The euro fell half a percent to $1.3901 by 7:57 am in New York after touching a four-month high yesterday. The sell-off was triggered by Moody’s downgrading of Greece which brought the euro debt crisis back into focus.
“There is a risk that events in the euro zone will tilt the balance” for the currency, said Neil Mellor, a London-based strategist at Bank of New York Mellon Corp. “I wouldn’t want to be particularly long the euro at the moment.”
Source: Bloomberg
There so many moving parts to decipher, the market needed and appreciated the break in market volatility yesterday to lick its wounds. The fear of emerging markets entering a new tightening cycle has certainly reduced risk appetite greatly this week, especially amongst the commodity and growth sensitive currencies. The Fed and his policy makers have taken a fair share of criticism over their QE2 program, however, this weeks inflationary data seems to justify their position thus far. Finally, the Emerald Isle, true to her nature does not seem to be giving up without a fight. The ongoing discussion of her debt problems remains the primary market focus this morning. Investors are trying to comprehend if a rescue package for the country will be enough to reduce the funding costs of Spain and Portugal. The EUR is only tentatively grinding higher on positive opinion could be a problem.
The US$ 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.
Yesterdays’ data goes some ways in justify why the Fed is QE2ing it. US core-CPI was flat for a third consecutive month. Even the headline disappointed, advancing +0.2% in October (+1.2%, y/y). The market had been expecting a +0.3% gain. Most of the support came from the usual suspects, higher cost of energy (+2.6%) and food (+0.1%). Theses subcategories account for +23% of the overall basket. The core reading on a yearly basis straddles +0.6%, the lowest reading in half a century. Its biggest decliners were new vehicles (-0.4% and +6.4% of the baskets weighting) and clothing (-0.3%, +3.7%). Most of the other subcategories provided a negligible contribution to the overall headline. It’s worth noting that the housing component (+42% of the index) happened to reverse the previous month’s equal decline (+0.1%). The obvious risk to the heavy housing weighting is that if this category shows any sign or normalization (flat to higher) would add strong upward momentum to the core readings. Do not expect that to occur soon as the shadow inventory variable should prevent that.
Housing starts fell much more than expected last month, plummeting -11.7% from +600k to +519k and are now at their lowest level in 18-months. Such a poor number will again have the housing sector providing a sizable drag on the 4th Q’s GDP growth. Building permits rose +0.5% to +550k vs. market expectations of +570k. Analyst’s note that the recent housing trend remains intact with lower permit releases and proof that the new home sales is expected to remain depressed for the future. Weakness was concentrated in multifamily starts, which plunged -43.5% and single-family starts retreating -1.1%. The market will remain depressed because of the enormous inventory of existing homes on the market, either distressed sales or homes that are going through or will go through foreclosure.
The USD$ is lower against the EUR +0.69%, GBP +0.24%, CHF +0.38% and higher against JPY -0.01%. The commodity currencies are stronger this morning, CAD +0.71% and AUD +0.89%. The loonie happened to cap its early declines yesterday, to its weakest level this month, as global stocks eked a gain on speculation that softer US data will push the Fed to follow through on its plan to buy $600b’s worth of debt. The currency has been under pressure most of this week, like other growth sensitive currencies, on fears of further emerging market tightening, commodities plummeting, and global bourses finding it difficult to maintain traction. The increased risk appetite as Ireland nears the foregone conclusion of accepting aid has provided some support for the currency in the O/N session. With weaker Canadian data of late, expect the currency to underperform against its other trading partners, at the moment it seems well contained in its recent range. It’s interesting that the currency has not received any aftershock from the BHP derailed takeover of Potash by the Federal Government. At the moment, the market is tentatively happy buying the loonie on dollar rallies.
