Forex Blog

December 13, 2010

Derail the Dollar for the rest of December

Filed under: OANDA News — Tags: , , , , , , , — admin @ 11:05 am

There are a couple of events this week that may be expected to derail the dollar. On Wednesday, the market could be exposed to a soft US CPI headline and a new record low in core-CPI. Tomorrow, we should expect helicopter Ben and his fellow policy makers FOMC statement to reassert their commitment to QE2, and possibly offer further clarification on the rationale behind the policy decision. Thus far, it has been yield, yield, and yield that has garned support for the buck over the last week. With no Treasury supply coming down the pipeline for the next two weeks, and with the Fed’s purchasing schedule mandate, should be able ease rates and pressurize the dollar. Mind you, most trading strategies go out the window when holiday liquidity become a premium.

The US$ is mixed in the O/N trading session. Currently, it is higher against 9 of the 16 most actively traded currencies in a ‘subdued’ Monday morning trading range.

Forex heatmap

This past weekend, Chinese leaders pledged to change their nation’s growth model next year and focus on stabilizing prices. They are attempting to shift from dependence on investment in industry and exports to bolstering private consumption and the service industries. Their primary objective will be to contain inflation, stabilize growth and spur domestic consumption. They intend on pursuing a ‘prudent’ monetary policy and ‘proactive’ fiscal stance. Last week the PBOC raised banks’ reserve requirements as part of their ongoing effort to tame liquidity and cool prices, certainly the first of many steps. Inflation last month accelerated to +5.1%, the fastest pace in over two-years. Their tightening procedure to date has not been effective and the investors should expect a more vigilant stance net year, for now, Capital Markets are happy dealing with what is and ignoring what may happen.

The USD$ is higher against the EUR -0.06%, GBP -0.42%, JPY -0.41% and lower against CHF +0.03%. The commodity currencies are stronger this morning, CAD +0.01% and AUD +0.27%. The loonie struggled last week, despite been within striking distance of parity. Commodities underperforming probably had the biggest affect on the currency. The softer price action was also supported by a stronger dollar index. On a macro perspective, the currency has performed well on the crosses especially on global optimism in response to Obama’s tax-cut continuation. The market also expects further support from the Russian Cbank converting approximately 1-2% of total reserves into loonies. Some of the shine had been taken away with Governor Carney’s comments after the BOC kept rates on hold last Tuesday. Carney acknowledged economic growth in the second half of this year has been weaker than previously anticipated and expressed concern about the expected recovery in net exports (that’s a strong loonie problem). The market has taken this as a dovish sign. Futures traders are pricing out the possibility of any monetary stimulus in the first two quarters of 2011. Dollar buyers lurk on pullback, again they will try and protect parity.

The AUD was bound to be effected by the Chinese inflation numbers released over the weekend. China is Australia’s largest trading partner, and anything that may slow growth domestically in China will have a affect on the growth and interest rate sensitive AUD. With China’s leaders pledging to focus on stabilizing prices has pared the AUD recent gains. Risk appetite has waned ‘reflecting the comments from China that it will be looking to tighten policy next year’. The AUD has climbed +9.8% this year (second biggest winner after JPY), on prospects for commodity-driven economic growth and the yield advantage of the nation’s debt compared with other developed markets. Domestic data remains strong, the employment data blew all analysts expectations out of the water and supports the currency on pullbacks. Not aiding the currency is the concerns for long dated interest rates in the US. Year-to-date, the Australian economy has added just over +425k new jobs, dragging down the unemployment rate to +5.2% from +5.4% month-over-month. Analysts are beginning to agree that the tight labor market will bring the RBA back into the picture, but agree that Governor Stevens is not behind the curve just yet and will not be required to hike rates in February. With consumers boosting their savings significantly in an environment of rising job and wage growth, suggests that the RBA is still ahead of the curve. Governor Stevens has also mentioned that rates are ‘appropriate’ for the economic outlook. Investors remain better buyers on dips, planning an assault on parity again (0.9880).

