Did You Know You Can Buy Chills on the Commodities Exchange ?

Being a long time currency and “commodities” trader, I long forgot my roots, when I was busy looking at orange juice futures and pork bellies. There was corn and wheat, and cattle, of course there were always the interesting, gasoline and coffee and cocoa. Years ago, commodities also included gold, silver, crude oil and natural gas and today they are still considered commodities, but have moved into a world of their own, currency traders have adopted them and they are offered on most Forex platforms.

But we all seem to live in our own little spheres, rarely venturing out to see what others see or look at, or what they deal with on a daily basis.

Recently, I came across a news letter from an Indian broker, on agricultural, I assumed it was the standard wheat, corn, soybeans that are traded globally, when I had a minute I opened the newsletter, and I must say I enjoyed reading it. Many of the spices listed, I have never heard of, many of the items I had didn’t even realize were traded, I only remember them on labels in the grocery store.

I thought I would share them with my readers as a point of interest and enjoyment and a moment away from the pressures of currencies and metals and energy.

The daily newsletter listed the commodities below:

Chili futures gained more than 2% in early intraday trades, as dwindling supply and strong demand from the exporters has kept trader’s sentiment positive.

Arrivals of chili crop declined to about 25,000 bags; however demand was firm among exporters & local buyers at Guntur market. Spot rates were quoted in the range of `4,800-`5400 per kg, based on crop quality.

Arrivals of jeera crop increased to about 8,500-9,000 bags while demand was reported strong with more than 12,000 bags getting traded at auctions held at Unjha market. Spot rates were quoted in the range of `137-`139 per kg, as per local traders.

Spot rates of pepper garbled declined `401 per kg and that of un-garbled was down at `386per kg. Arrivals declined to 11 tons while trades too were down at 9 tons at Kochi market – IPSTA.

Turmeric arrivals: stood at 4,000 bags at Nizamabad market and declined to ~7,000 bags across mandis of Erode. Spot rates eased slightly & were offered in the range of `36-`39 per kg across different trading centers, as per traders.

Average price of small cardamom declined to `674 per kg, while the maximum price offered was up at `1,229.5 per kg, as per spice board. Total inflow of small cardamom crop increased to about 51.1 tons from which 48.5 tons were sold at auction held at Nedumkandam.

Soya bean futures recovered from their early losses to close in positive, supported by delay in monsoon rains across growing regions and firm cues from overseas market.

Arrivals of soya bean crop declined to 30,000 bags at MP market, but increased to more than 10,000 bags each across mandis of Maharashtra & Rajasthan, as per local traders.

Spot rates of soya bean offered by planters were up at `38-`38.5 per kg while rates offered across mandis of Indore were up in the range of `37-`37.5 per kg, as per traders.

Inflow of mustard seed crop increased to 31,946 quintals, while average of closing spot rates were up at `3,512.4 per quintal, as per agriculture marketing board of Rajasthan.

Arrivals of chana crop declined to about 75,000 bags while spot rates closed higher and were quoted in the range of `45-`46 per kg across major trading centers, as per trade reports.

Mentha oil futures traded in a tight range through major part of the trading session while spot rates traded steadily & were quoted in the range of `1,350-`1,380 per kg. Absence of any major demand & steady supply on a daily basis has been weighing on prices.

The EU Summit Shakes Up the Financial Markets

Asian equities have opened on a positive note after the European leaders agreed to ease payment rules for emergency rules to Spanish banks and relax conditions of potential help on Italy after the German Chancellor took expanded steps to control the debt crisis. Further a weaker dollar and assurances by Beijing that top metals consumer China will meet its GDP growth target for the year, but the contract is still on track for its worst quarter since the third quarter of 2011.

Investors will look for more trading cues from the last day of the European Union summit, where bickering among leaders over what to focus on in tackling the Euro-zone debt crisis will likely keep gains capped. A solution to the Euro-zone’s fiscal woes is not expected in the near future, despite a two-day meeting by the leaders of EU member’s states to discuss a solution to the crisis. The crisis has triggered an economic recession and even stoked fears of dissolution of the Eurozone. Its ripple effect, however, has reached all the way to China, a major trading partner of the EU. Chinese exporters are among the direct victims of a crisis that has led to high unemployment, a reduction in consumer spending and a corresponding depletion of demand for Chinese-made goods resulting in weak performance of metals pack. Further Alcoa, hinted increased jobs cut in Australia due to weak Aluminum prices and may continue to support slight gains in refined metal prices.