The AUD is inching higher for a second consecutive day, as speculation that Ireland will eventually accept aid revived demand for higher-yielding assets and reduce concern that the European nation’s banking crisis may spread. Also aiding the currency was the RBA’s deputy governor stating that the country will likely face upward pressure on inflation. Commodity and growth sensitive currency have taken a specific beating over the last week as the Irish debt problems talks intensified. As the leading commodity currency, the AUD is highly vulnerable to growing speculation that China will hike rates as early as Friday. Despite appreciating vs. all its 16 trading partners, the declines have been somewhat limited after a government report earlier this week revealed that wages rose in the third quarter by the most in almost two years (+1.1%) and that the RBA minutes indicated that Governor Stevens decision to raise interest rates was ‘finely balanced’. Policy makers said a ‘modest tightening’ was considered prudent when they increased the benchmark rate earlier this month (+4.75%). Market players are viewing corrective rebounds as fresh selling opportunities short term on the back of the Chinese variable (0.9875).
Crude is higher in the O/N session ($81.87 +$1.43c). Oil prices have pared most of yesterday’s losses after a surprisingly weak EIA report number has finally kicked in and on the back of increased risk appetite. The commodity has been under pressure on concerns that a Euro-zone’s deepening debt crisis coupled with emerging markets Cbanks tightening monetary policy would reduce demand for the asset class. The market remains on tender hooks, fearing that China may also attempt to rein in inflation, further reducing demand. However, this week’s inventory numbers are more bullish than what the market is giving them credit for. Crude stocks fell by -7.3m barrels last week, the largest weekly decline in 15-months. The market had been expecting a small decline of -100k barrels. Not to be outdone, the other fuel categories also declined. Gas inventories were down -2.7m barrels, while distillates (heating oil and diesel) fell by -1.1m. The market had expected a decline of -600k and -2.2m barrels respectively. Despite the negative readings, the US continues to experience a ‘large supply glut’, with crude and fuel inventories above five-year average levels. In Sept. inventory levels happened to print a 27-year high, and have been declining ever since. The ‘big’ dollars value will continue to influence prices despite the fundamentals. The oil market has lost -6.2% during the last five sessions. This week’s inventory numbers should be able to provide support ahead of the psychological $80 level.
Gold prices climbed in the O/N session, the first day in five, ending its longest losing streak in six months on increased investment demand. Investors to date have been aggressively using the commodity as a hedge against inflation and store of value. The fear that emerging markets are beginning to tighten their monetary policy could curb the demand for the commodity as a safe-haven asset. For most of this week a stronger greenback has restricted the demand for bullion, with gold usually trading inversely to the dollar. Speculators are expecting European debt concerns to eventually provide more support on these pullbacks, as Capital Markets shift their focus toward sovereign debt issues and away from QE2 debates. Year-to-date, the metal is up + 22.1% and is poised to record its 10th consecutive annual gain. For most of this year, speculators have sought an alternative investment strategy to the weaker dollar and have been using the commodity as a proxy for a ‘third reservable currency’ ($1,355 +$18.50).
The Nikkei closed at 10,013 up +201. The DAX index in Europe was at 6,790 up +90; the FTSE (UK) currently is 5,758 +65. The early call for the open of key US indices is higher. The US 10-years eased 3bp yesterday (2.86%) and another 4bp in the O/N session (2.90%). A softer CPI print and weaker housing data pushed treasury prices reluctantly higher yesterday, somewhat vindicating policy makers QE2 stance. The Fed also happened to buy $8.154b of the 10-year sector as part of its plan to buy $600b more Treasuries. After plummeting price action for most of this week, Fed rhetoric is also stemming the bleeding. To date, policy makers have come under a fair amount of criticism for their buyback policy and the market has been pricing in the possibility of them backing off. They still have some ways to go in convincing the market. Increased risk appetite is shifting the curve higher.
What happened to the well received German and Portuguese debt auctions? Were they not supposed to instill ‘positive confidence’ into this market? Subdued interest, backed up by-illiquid pockets has the forex enthusiast’s seeking hibernation this mid-Aug. We go around in circles when we have no data to play with. That’s because we lack conviction. Today, at least we get something to chew on and probably moan about, but, will it have us testing new found ranges? It probably won’t, but let’s hope so. For dealers it seems to be containment with minimum fuss until the Eureka light bulb glows again.