Crude is higher in the O/N session ($88.49 +70c). This weekend, OPEC discounted last week’s $90 oil price as a blip and kept its output targets unchanged. They believe that supply and demand are ‘in balance,’ and $70 to $80 is ‘a good price’ for oil and expect demand growth will slow as the economy struggles to recover, amid ample supplies. Prices have been somewhat elevated as investors focused on last week’s large fundamental drawdown of inventories and not on the strength of the dollar. The EIA inventory crude headline fell -3.82m barrels to +355.9m. Supplies were forecasted to drop by -1.4m barrels. However, there was an unexpected increase in gas and distillate fuels stocks. Gas inventories rose +3.81m barrels to +214m last week vs. a forecasted fall of-300k barrels. Supplies of distillates (heating oil and diesel) climbed +2.15m barrels vs. an expected decline of-900k barrels. Technically, the rise in these categories confirms there is nothing wrong with supply, but the demand picture is not that strong. The market seems to be also pricing in the possibility of a tighter Chinese monetary policy. If the PBOC raise rates too much, it could have a big affect on oil demand. Again, the market will meet resistance at the $90 print.

The strong dollar and the outlook for a more robust economy as well as better yielding treasuries hurt gold last week. The market is also having to contend with the stronger inflation numbers out of China. Concern that China may tighten monetary policy has also eroded demand for precious metals. Temporarily, bottom feeders have managed to stem the slide in the O/N session, believing that the $60 fall from its highs last week is a good opportunity to own a store of value as an alternative investment. It was only natural to see some profit taking after gold surged to a new record ($1,432.50). Even with the dollar strengthening, the commodity remains supported by the persistent concern over Euro debt levels. To date, debt contagion has driven investors into the third ‘reservable’ currency as they seek a store of value. Despite the fear that China will tighten their monetary policy, a move to curb speculation and dampen inflation, global demand remains robust. Even though the one direction lemming trade seems to be overdone, investors continue to hold gold as a hedge against currency debasement and long-term inflation. The Euro-zone backdrop will try to put a floor on gold prices on demand for a haven. Year-to-date, the metal is up + 28% and is poised to record its 10th consecutive annual gain ($1,392 +$7.10c).

The Nikkei closed at 10,293 up+82. The DAX index in Europe was at 7,027 up+21; the FTSE (UK) currently is 5,854 +42. The early call for the open of key US indices is higher. The US 10-year backed up 11bp on Friday (3.32%) and another 4bp in the O/N session (3.36%). Last week the US yield curve shifted aggressively higher, recording the highest yields in eight months after the Obama administration decide to extend the Bush-era tax cuts for another two years and as dealers took down the last of the weeks $66b of new product. The US government is to help boost economic growth but expand the deficit, both of which are negative for rates. These higher yield point to higher cost and certainly defeats Bernanke’s objective at the moment. The tax-cuts suggest that helicopter Ben’s stimulus package will probably ‘not’ require any increases in nominal note and bond sizes in the near term. Wit no Government supply coming down the pipe for a couple of weeks one would expect some support for yields at these levels.

November 2, 2009

The Dollar needs Life-Support.

Bring it on! We have a data laden, policy induced, and volatile employment week ahead of us. There will be a Fed, an ECB, a BOE, and an RBA interest rate announcement. Sandwiched between all of this, is a G20 meeting ending this Friday with the US employment report! This week will not be for the faint of heart. This morning, World bourses remain under pressure. The weekend bankruptcy announcement of CIT group, along with the failure of 9-regional banks in the US is not giving the markets much confidence. By the end of this week, we will have clarity, and if equities remain under pressure, then we will have USD support for risk aversion strategies.

The US$ is weaker in the O/N trading session. Currently it is lower against 13 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

What a week last week was? Markets up +4%, markets down -4%! Strong US GDP numbers had us on the cusp of declaring the recession over, no problems here! The headline print is now but a distant memory. Capital markets are being dictated to by consumer’s income and weak spending patterns. They require incentives to bring them back to the stores and certainly remain focused on repairing their own damaged balance sheets. Much of what they spent via the clunkers program in Aug. they easily took back in Sep. This has left intact a very weak trend in real-consumption. If consumers won’t spend, how will we ever exit this recession?