From the economic data front, the Euro-zone releases are likely to remain weak while the US releases in the form of personal income and spending may remain unchanged with slight fall in PMI and Michigan confidence. However, increased efforts of the Euro chiefs may support base metals to remain positive in today’s session

After a major plunge yesterday, gold futures prices stood-up to fight the sell-off pressure in premarket trading. Prices rose by over a percent on the back of a reviving euro which increased over 2 cents after the EU officials announced a plan to form a single financial supervisor for the currency bloc.

For the rest of the day we expect market to be very volatile as the EU meeting is still under doubt while some news stories have raised the hope for a structural outcome from the meet. It’s been pretty confusing as stories, news and press releases overlap outdated news with current conjecture. At present, Italy and Spain are making demands on the EU to help with liquidity in other forms then a bail out, while they hold the 120billion growth fund hostage. At this time, Spain has also had its 100billion bailout suspended until further explanations and understandings are reached. Germany is still opposing to unite with the others, in this matter they are in the rights, Spain and Italy are not exceptions to the rules and should follow set procedures and not be allowed to cloak bailouts in the guide of other funding and not have long term goals and budgets.

Reports today may show the US personal income to rise a bit while spending may not improve much. Euro zone CPI may also rise and that may weaken the currency. But still the main focus will be the Summit, once it concluded this evening and the closing statements and press releases are issued markets will be able to evaluate the actual outcome.

Forex and Commodities As the EU Summit Begins

Asian equities are trading positive after improved US releases coupled with positive western equities. Early morning, the economic releases from Japan increased more than expectation supporting gains in riskier assets. This morning finds Prime Minister Noda‘s coalition government in turmoil as Noda exhausted all of his political capital to pass the increase in consumption tax, which was necessary to save the economic and financial health of Japan. Many of his supporters voted against him, leaving his coalition government weakened and possibly without a majority.

 Investors cheered encouraging US economic data, but an EU summit later in the day could limit gains, with Euro-zone leaders seeming more divergent than ever in their views after Germany rejected calls for common Euro-zone bonds. On the eve of an EU summit that could determine the future of the Euro-zone, German Chancellor brushed aside increasingly shrill calls from Spain and Italy for emergency action to lower their soaring borrowing costs.

European Union leaders go into the two-day meeting starting today and any improvement on the same may support further gains in base metals. However, metal but prices could falter with markets tense ahead of the European summit deeply divided on how to tackle the protracted Euro-zone debt crisis and stop it spreading further. From the economic data front, the Euro-zone confidence numbers may dwindle while German unemployment may remain unchanged.

The UK GDP along with current account balance may further weigh on gains the markets in the afternoon. Later in the evening the US releases in the form of GDP, personal consumption and labor releases may continue to improve slightly and may support gains in commodities

During the European session, currencies and commodities might respond to the development of the Euro summit while later better releases from US may continue to support gains. Overall, amidst positive equities and improved economic releases from US markets are expected to continue on a positive note.

Whereas Gold has surrendered to the worries about global weakness but the seesaw movement we witnessed yesterday followed from the misjudged interpretation of the Barclays newscast. The EU meeting is not expected to reveal any sort of influential conclusion, and is now apparent after Germany showed lethargy about a tight fiscal amalgamation across the Euro zone.

Hence, it is doubtful that gold will turn upward despite the euros climbed up by 0.40% against the dollar. Expect a slight pull back in gold during the European hours amid anticipation of the Euro summit for a possible strategy outcome.

Markets are expected to react tomorrow at the close of the meetings, when an acceptable plan is not put forth. Issuance of the joint Euro bonds is under doubt after Merkel strongly commented it as a wrong way to achieve the integration while; the Spanish, Italian and French chiefs are pushing hard for the same with aim for growth. The dispute between them could therefore be proved as a headwind for the market especially after the consensus broke down to safe guard Spain and Italy while; the adding Cyprus, the fifth European nation so far could be bailed out today. All eyes will be on Monti from Italy, as he is following the same path of denial as Rajoy from Spain.