The US$ is mixed in the O/N trading session. Currently it is higher against 11 of the 16 most actively traded currencies in a somewhat summer ‘subdued’ trading range.
With the EUR testing session lows, there is chatter that the currency is losing its momentum to the topside, what else can one say? And that through the 1.2785 all bets are off. Remarkably, the currency is swaying on such little volume. In the big picture, the impact of the ‘fiscal adjustment in Europe is real and will be felt for years’ should hinder the EUR’s climb. Its highs are beginning to be dragged lower and lower. Now, with the belief that the Euro-zones economic recovery is waning should dampen further the demand for the single currency. Sellers are beginning to line up top-side. Maybe today’s data will bring some much needed volatility.
The USD$ is higher against the EUR -0.51%, GBP -0.50% and JPY -0.34% and lower against the CHF +0.06%. The commodity currencies are weaker this morning, CAD -0.08% and AUD -0.25%. The loonie is a funny animal, or perhaps I should say, the dealers are a breed apart. It seems that the forex spot market is pricing in the BHP Billiton/Potash deal and the herd is following them. Equities and commodity prices would have you wanting to lighten your CAD long load, not in this case, dollar rallies are been sold and dealers are content to keep the currency in the limelight until they get the green light to ‘execute’ any such deal. This is in contrast to other growth and commodity sensitive currencies paring most of this weeks gain. Stronger manufacturing shipments data this week (+0.1% and +0.7% in real-terms) is also providing some distant support. Fundamentally, Canada remains somewhat of a safer heaven globally. However, their economy cannot be immune to a US slowdown. It happens to be its largest trading partner with 70% of all exports heading south. Sloppy trading and lack of interest because of the summer doldrums has meant that many have missed the buying boat opportunity that they had hoped to witness on the last ‘risk aversion’ go-around. BHP Billiton hostile bid takeover of Potash in Canada will keep the loonie firm, no debt involved. Perhaps parity is on the cards again, aided by Carneys ‘normalizing’ rates next month.
There has been quite a bit of AUD/CAD cross selling, front running M&A speculation that has pinned down the AUD for the time being. Over the past 2-trading sessions the AUD came under pressure vs. the JPY on speculation that the BOJ are not ready to intervene on behalf of their currency, thus dampening the demand for some of the higher-yielding assets. Government data has also happened to put a lid on the recent rally. Reports, earlier this week, showed that skilled vacancies declined this month and wage growth slowed in the 2nd Q. Net result traders are adding to their bets that the RBA will leave interest rates unchanged for the next 12-months. Interest rate differential continue to play a big part of the currency’s attractiveness. No currency is immune to this ‘questionable growth’ environment. Risk aversion will likely force the bull’s hand this week, capping rallies, as equities find it difficult to maintain traction at the moment. In reality with the outlook for both the US and Chinese economies becoming uncertain, growth-sensitive currencies like the AUD, CAD and KIWI, are unlikely to continue to draw strong buying interest from speculators (0.9002). Follow the Asian bourses for guidance or wait and see what China’s diversification plan is made off. Perhaps the outcome of the Aussi election will push the currency to test new highs by weekend.
Crude is higher in the O/N session ($75.81 up +39c). Crude prices continue to trade near their one month low as mixed global bourses have ignited concerns that the recovery will not be strong enough to revive fuel demand. Even yesterday’s weekly EIA report provided fodder for the ‘bears’, aided by some ‘dubious’ hefty predictions for increased supplies in various categories for the week. Oil stockpiles declined -0.8m bpd vs. a market expectation of a -1m barrel print. Inventories fell to +354.2m barrels w/w. Not to be left out, gas stocks dropped -39k barrels to +223.3m. On the flip side, distillate supplies (heating and diesel) climbed +1.07m barrels to +174.2m. With this bearish report successfully penetrating the $75 support opens up the way to test the $72 surroundings. Prices have also gravitated towards these lows on the back of data showing that economic growth in both China and the US is slowing. The demand for oil products also fell, as gas demand hit a 2-month low, while demand for distillates is close to its lowest level in 10-months. The report re-confirms the IEA conclusion earlier this month that ‘oil demand could take a substantial hit should economic growth continue to falter’. It’s no wonder that the market continues to pressurize commodity prices. Speculators remain better sellers on up-ticks in the short term.