The USD$ is currently lower against the EUR +0.43%, CHF +0.46% and higher against GBP -0.19% and JPY -0.65%. The commodity currencies are stronger this morning, CAD +0.36% and AUD +1.23%. Friday’s Canadian GDP disappointed and blindsided both the currency and Capital Markets. Augusts’ headline print actually fell -0.1% as oil and gas extraction dropped -2.3% and manufacturing fell -0.7%. This is stronger evidence that the Canadian economy may not be following its southern neighbor straight out of this recession. Governor Carney may have spoken too soon when he declared that the recession ended in July-Sept. and predicted a +2% annualized expansion! Last week’s GDP announcement will have policy makers once again revising domestic expectations. To some extent we are lucky that the BOC has publically committed to keep lending rates at a record low well into next year, maybe even into the 3rd Q! Do not expect them to deviate from this, unless the inflation outlook shifts, and currently that rather benign! Governor Carney is insistent that a strong loonie will damper longer term growth. In his testimony before the House of Commons Finance Committee last week, he said efforts by Cbanks to affect their own currencies need monetary policy to back them up. FX intervention without complimentary policy moves is seldom effective in the long term. He has options, like credit and quantitative easing to influence the loonie and meet their 2% inflation target. Will he get to use any of them? Dealers want to see better levels to own their domestic currency. Governor Carney has got to be worried, last time they intervened was 11-years ago!

The Aussie dollar advanced in the O/N session after policy makers revised upwards fundamental forecasts for the country. The economy is expected to grow +1.5% over the next 12-months and the jobless rate to peak at +6.75%, according to Treasurer Swan. The futures market expects the RBA to raise its benchmark O/N rate to +3.5% this evening. This has maintained the currency’s longest winning streak vs. the USD as the US economy return to growth has investors coveting higher yielding assets. The currency remains better bid on pullbacks (0.9062).

Crude is lower in the O/N session ($77.53 up +53c). On Friday, crude prices plummeted 4% after US consumer spending dropped for the first time in 4-months, raising doubt that the US economy will strengthen any time soon. Earlier last week, surprisingly strong GDP data had boosted the appeal of the commodity as speculators betted that fuel demand would increase. Initially, market actions told us that the recession has ended, but Friday’s mixed bag of data has us questioning the pace of growth of the economy and if so, is it sustainable? All last week, the black stuff has had issues sustaining a break of the $80 a barrel level. It seems that crude prices are finally beginning to follow oil fundamentals! The weekly EIA report revealed an unexpected increase in US gas stocks, with supplies jumping to a new 2-month high. Gas inventories climbed +1.62m barrels, w/w vs. an expected decline of -1m barrels. The import number for crude also advanced for the 1st- time in 5-weeks. OPEC continues to talk crude down. They implied that members will increase output production to protect the global economic recovery if oil prices rise above the $80 psychological level. They believe that both the ‘producer and consumer are comfortable with prices between $75 and $80 per barrel and that higher price’s would only put the brakes on the pace of global economic recovery’. Ideally, they want to ‘maintain balance’ and will act accordingly in Dec. Fuel demand fell -0.8%, w/w, to an average of +18.5m barrels a day, while gas consumption fell -1% to +8.86m barrels a day. Basically, demand destruction remains intact and excess supply an issue. Over the week, refineries operated at +81.8% of capacity, up +0.7% from the previous week. On the other hand, crude stocks rose +778k barrels vs. expectations of +1.9m to +339.9m barrels last week. This has left supplies +9.1% higher than the 5-year average. Supplies of distillate fuel (includes heating oil and diesel), declined -2.13m barrels to +167.8m. Surprisingly, inventories were +29% higher than the 5-year average for the week. A robust dollar ahead of this week’s NFP number will have speculators selling upticks in the short term.