Morning Financial Markets June 26, 2012

The Asian equities are trading down by 0.3 to 1 percent after weak performance of western peers and increased uncertainty over Spanish banking recapitalization.

Further from the Asian bourses, Japan’s Copper output declined while the Chinese industrial production has also remained a concern. Structural changes and increased easing in China may change the demand supply scenario of most of the base metals and may continue to support downside in today’s session. As expected in our weekly report that Chinese demand post holiday would remain subdued and has resulted in price fall of metals pack. Further, more than one-third of China’s provincial-level Governments have released wage growth targets for workers this year, with most of them trimming down salary increases as companies face decreasing profits amid a slowing economy. The downshift shows that local regions are cautious in regulating wage growth, as the economic outlook for the year remains uncertain.

Fast wage increase may further increase cost of production amidst falling metal prices and may continue to weaken base metals as China plays a pivotal consumer. The European equities may gain slightly after deteriorating the most yesterday, however rising borrowing cost and weak banking sector may continue to drag down the single currency and may weaken base metals. There are no major economic releases from the Euro-zone and hence markets may closely follow the bond yields and any further increase may support downside for base metals. From the US, better homes and manufacturing failed to add gains to equities as the banking sector remained a concern.

Today, amidst weak economic developments US consumer confidence may continue to dwindle while the Richmond fed manufacturing may release at a blend and may continue to weaken base metals. Therefore, amidst falling equities and declining confidence coupled with lower expectation of growth, base metals may remain weak and hence remaining short might be recommend for the session.

Weighing on the Asian markets is the struggle in Japan’s lower house over tax increases supported and needed by the government. Where a no confidence vote today, may affect the status of the government and also the expected moves from the BoJ.

Gold prices have given a little back in early electronic trading after Spain’s formal appeal for help for its collapsing banking system. However, the Spain has camouflaged the 125billion loan package as a bailout for the banks and not government debt the exact amount and uses remained blurred. Overall gold is looking for direction and floundering between small gains and losses. Although the markets are expected to be reactionary to news flow this week, eco data may be overlooked entirely.

The euro therefore is likely to remain weak for the day. Asian shares, taking cues from the western globe, are trading at a weak note at present moment. Gold although recoup some losses yesterday, the rally was mainly due to the Spanish rating down gradation and therefore is not likely to stay affirm today. Market is now closely looking for the European summit on June 28-29, but the situation is deteriorating continuously. The stocks are beating and bond yield spreads are widening after Merkel opposed to buy periphery bonds. So, a meaningful outcome can hardly be seen in the summit. Even, there is the rise of fifth European nation seeking for financial lifeline is, Cyprus. The pessimism of spillover effect is therefore expected to keep the Euro and gold under strain for the day. From the economic data release, the US consumer confidence may weaken after the recent releases slacken, indicating dismal US economic scenario.

However, the Richmond Fed manufacturing may show a slight improvement from the prior followed from the Dallas Fed. All these indicate a blend impact on the dollar.

What’s in-store for the Markets for the Week of June 25-29, 2012

The European Union, as it has over the past months, will set much of the global risk tone next week as EU leaders gather in Belgium for the latest Summit.  Spain faces a Monday deadline to submit a formal request for aid to the EFSF/ESM to recapitalize its banks. Key questions remain such as subordination of claims within the funding apparatus and whether credible capital plans will be presented.

 The EcoFin Summit discussions will center on refinancing sovereign and bank capital requirements through some or all of the following options:  the soon-to-be-enacted European Stability Mechanism, Eurobonds, a banking union, talk of a “growth pact”, an unappealing redemption fund proposal, or euro bills as an incremental step toward eventual Eurobonds. At issue is therefore whether more talk about needed long-run structural changes will appease markets that are impatiently seeking nearer-term solutions and thus the clear risk would be to repeat the pattern to date of disappointment coming out of major summits—especially in light of persistent German resistance to many of the proposals.  Also, Germany’s lower house votes on the ESM and fiscal pact on Friday and is expected to pass the enacting legislation. 