Gold prices are little changed in the O/N session, managing to pare some of the yesterday’s earlier declines as weaker global equities boosted investor support for various safer heaven assets. With a lack of meaningful direction in the dollar, gold prices remain in the ‘relative pause mode’ or tight trading range. Big picture, the market continues to require safer assets at the expense of equities and other commodities. With a genuine fear for global growth, by default, is boosting the demand for the metal as a protector of wealth in the grand scheme of things. Year-to-date the metal has risen +11.5%. With treasury yields expected to remain low for sometime and with the Fed announcement last week of their intentions to buy bonds, could promote a quickening inflation rate, which would promote pushing commodity prices higher. For most of this year, we have witnessed a gold rally on the back of a weaker EUR ($1,231 +50c). The dollar strength is under scrutiny and the historical negative correlation is not holding true at the moment. It’s about preserving wealth that is driving metal commodity prices big picture.
The Nikkei closed at 9,362 up +122. The DAX index in Europe was at 6,171 down -15; the FTSE (UK) currently is 5,294 down -8. The early call for the open of key US indices is lower. The US 10-year eased 3bp yesterday (2.59%) and has backed up 5bp in the O/N session (2.64%). Treasuries prices had rallied Wednesday, clawing back all of the previous day losses as equities came under renewed pressure. Also providing support was St. Louis Fed Bullard stating that the Fed may need to purchase more bonds if inflation happens to remain low. Investors are still concerned on the strength of the recovery. If the Fed does expand its balance sheet then the curve should flatten to analysts medium term projections of +200bp 2’s/10’s. The market seems content in owning longer dated product on these deeper pull backs. Perhaps this morning Philly Fed will cause another manufacturing stir!
Is it enough to convince investors? European regulators found that ‘only’ seven banks need to raise a combined EUR3.5b of capital. From all the monies that have been given out and promised by various Governments the sum sounds like pittance. Are the tests strict enough? Is it another ploy to support global confidence, to bamboozle the negativity and second guessing that is in danger of spiraling into oblivion? On the first pass, it seems that the tests were set in such a way that most of them would pass. Perhaps the regulators and governments commitments may well outweigh doubts about the stringency of the tests. Market reaction thus far is undecided.
The US$ is weaker in the O/N trading session. Currently it is lower against 12 of the 16 most actively traded currencies in a ‘whippy’ trading range.
Initial reaction had market participants welcoming the results of the stress tests, driving appetite for higher risk in Asia. The European session, however, is questioning the ‘rigor and credibility of the tests’, specifically the worst case macro-scenario and the haircuts applied to sovereign debt. The lack of transparency and credibility in the tests is likely to limit the upside to the EUR temporarily. The latest CFTC reports show that the EUR shorts have been trimmed further, another reason not to trade much higher in the short term.
The USD$ is lower against the EUR +0.31%, GBP +0.40%, CHF +0.18% and JPY +0.58%. The commodity currencies are stronger this morning, CAD +0.18% and AUD +0.30%. The loonie got the nod from various sources last week. A strong commodity and equity market, its proxy for a reserve currency status and finally from a central bank who happened to tighten rates 25bp pushed the currency higher. The interest rate differential scenario seems to be getting the biggest support for now, despite it being a ‘dovish hike’. The currency rose again on Friday vs. its largest trading partner as most European banks that received stress tests passed. Governor Carney enforced that there was no pre-ordained path for interest rates in Canada. According to Carney’s dovish communiqué ‘the global economic recovery is proceeding, but, is not yet self-sustaining’. The 25bp hike last week will ‘leave considerable monetary stimulus in place’, with both the core and total inflation to advance at about a +2% annual rate through 2012 (within their target zone). Some will argue that with signs of a significant slowdown underway in the US, it’s possible that the BOC may be persuaded to move back to the sidelines on the Sept. go-around. Carney has given himself the latitude to step back and assess global growth for the 3rd Q. Stronger commodity and equity prices favor buying CAD on pull backs.