Gold bears took control on Friday paring all of the previous days strong gains as the greenback received support from risk aversion trading strategies. Technical analysts believe that the yellow metal is expected to remain under pressure this week as the US dollar index gathers momentum and rebounds from its 14-month lows witnessed 3-week ago. In the O/N session, the commodity managed to breach its one week high as the USD declined ($1,052).

The Nikkei closed at 9.802 down -231. The DAX index in Europe was at 5,427 up +6; the FTSE (UK) currently is 5,053 up +9. The early call for the open of key US indices is higher. US 10-year bonds eased 7bp on Friday (3.41%) and are little changed in the O/N session. October was the first time in four months that ‘note’ prices ended on the losing side. Even Friday’s aggressive bond rally came to naught! Capital Markets is betting that the Fed may begin to signal an increase in interest rates from their 50-year lows as the US economy is starting to show signs of stability and growth. The Fed, ECB and BOE all meet this week. We can expect a rumored fed volatile week, climaxing with this Friday’s US employment report. Goldman has revised the headline print down to -200k while market consensus remains at -175k. The ending of the Fed’s $300b buy-back program after 7-months is expected to pressurize treasury prices. The program was initiated to help stabilize the housing market and limit an increase in borrowing costs by keeping rates low. Even though we may be testing record low yields in the short term, analysts foresee 4.5% in 10-yr notes by the middle of next year!

October 30, 2009

Fiscal Steroids Programs Promote Risk and Carry Trades.

Filed under: OANDA News — Tags: , , , , , , , — admin @ 4:05 am

What happened to ‘natural organic growth without a fiscal steroids program’? Capital Markets don’t care that most of yesterday’s US GDP strength can be attributed to incentive packages. Sub-consciously, the market believes that the Fed will provide ‘ample liquidity at super-low prices for an extended period of time’. Can the US grow without aid? Next week Cbanks are held accountable, the Fed, ECB and BOE come to the policy table. Big questions will be asked, but not all will be answered! Will the Fed formulate an exit strategy in order to ‘normalize’ their monetary policy? Will the ECB hike first? What about Governor King’s quantitative easing program? Is the BOE done? If we are not satisfied with any of that we have NFP to deal with on Friday!

The US$ is weaker in the O/N trading session. Currently it is lower against 14 of the 16 most actively traded currencies in a ‘subdued’ trading range.

Forex heatmap

Is the US on the verge of declaring that the recession is over after yesterday’s surprisingly strong GDP headline print of +3.5%? Are these results sustainable? Some analysts will argue that it’s been the clunkers-induced surge in consumer spending that has driven 2/3rd of the overall growth in the 3rd Q. What we are looking for is ‘natural organic growth not aided by fiscal steroids’. Perhaps we will come back to earth when we get the 4th Q reports! Digging deeper, personal consumption rallied +3.4% in the Q. We should expect it to be temporary, as much of the growth came from a +22.3% surge in durable goods consumption which was supported by the cash-for-clunkers program. Now that this program has ceased, auto sales have plummeted -35% last month, with further weakness expected as many of the buyers brought forward their purchase to take advantage of the program. Non-durable consumption also expanded, erasing the decline of the 2nd Q, with services adding +0.6% to real GDP. Surprisingly, inventories were less of a drag, contributing +1% to growth. The pace of inventory liquidation remains very high. Year-to-date we have witnessed approximately $405b in inventory disinvestment, however, outside of the auto sector and similar to other economies, the US has high inventory issues. Net- exports were a drag on overall growth as exports gained, adding +1.5% to GDP, but a rise in imports subtracted -2% from growth. Gross private investment advanced +11.5%, adding +1.22% to real-GDP (first expansion in 2-years). Residential investment accounted for all of the strength, rising +23.4% during the Q, as non-residential investment continued to deteriorate. Surprisingly, Government consumption eased to +2.3% from +6.7% in 2nd Q and finally, as expected, inflation remains subdued at +1.4%!