The eco calendar is fairly thin and focused upon German CPI and unemployment, Eurozone CPI, EC economic and industrial confidence, and UK and French GDP revisions.  Italy auctions bonds on the heels of Spain’s successful auctions but in advance of the critical EU Summit which may put the auctions at greater risk of pre-Summit comments and volatility.  

Japan issues its major monthly economic releases.  Japanese industrial production is expected to post the sharpest month-over-month decline in over a year while the highest frequency inflation gauges for Tokyo are expected to post ongoing deflation in both headline and core prices excluding food and energy. Retail sales, total household spending, housing starts, and the jobless rate will round out the broad picture for the Japanese economy

This week’s US data risk will be mostly focused upon three reports.  We think consumer confidence will take a step back as lower gasoline prices are offset by deteriorating jobs data and by weak equities up to the survey period.  Durable goods are also likely to come in soft with few aircraft orders and a likely softer vehicle orders component.  Personal spending isn’t shaping up well either given that we already know that retail sales slipped lower during May, although services spending may be more resilient.  In all, the main releases may extend the tone of disappointing higher frequency reports on the health of the US economy in the lead-up to the following week when the big releases like ISM and nonfarm hit.  Other releases next week include new home sales following a weak resale report, and pending home sales that may get a lift after the prior month’s sharp drop.  There are no expected revisions to the final Q1 GDP figures.

Aussie’s Getting Richer

Australians became richer, owned more cars and lived in larger homes in a five-year period spanning the world’s worst financial crisis since the Great Depression. The proportion of households earning more than a$3,000 ($3,050) a week more than doubled from 2006 to 11%.

US stocks erased earlier losses ahead of report that show sales of previously owned American homes decreased last month. Chairman Ben S. Bernanke is signaling the Federal Reserve will probably add to its record stimulus should the economy fail to make sufficient progress in creating jobs for 12.7m unemployed Americans. The policy-setting Federal Open Market Committee yesterday extended its Operation Twist program and will swap $267bn in short-term securities with longer-term debt through the end of 2012.

Spain’s government bonds climbed for a third day as the nation sold €2.2 bn (USD2.8bn) of debt due in five years or less, exceeding the maximum target for the auction. Five year Spanish yields headed for their biggest three-day drop since December and Italian securities advanced amid speculation euro-area leaders will deploy bailout facilities to buy government bonds.

German Chancellor Angela Merkel balked at committing to direct sovereign debt purchases through the Euro-area bailout fund, pushing back on calls by the bloc’s leaders who support the measure as a way to ease the crisis.

China’s stocks fell; dragging the benchmark index to the lowest level in three months, after a report showed China’s manufacturing may shrink for an eighth month in June and the US cut its economic growth estimates. China plans to lower the entry barrier for foreign institutional investors looking to buy publicly traded securities in mainland exchanges, as part of reforms to add depth to the country’s capital markets.

Gold fell by 0.33% in New York as some investors sold back purchases after prices slumped the most since August. More monetary stimulus from around the world including China, the European Central Bank and the Fed will not be crucial to keep investors positive to gold. Silver also fell by 0.45%.

Crude Oil is down by 0.49% to the lowest price in almost two weeks on signs of an economic resilience (expected) in the US, however, supply also remained low. London-traded Brent crude fell from the lowest close in more than two weeks.

The Japanese Yen continues to decline against the USD, as the pair have broken above 80 for the first time in weeks. The euro has fallen against the USD to trade at 1.2555

Crude Oil and Natural Gas Wait on the FOMC

Today is an important day for oil futures prices ahead of inventory data report and FOMC rate decision ending with FOMC meet.

As per American petroleum institute, crude oil and distillates stocks has been declined in the last week, whereas stock piling is witnessed in gasoline. Remember in recent months, the API reports has been more wrong then right, the markets are now ignoring these numbers.

The  US energy department inventory is due for release later today, where we can expect crude oil stocks to decline. However, ahead of summer season refiners are increasing their production to meet the demand which may lead to higher stocks of gasoline and distillates.

