and below the sector’s 50-day moving average.  As we all know, gold is all the rage right now and oil has taken a back seat.  As shown in the chart of oil below, it has basically gone nowhere over the last two months.  It is currently trading right in the middle of its trading range. 

Natural gas, on the other hand, has made a significant move higher and broken its long-term downtrend.  With gold charging higher, silver and platinum have also moved up, but they haven’t broken to new rally highs yet.  This is a key signal that the gold move is pretty much based solely on the dollar’s move lower. 

Looking at the rest of the bunch, copper has actually been trending downward, corn has bounced nicely recently, wheat is close to oversold levels, and coffee and orange juice are in neutral territory.

Source: Bespoken Research

Weekly Commodity Update

Commodity markets began October on the defensive with stocks weaker on the back of worse than expected economic data.

In the days ahead traders will be watching the S&P 500 stock index closely after the break below USD 1,034 on Thursday.  Activity reports from purchasing managers in the US, UK and the euro zone have left the markets struggling ahead of the US Q3 earnings season which kicks off on October 7. The unemployment rate rose to a 26 year high as employers continue to cut jobs. Next Wednesday consumer credit which last month fell by a surprising USD 21.6 bn will be watched closely.

Meanwhile the Euro has begun to weaken somewhat against the dollar falling to EUR 1.4480, a three week low, ahead of important support at 1.4440. At the same time we have seen the yen strengthen against both the dollar and the euro which normally indicates that risk willingness is declining.

Crude Oil reacted strongly to the weekly U.S. storage data rallying back to the USD 70 level after having reached a low of USD 65. For now the upside seems pretty limited as economic data during the week indicated that the U.S. economy is still in the midst of the recession. Also the uncertainty about the direction of the dollar and stocks will play its part in keeping the upside capped for now.

Technically crude oil for December delivery is stuck in a range between trend line resistance at USD 71.90 and 100 day moving average support at USD 67.80. The outer range is now USD 65 to USD 75.

Natural Gas traders returned to the supply situation this week after a month long rally had elevated prices by 67%. The USDA said that underground supplies of natural gas were up 64 billion cubic feet to 3.589 trillion cubic feet, a new record high and up 16% from a year ago.

Technically a gap on the continued spot month chart down to USD 4.035 is in danger of getting filled. This could indicate another 10% drop from current prices on the new front month of November. The USD 4.00 level coincides with 200 day moving average so it will be a good support level.

Gold continues to trade sideways either side of USD 1,000 with sellers emerging on any uptick due to an overhang of speculative long positions. Some disappointment has begun to emerge as investors gets worried that a correction is needed before the next attempt on the 2008 high at USD 1,032.70. Inflation worries have eased further with the forward expectation having dropped to 2.85% from 3.31% back in August (chart below).

Nervousness about the health of stock markets as we head into the Q3 earnings season has not lifted prices and more importantly the risk of a stronger dollar could pull it lower. Technically stay long of Gold above USD 985 but take profits towards USD 1,020 and look for better levels to buy. Keep a close watch on a break below USD 970 as it could signal a deeper and longer correction which would force many to adjust their near term forecasts.

Grain and oil seeds markets continue to watch weather forecasts closely as we enter into the US harvest season. Fears about frost as seen a couple of weeks back is the main factor that could interrupt what is expected to be a record harvest for Soybeans and second largest for Corn. The USDA will update their current yield estimates, production and supply-demand outlooks on October 9.

Corn for December delivery is confined to a USD 300 to USD 350 range with prices having held up despite the record harvest expectations.  A break above USD 350 should trigger a move towards the August high at USD 376.

Soybeans for November delivery meanwhile lingers at the bottom of its USD 880 to 1035 range with the record harvest forecast keeping prices under pressure. Look out for a break above USD 940 as it could trigger a move back towards USD 977.

Commodity Snapshot

Below we provide our trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity’s 50-day moving average, and moves above or below this range are considered overbought or oversold. 

As oil has moved to the bottom of its trading range in recent weeks, natural gas has finally moved to the top of its range.  Natural gas also just broke above its one-year downtrend line, and now traders will focus on resistance that was made at its highs earlier this year.

Metals have settled down over the past few days as the dollar has ralllied.  After trading above $1,000 for a short time, gold has moved back down to $992.  Corn and wheat remain in downtrends, while the breakfast drink commodities (orange juice and coffee) have charts that look like a heart-rate monitor with multiple spikes and falls over the past few months.

Source: Bespoken Research