Other US data yesterday begs the question, have the weekly total of jobless claims peaked? The ‘proof is in the pudding’, if we combine all know government programs from initial claims (+530k) through continuing (+5.797m), extended (+526k) and emergency (+3.368m), then we can say that the trend ‘may have peaked’! The million dollar question, is it because of improving jobless conditions? Not really! The pessimist would say it’s because the longest of the unemployed have moved beyond the maximum period of benefits allowed to them. They have no benefits now! It’s worth noting that the US Senate is trying to extend the jobless benefits period by 14 weeks for all states, and 6 additional weeks for states with the highest unemployment rates. This can only push the extended and emergency claimant’s trend higher!

The USD$ is currently lower against the EUR +0.01%, GBP +0.12%, CHF +0.05% and JPY +0.43%. The commodity currencies are weaker this morning, CAD -0.16% and AUD -0.31%. Yesterday’s Canadian data showed that Canadian producer prices remained on a downward trend last month (-0.5% vs. +0.5%, m/m), which is keeping pipeline inflationary pressures well contained. Falling petroleum prices accounted for most of the decline in both producer and raw materials prices (-1.1% vs. +3.8%). It’s worth noting that analysts believe that the +0.6% appreciation in the loonie did not have as large an effect on producer prices as in the past given that the exchange rate remained mostly unchanged during the month! After yesterday’s surprisingly strong US GDP number, the market has once again shifted towards risk taking and a desire to own higher yielding commodity currencies. This scenario will once again test the BOC resolve. Governor Carney is insistent that a strong loonie will damper longer term growth. In his testimony before the House of Commons Finance Committee this week, he said efforts by Cbanks to affect their currencies need monetary policy to back them up. FX intervention without complimentary policy moves is seldom effective in the long term. He has options, like credit and quantitative easing to influence the loonie and meet their 2% inflation target. Will he get to use any of them? Dealers want to see better levels to own their domestic currency. Governor Carney has got to be worried, last time they intervened was 11-years ago!

As expected RBNZ Governor Bollard kept benchmark interest rates on hold this week (2.50%). The Cbank is expected to keep rates at these levels well into next year, similar to the BOC, as the economy needs further stimulus to recover from this recession. The best performer, the AUD was little changed in the O/N session, but has managed to maintain its longest winning streak vs. the USD as the US economy return to growth has investors coveting higher yielding assets. The currency remains better bid on pullbacks (0.9144).

Crude is lower in the O/N session ($79.69 down -18c). Crude prices climbed just under 4% yesterday, the most in a month, as surprisingly strong GDP data (see above) boosted the appeal of the commodity as speculators betted that fuel demand would increase. Market actions are telling us that the recession has ended, and now they seem to be in a position to question the pace of growth of the economy. A fall in weekly unemployment claims and a floundering greenback helped to propel the commodity higher. All week crude has had issues sustaining a break of the $80 a barrel level. Prices remain robust despite this weeks EIA report, which revealed an unexpected increase in US gas stocks and crude supplies jumping to a new 2-month high. Gas inventories climbed +1.62m barrels w/w vs. an expected decline of -1m barrels. The import number for crude also advanced for the 1st- time in 5-weeks. OPEC has started to talk crude down. They implied that members will increase output production to protect the global economic recovery if oil prices continue to rise above the $80 psychological level. They indicated that both ‘producers and consumers were comfortable with oil prices between $75 and $80 per barrel and that higher price’s could put the brakes on the pace of global economic recovery’. Ideally, they want to ‘maintain balance’ and will act accordingly in Dec. depending on where crude is trading. Fuel demand fell -0.8%, w/w, to an average of +18.5m barrels a day, while gas consumption fell -1% to +8.86m barrels a day. Basically, demand destruction remains intact and excess supply an issue. Over the week, refineries operated at +81.8% of capacity, up +0.7% from the previous week. On the other hand, crude stocks rose +778k barrels vs. expectations of +1.9m to +339.9m barrels last week. This has left supplies +9.1% higher than the 5-year average. Supplies of distillate fuel (includes heating oil and diesel), declined -2.13m barrels to +167.8m. Surprisingly, inventories were +29% higher than the 5-year average for the week. Technically, prices have been aggressively mobile on pure ‘speculation’ in the face of positive overall supply fundamentals.