With the global slowdown, demand is currently weak. Markets are hoping a push from the FOMC may stimulate economic activity in the US, helping increase demand. Overall, inventory report may act as a positive driver for oil prices. Currently, most of the Asian equities are trading on higher side on optimism from FOMC meet with a monetary stimulus. Crude oil imports have been increased by more than 7 percent in the month of May, which is also expected to support oil price trend.

The third round of talk with Iran are scheduled to continue on a positive note, as geopolitical turmoil seems to be at an all time low. The embargo is set to go into full effect next month. Any threat with a mid point at Strait of Hormuz may support oil to take cues on supply concern. However, another round of talk is expected very soon though the date is not yet declared. Most importantly, market is eyeing for FOMC rate decision which may add positive stimulus for oil prices.

 This morning in electronic trading gas futures prices are trading above $2.561/mmbtu with gain of near than 1%. Today we may expect gas prices to continue the positive trend supported by its intrinsic fundamentals. As per National Hurricane centre, there are 60 and 70 percent chance of tropical storm formation near gulf coast region which may create supply concern to add positive direction in on gas prices.  As per US Energy department, natural gas storage is expected to increase by 64 BCF in the last week. Consumption of power sector have also increased by 6 percent, which may support gas prices to remain on higher side. As per US weather forecast, temperature is expected to remain high in eastern region, which may create demand for gas consumption.

Gold and Silver React to Greece and Spain

Prices have changed very little from prior closing after the Spanish bond yield climbed to a record  level of 7.13%, casting a dim shadow over the European economic outlook.

 Asian markets retreated for the same reason and increased  the probability of the fourth nation  and one of the largest economies in the EU to seek for another bailout. Spain had initially sought a bailout of 1000bn euro to rescue its banks only, but now needs to have its overall debt restructured. 

Speculators are therefore eyeing the G-20 meeting as the focus now have shifted to Spain due to rising borrowing cost.

As expected, the pro-bailout party  The New Democracy win in Greece failed to stop the threat of contagion. The euro remained under significant threat of downside.

The threat of the situation should keep gold under pressure for the day. Although ambiguity over the market stance is not letting the metal fall either. As the Greek coalition talks move into the second day with Germany’s Merkel offering no flexibility on their emergency loan, the euro will continue to weaken today as economic sentiment and worries continue. Therefore, gold may come under pressure during the day.

A forecasted increase in US housing starts and building permits may support the dollar index, also keeping  gold under strain for the day. The G-20 outcome which is expected to include the  approval of a emergency loan and an  increase in IMF’s loan may support the market sentiment. Hence, gold may again find itself in a rigid range.

Silver futures prices are also quoting higher at the at present moment. But the early gains for the day may not sustain as the relief rally has failed to stop the spread of Greece contagion, raising the Spanish borrowing cost to the Euro area highest. An announcement is expected that  the nation seeking an international bailout and that would be a threat for euro. This announcement and the size of the request might increase market volatility and more markets back to risk aversion mode. This is therefore  a negative factor for the metal as well.

From the eco calendar, reports today might show weakening economic sentiment and a hazard to current situation. Therefore, silver may come under pressure also, an increase in US housing starts and building permits may support the dollar index, pushing silver to a downside.

Greece in High Stakes Poker Game to form a Government Now That Elections are Over

After almost three years dealing with Greek bailouts and politics one would have thought it could not get more complicated and involved.

The election results, presented the New Democracy a clear winner, but not with enough seats to form an independent government, but with a vast majority.

That said, the rest should have and could have been simple.

The New Democracy, could ignore the second place winners, the left party of  Alexis Tsipras  known as SYRIZA, the party that wants to toss away the bailout and would not have a problem withdrawing from the EU or the euro. 

The New Democracy could achieve enough seats by joining with the third place party, PASOK, and claim a total of 159 seats a clear majority. This sounds like a smart move for the third place finisher to have the upper hand in negotiations with the winner party. This could catapult PASOK back in to the limelight and give them more power.