The AUD is encroaching on its 3-month high vs. the USD, as signs that the global economy is stabilizing is spurring investor demand for higher-yielding assets. Option barrier protection is occurring around the 0.9000 level at the moment. The currency has rallied a third straight day vs. the JPY after regional bourses advanced now that most European banks passed the stress tests and US corporate earnings surpassed market expectations. The market is also expecting a stronger CPI report this week from down-under, which again will put the RBA under the spot light to hike rates at the Aug. 3rd policy meeting. The currency gained +2.9% vs. the greenback last week after the RBA’s July minutes showed that Governor Stevens intends to use results of Europe’s stress tests and local inflation figures to decide whether to resume raising rates. The pace of CPI increased nearly doubled to +0.9% in the first quarter. Fundamental analysts believe it would take another rate hike for the currency to trade again in the 90’s and technically it’s a sell on approaching these levels. Policy makers are ‘reinstating their view that domestic growth will be about trend’ and are ‘not alarmed by the global demand backdrop’. In retrospect, policy makers remain ‘very upbeat’. Because of equities actions, the market is a cautious buyer on pullbacks, wary that the recent strong rally technically may be overdone (0.8975).
Crude is softer in the O/N session ($78.52 down -46c). Crude prices fell from just under a three month high on Friday on speculation that Tropical Storm Bonnie would not be strong enough to damage production platforms in the Gulf of Mexico. Proven to be true and after last weeks strong rally, technically, the market was going to cash in somewhat on the advance. For most of last week, prices rallied as global bourses advanced on signals that economic growth will accelerate. Also supporting investors selling actions are last weeks surprising EIA report. The market had been expecting a drawdown on inventories. However, not so, stocks showed a surprise increase, reporting a rise of +400k barrels of oil for the week whilst the market had been expecting a headline decline of -1.6m. The dovish report continued with its gas inventories rising +1.1m barrels and its stockpiles of distillates (diesel and heating oil) doubling expectations to +3.9m barrels. Once again technically, the gas markets numbers show ‘lackluster demand and will put pressure on the entire energy complex’. We continue to remain range bound with the price action as the market looks for vindication.
Gold has been caught in a relatively tight trading range over the past 10-trading sessions, lacking a catalyst to carry momentum to the upside again. The commodity has been fighting its technical support 100-day moving average. Prices have found it rather difficult to gravitate too far from the $1,185-88 magnet. Dealers expect investors to dump their remaining long positions on a break of this level. Tentatively, gold futures are trying to rebound on speculation that the Fed will act to stimulate US growth. This action should drive the dollar lower and boost the appeal of the precious metal as an alternative asset. At the moment it’s has been frustrating for investors to buy into the intraday story, the ‘too and froing’ of the price action in a tight range has proven expensive. With the results of the stress tests going relatively well thus far is causing little flight to quality buying in the gold market. Bigger picture, technically, the bullish sentiment had been on hiatus with profit taking testing the medium term support levels. Fundamentally, in the short term the metal will find it difficult to rally aggressively as this is the ‘slowest’ season for physical demand. Year-to-date, the commodity has gained +8.8% and is in danger of giving up more ($1,190 +$3.00).
The Nikkei closed at 9,503 up +73. The DAX index in Europe was at 6,154 down -12; the FTSE (UK) currently is 5,313 up +2. The early call for the open of key US indices is lower. The US 10-year backed up 7bp on Friday (2.97%) and is little changed in the O/N session. After printing new record low yields, the US front-end plunged on higher earnings easing concerns that the Fed may have to consider more stimulus measures to help sustain the US economic recovery. With the Treasury planning to auction $104b of new product this week ($38b 2’s, $37b 5’s and $29b 7’s), cumulatively lower that the previous two months, will certainly have dealers wanting to cheapen the curve a tad at these technically ‘rich’ low–yields. Current market sentiment has dealers wanting to be better buyers on deeper pull backs, as the market foresees a flatter yield curve as analysts predict that 10’s will yield 2.75% by year-end.