Gold aggressively rebounded from its 3-week lows yesterday as a weakening dollar increased the ‘yellow metals’ appeal as an alternative investment. The commodity’s rapid decline earlier this week persuaded technical investors to increase their holdings as they believed that the down move was somewhat overdone ($1,044).

The Nikkei closed at 10,034 up +143. The DAX index in Europe was at 5,581 down -5; the FTSE (UK) currently is 5,156 up +19. The early call for the open of key US indices is lower. US 10-year bonds backed up 5bp yesterday (3.47%) and are little changed in the O/N session. Surprisingly strong US GDP data coupled with the ending of the Fed’s $300b buy back program after 7-months, pressurized treasury prices. The program was initiated to help stabilize the housing market and limit an increase in borrowing costs by keeping rates low. Yesterday, the Fed bought back approximately $1.9b in debt of varying maturities. Also this week, the US government issued $128b of new debt that needed to be absorbed by the market. It’s no wonder that some analysts foresee 4% in 10-yr notes before the year-end and 4.5% by middle of next year!

October 29, 2009

The dollar is getting oxygen.

Filed under: OANDA News — Tags: , , , , , , , , , , , , — admin @ 4:36 am

We get a plethora of US data to chew on this morning. Global bourses have remained under pressure in the O/N session. Some analysts have lowered their 3rd Q US GDP expectations to +2.7% vs. the consensus of +3.2%. Achieving the lower headline print this morning will only extend the recent movements by various asset classes. The funding currencies, like the USD and JPY, should continue to outperform, while equities and commodities will have their tail between their legs! For too long, too many speculators have been sitting on the ‘one’ directional trade. The USD will remain bid heading into next week’s Fed meeting.

The US$ is weaker in the O/N trading session. Currently it is lower against 14 of the 16 most actively traded currencies in a ‘whippy’ trading range.

Forex heatmap

Yesterday, US New Home Sales managed to retreat after 5-months of consecutive gains (+402k vs. +417k or -3.6%). Not only did the sales number register the first loss since Mar. the previous data for June to Aug. was also aggressively revised down! Perhaps, this first time incentive program may not be providing as much support as the markets believe. Nor it seems does lower inventory and mortgage rates! We continue to see some improvement in the re-sale market, partly due to the reduced prices from record foreclosures being passed along. It’s worth noting that the US Senate is close to an agreement to modify the current first-time homebuyer program which is set to expire next month. Monthly supplies remain at 7.5 for the 2nd-consecutive month, which remains the lowest level in 2-years.

Other data yesterday showed that US factory orders rebounded last month (+1% vs. -2.6%), while the core was +0.9% vs. -0.4%. However, digging deeper, most of the strength was in machinery and defense aircraft orders, while weakness remains relatively broad based. Looking at the sub-categories, shipments got a boost last month while inventories continued to deteriorate, leading to a decline in the inventory-to-shipments ratio to the lowest level in over a year. Inventories (the scourge of this recession) remain bloated and are expected to curtail production in the short term. New-orders remain healthy, advancing +1% last month, while ex-transportation they were still up +0.9% m/m. The strength in the transportation sector was in defense orders, as vehicles and parts orders actually fell! Analysts tend to use non-defense capital good ex-aircraft as a proxy for business investment, will notice that it actually rose +2% last month. Finally, inventories continued to decline, falling -1.0%, m/m, which combined with an increase in shipments (+0.8%), gives way to a decent drop to the inventory-to-shipments ratio!