Simple except when it comes to Greek politics and complexities. PASOK is now implementing long term stategy into the negotiations to secure their control for a long time.

PASOK is now refusing to negotiate with the New Democracy, unless the SYIIZA part is included in the new government. This is not because they want the support of the party, they want the party locked into the packages, so that if Alex Tsipras calls for new elections in six or eight months, that he can not brand the two other parties with the failure off negotiations with the EU or continued Greek financial unrest.

What the parties are scare of is that Alex Tsipras will be able to call for new elections and take an overwhelming majority if he can prove that the two parties have not successful renegotiated with the EU, or increased jobs, reduced austerity measures and improved the situation in Greece, giving SYRIZA a clear mandate to evoke their promises to ditch the bailout, ditch austerity measures and to ditch the euro.

It seems to me that Tsipras, has out maneuvered the other parties to end up in the cat bird seat, it seems that Greece’s future government now lay out at his feet and the next move is his.

Greece always promises drama and intrigues and as of tonight they have not let us down.

Markets have an Eerie Calm before Greek Elections… Results Tonight at 930 maybe

Markets have an eerie calm before Greek elections. This past week, the G20 nations assured the world that there is cohesive plan among their countries to prop up and maintain global liquidity. They are not depending the EU and ECB to handle any crisis arising from Greece. Overall market panic is fading and this is good for risk assets. 

The reason, for the drop in risk aversion and anxiety are fit one of these scenarios:

1) Even a worst case scenario from Greece is likely to be met with central bank action;

 2) Traders are hesitant to add to their already record long USD positions ahead of what is likely to be a dovish Fed next Wednesday;

3) Outside of Europe, there is building evidence that China is increasing stimulus on both the monetary and fiscal fronts, while the US economy continues to roll along, removing some of the global growth downside fears.

 Whatever the case risk seems to be falling and calm prevailing.

The Greek Election  is unlikely to be the binary risk that many are predicting and for those with

deep pockets it might be worth being long EUR into.

The potential scenarios include:

1. EUR positive – The ND (conservative, pro-bailout) win a majority; risk of a Greek exit drops.

2. EUR negative (but not a collapse in EUR) – The SYRIZA (radical left, anti-bailout) win a majority and the risk of a Greek exit rises; however a round of negotiations with the troika would ensue, leaving lots of room for avoiding the worst case scenario. In addition a SYRIZA majority likely increases the risk of major and potentially coordinated central bank action, which provides a floor to EUR weakness & potentially, after the knee jerk reaction, a temporary rally.

3. EUR neutral ( most likely) – No majority and the parties attempt to form a coalition over several weeks. Should they fail another election will be held. Uncertainty builds, but with global central banks ready to step in, EUR remains supported.

Greek law stopped all public polls several weeks ago and there are no numbers to help markets predict the outcome.

At present, we know that the polls will begin to close at 7pm and we should get some on the spot updates. By 9:30pm, they are hoping to announce the winning party, but it could be later or longer. This also will not be the final result.

Unless there is a party with a large majority, the difficult part comes next and that is forming a government, which the parties were unable to do in May.

Whatever the outcome or events, we can expect markets to be volatile on Monday with investors, politicians and bankers on the edge of their seat.

The Masterplan to save the EU

“A secret plan to save Europe”: That’s how the German newspaper Welt am Sonntag described it this weekend. According to the paper, European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Eurogroup chief Jean-Claude Juncker and European Central Bank President Mario Draghi were all working behind the scenes on a master plan.

But it turns out the grand plan is not all that secret. At the last European summit on May 23, the four were explicitly given the task of finding a permanent solution to the crisis by the end of this month.

Already the goalposts have moved. The main question is no longer whether Greece can stay in the eurozone, but whether Spain, a far larger economy, will be in a position to rescue its struggling banks.