Why do we continue to look to Europe for sovereign debt concerns? The way US treasuries have been performing, the Obama administration could be staring down a ‘failed auction’. Treasury yields have backed up 90bp in three-month’s in a ‘destabilizing fashion’. Looking at the basics, global growth and especially US growth has not been strong enough to revive fears of inflation. Commodity prices seemed to have already peaked and the housing market continues their ‘death spiral’. In this scenario, how are stocks holding on to its one-directional play? Something seems to be is amiss. The FX market is still very much ‘short’ the crowded trades, EUR’s and GBP. Bearish momentum has gone ‘walkabout’ at the moment. We could witness some ‘nasty’ trimming of positions to the top side on Thursday ahead of the ‘strongly’ anticipated NFP print (+190k-thus far).
The US$ is mixed in the O/N trading session. Currently it is lower against 11 of the 16 most actively traded currencies in a ‘subdued’ trading range.
Yesterday’s US data confirms that the consumer is officially saving less (+0.0% vs. +0.1%) and spending more (+0.3% vs. +0.4%). It was not an income driven gain, as disposable income was flat in Feb. after declining in Jan. From its peak last spring (+6.4%), the savings rate has been halved (+3.1%). Analysts note that the headline nominal rise in spending matched the real rise and is expected to flow directly into GDP. Digging deeper, the real-gain in consumption was focused on non-durables and services. Real-personal income (ex-transfer receipts) is one of the main go-to indicators to ‘determine the beginning or end of a recession’, happened to fall -0.2%, m/m. It was a second consecutive monthly decline. The personal income components (labor, earning’s, rental etc.) revealed that weakness was evenly spread, similar showing in the private-sector compensation. Analysts note that income was somewhat ‘cushioned’ by government transfers. Not surprising to witness that inflation was again absent, the core-rate of inflation in personal consumption expenditures was flat for a second consecutive month. Further proof that growth (equities), inflation and US bonds yields backing up is not making much sense at the moment.
The USD$ is lower against the EUR +0.25%, GBP +0.47%, CHF +0.19 % and higher against JPY -0.06%. The commodity currencies are stronger this morning, CAD +0.20% and AUD +0.26%. The loonie is back on the commodity gravy train. All the stars are in alignment, as optimists seem ok with the Greek debt offering, equities are in demand and the investor is looking or hoping that we are now entering an expansion phase. These are all good reasons to want to own a growth commodity driven currency like the CAD. Last week the loonie happened to record its first weekly loss in a month. This ‘one directional oversaturated’ CAD trade, managed to weed out the weak domestic longs when the dollar rallied for risk aversion reasons. The currency continues to outperform many of its G7 currencies. The loonie is hanging in tough, two weeks ago it was piggy-backing parity and by this weeks price action it looks capable of doing that again sooner rather than later. The currency continues to remain a good news story with strong fundamentals. To date the USD rallies have been shallow and are met with strong resistance. The trend remains your friend.
The gravy train rolls on. The AUD remains in robust form, advancing the most in six-week’s as investors demanded yield. The spread between Aussi bonds and US treasuries has widened to its biggest spread in almost two-years. Growth currencies continue to perform well vs. JPY, testing some key resistance points before the next leg higher. Stronger fundamentals are adding to speculation that the RBA will increase borrowing costs again next week after Governor Stevens’ comments. Futures traders are pricing in a 50% chance of a 25bp rate increase (4.00%) when the RBA next meet on April 6th to contain inflation. The RBA rhetoric is providing the support, reiterating that the benchmark borrowing costs need to climb toward ‘normal levels’ to contain inflation. The policy member’s comments reinforce the fact that the Australian ‘is in a strong position economically and there continues to be inflationary price movements’. Continue to expect better buying on deeper pull backs (0.9204).