The USD$ is currently lower against the EUR +0.14%, GBP +0.26%, CHF +0.10% and JPY +0.14%. The commodity currencies are stronger this morning, CAD +0.21% and AUD +0.31%. BOC Governor is insistent that a strong loonie will damper longer term growth. In his testimony before the House of Commons Finance Committee this week, he said efforts by Cbanks to affect their currencies need monetary policy to back them up. FX intervention without complimentary policy moves is seldom effective in the long term. He has options, like credit and quantitative easing to influence the loonie and meet their 2% inflation target. The commodity based currency was dealt a blow from softer crude prices as OPEC suggested that they would increase output production if higher oil prices threatened global economic growth. With equities under pressure, and the USD remaining better bid on risk aversion strategies, is curtailing the demand for the loonie. With a large percentage of the market being long CAD on the back of recent commodity advances, one should expect the technical traders to dictate the short term direction. Weak longs are being squeezed out. Dealers expect to see better levels to own their domestic currency. After breaching the 1.0800 level yesterday opens up the top side to 1.0950.

As expected RBNZ Governor Bollard kept benchmark interest rates on hold this morning (2.50%). The Cbank is expected to keep rates at these levels well into next year, similar to the BOC, as the economy needs further stimulus to recover from this recession. The best performer, the AUD, amongst the 16 major currencies managed to retreat in the O/N session on the back of Asian stocks extending a global slump, coupled with softer commodity prices which make up more than half of the country’s exports! Already this week we saw that Australian inflation cooling to the slowest pace in 10-years (+1.0% vs. +0.5%, q/q). This will ease the pressure on Governor Stevens at the RBA to hike the benchmark lending rate (3.25%) by 50bp next week. A 25bp hike looks increasingly likely to be the best case scenario from the RBA next month. Governor Stevens said it was ‘possibly imprudent’ to keep borrowing costs at a 50-year low in the minutes of its Oct. meeting. For now, the currency remains better bid on deeper pullbacks (0.9040).

Crude is lower in the O/N session ($77.44 down -2c). Crude prices plummeted the most in a month yesterday after the weekly EIA report revealed an unexpected increase in US gas stocks, while crude supplies jumped to a new 2-month high. Gas inventories climbed +1.62m barrels w/w vs. an expected decline of -1m barrels. The import number for crude also advanced for the 1st- time in 5-weeks. With the greenback once again finding traction is also managing to weigh down commodity prices. OPEC, this week also contributed by starting to talk crude down. They implied that members will increase output production to protect the global economic recovery if oil prices continue to rise above the $80 psychological level. They indicated that both ‘producers and consumers were comfortable with oil prices between $75 and $80 per barrel and that higher price’s could put the brakes on the pace of global economic recovery’. Ideally, they want to ‘maintain balance’ and will act accordingly in Dec. depending on where crude is trading. Fuel demand fell -0.8%, w/w, to an average of +18.5m barrels a day, while gas consumption fell -1% to +8.86m barrels a day. Basically, demand destruction remains intact and excess supply an issue. Over the week, refineries operated at +81.8% of capacity, up +0.7% from the previous week. On the other hand, crude stocks rose +778k barrels vs. expectations of +1.9m to +339.9m barrels last week. This has left supplies +9.1% higher than the 5-year average. Supplies of distillate fuel (includes heating oil and diesel), declined -2.13m barrels to +167.8m. Surprisingly, inventories were +29% higher than the 5-year average for the week. Technically, prices have been aggressively mobile on pure ‘speculation’ in the face of positive overall supply fundamentals. Keep eye on equities, they may have hit a ceiling, which will eventually pressurize this over supplied commodity class even more!

Gold has somewhat rebounded in the O/N session from its 3-week lows recorded yesterday. On a technical level, the yellow metal’s rapid decline has persuaded investors to increase their holdings, deeming the move to be somewhat overdone. Of course, with global equities backing off, has also boosted the appeal of this precious commodity as a ‘store of value’ ($1,035).

The Nikkei closed at 9,891 down -183. The DAX index in Europe was at 5,477 down -19; the FTSE (UK) currently is 5,070 down -10. The early call for the open of key US indices is lower. Despite a record amount of product to offload this week, the 10-year bonds eased 6bp yesterday (3.41%) and are little changed in the O/N session. Treasuries gained for a second day after a record $41b sale of 5-year notes drew the strongest demand in over 2-years (the bid-to-cover was 2.63). Also aiding the charge higher was weaker than expected US new home sales data (-3.6%) from last month.

Powered by Efacilitators Hosting