Crude is little changed in the O/N session ($82.16 up +1c). ‘Reversal of fortune’ was not just a movie. It also applies to how crude prices have acted over the last two trading sessions. After ending last week ‘down and out’, oil prices have advanced, supported by a weaker greenback and a tentative equity rally. The buck has greatly underperformed vs. the EUR, especially after Sunday’s s/l hunting. This has dragged most commodities higher. With the Euro-zone economic sentiment increasing, coupled with US consumer spending rising, is trying to dissuade the bears from their course of action, especially after last week’s EIA report showing a bigger than forecasted increase in inventories. Crude stocks increased four-fold, rising +7.25m barrels. The market was only expecting an increase of +1.65m barrels. Compounding the net effect, imports of the ‘black-stuff’ gained +12% to +9.4m barrels (the highest print in 6-months). On the flip side, gas stocks fell -2.72m vs. an estimated drop of only -1.5m barrels. Not to be outdone, distillate fuel (heating oil and diesel) declined -2.42m barrels to +145.7m. A decrease of -985k barrels was forecasted. The four-week US demand average was +19.36m barrels a day, up +3.6% y/y, while gas consumption averaged +8.95m barrels, up +1.2%. Finally, refineries are operating at +81.1% of capacity, up +0.6% w/w. On the face of it, there is plenty of spare capacity available for when demand picks up. Technically the market remains somewhat optimistic, while fundamentally, weak demand has us not so. Capital markets anticipate another build of inventories this week which should provide some resistance to prices.
Despite gold prices remaining contained in a tight trading range, albeit somewhat volatile, a weak greenback has sparked demand for the metal as an alternative asset. The intraday trading has certainly caused some traders to suffer from price ‘whiplash’. Analysts believe that from a macro perspective ‘the underlying problems of the heavily indebted euro-zone economies are overshadowing everything at the moment’ and have investors both gun shy and trigger happy when coming to execution. Fundamentally, it’s been expected that the ‘yellow metal’ would find stronger traction as investors seek an alternative to an ‘on going weakening’ of the EUR and low interest rates. However, the market is seeing little evidence of that demand appearing just yet. There remains strong support at $1,075-80 level. What about the IMF? Will they require selling gold to finance a Greek bailout? The commodities highs are getting lower and suggest that further weakness is warranted in the short term. The dollar’s direction remains the strongest indicator to wanting the metal or not ($1,112).
The Nikkei closed at 11,097 up +110. The DAX index in Europe was at 6,160 up +3; the FTSE (UK) currently is 5,711 up +1. The early call for the open of key US indices is higher. The US 10-year backed up 1bp yesterday (3.87%) and is little changed in the O/N session. Treasury prices had a rough go of it last week with supply managing to push yields to a record three-month high. A lower than average demand for $118b’ worth of product raised concern that investor interest is declining as the US deficit climbs to a record. Are we in the midst of a failed US auction? Technically and fundamentally, supply and the realization that there are more issues to come are starting to continuously weigh on Treasuries. The US marketable debt has risen to a record $7.4t, as the Obama administration borrows to sustain the US economic expansion.
After opening the day lower than Friday’s close, oil futures continued to lose ground with December contracts falling $1.84 (2.3 percent) to $78.66 a barrel by 1:30 on the New York Mercantile Exchange.
“This is a dollar play,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “There is not a lot if rhyme or reason in this market at the moment. I see no justification for how far prices have risen.”
Bloomberg
After opening the day lower than Friday’s close, oil futures continued to lose ground with December contracts falling $1.84 (2.3 percent) to $78.66 a barrel by 1:30 on the New York Mercantile Exchange.
“This is a dollar play,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “There is not a lot if rhyme or reason in this market at the moment. I see no justification for how far prices have risen.”
Bloomberg
For the first time in more than a year, Germany’s Consumer Confidence Index fell, catching most observers by surprise. Growing concern over higher energy costs and rising unemployment are forcing consumers to consider scaling-back on their purchases and this has been reflected in an index reading of 4 in November, down from a 4.2 index reading the previous month.
Bloomberg News
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