Yesterday, German Chancellor Merkel’s CDU party and the biggest opposition party SPD failed to resolve a row holding up parliamentary ratification of the EU’s new fiscal treaty and the ESM rescue fund. Merkel needs the backing of the SPD but in exchange they insist on a financial transaction tax as well as more steps to boost European growth and create jobs. Talks will resume next week (June 21). Another item on the agenda was a discussion about the German Council of Economic Experts’ proposal to create a European Redemption Pact(ERP). The pact includes a binding commitment of all participating countries to bring public debt ratios below the reference value of 60% within the next 20 to 25 years. To ensure that this objective can be reached within realistic primary balances, participating countries can transfer their excessive debt exceeding the 60% threshold at a certain date, into a redemption fund for which participating member countries are jointly and severally liable.

The UK Telegraph reports today that Merkel signaled a shift in favor of the ERP. Stern Magazine on the other hand says that German FM Schaeuble rejects the proposal as it would violate EU treaties. Anyway, it is clear that the Germans are looking into the proposal which might eventually be part of a solution (‘master plan’) to save the euro.

The Masterplan

The fundamentals of that master plan are likely to be agreed on at the June 28-29, 2012 EU Summit. Press reports suggest that Germany and France are preparing measures to propose at that summit. France is pushing hard for a banking union.

A first step would be giving the ECB responsibility for supervising systemically risky banks and their winding up in case of failure. A next step would be using the ESM to directly recapitalize banks and finally granting the fund a banking license so it can leverage itself and increase firepower. German Chancellor Merkel on the other hand keeps calling for a closer political and fiscal union. It seems as if both parties will need to given somewhat in on their diverging opinions on how to tackle the crisis. The draft conclusions for the June 28/29 EU Summit show: “The new stage will build on deeper policy integration and coordination. There is a need for more specific building blocks centered around a much stronger banking and fiscal integration, underpinned by enhanced euro governance.” 

Metals in the Morning June 13, 2012

This morning base metals are trading slightly positive by 0.09 to 0.2 percent at LME electronic platform. The Asian equities are trading mixed while early morning machine orders from Japan increased more than expectation supporting gains in base metals.

 Nevertheless, a rise in global equity markets offset concerns about the Euro-zone debt crisis, where Spanish and Italian bond yields hit a record high yesterday. Yields have surged to 6.93 percent the most since 1997 and made Fitch ratings to downgrade 18 Spanish banks. Spain may fail to meet the deficit target of 5.3 percent of GDP even after 45 billion Euros austerity cut and may likely keep the shared currency under pressure for the day.

Further, the Greek elections over the weekend, may determine whether Greece stays in the euro zone, and is expected to keep weighing on prices as investors worry about how further chaos in the single currency region will impact global demand for metals. From the economic data front, the German consumer prices index is likely to remain unchanged after lower Euro-zone inflation.

While the Euro-zone industrial production may further decline weakening metals in the afternoon session. Even the US releases in the form of advanced retail sales and business inventory is likely to remain weak and may continue to weaken metals pack for the day. The mortgage applications is likely to remain weak after a recent Fed survey highlighted that the middle-class in the US has lost the most during the financial crisis. However, the producer price index is likely to fall after cheaper imports and commodity prices and may provide slight cushion to Dollar index .

Concerns highlighting Euro-area may provide investors to take heed on Dollars Index and may continue to weaken metals for the day. Overall, we expect amidst weak Euro and rising borrowing costs coupled with negative economic expectations, base metals may remain weak during the day and initiating shorts might be the ideal strategy.

Gold futures rallied above $1,600 per ounce, as a weaker dollar, debt crisis in Europe and talk of further monetary easing drew investors towards the safe-haven asset i.e. precious metals.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,274.37 tons, as on June 12. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,696.23 tons, as on June 12.

The dollar index, which measures the US unit against a basket of six major, edged down to 82.386, compared with 82.529 in Monday’s late North American trading.

Spain’s 10-year bond yields hit their highest in the euro-era on Tuesday, edging closer to the 7% danger level and leaving investors worried about Madrid’s access to the bond market. Fitch Ratings downgraded 18 Spanish banks on Tuesday, less than a week after it cut the country’s sovereign debt rating,  underscoring the potential for lenders’ assets to deteriorate further.

Copper futures closed slightly lower, as investor remained focused on Europe’s sovereign-debt problems despite dovish comments from Federal Reserve Bank of Chicago President Charles Evans. Copper futures for July delivery closed down by 0.2 at $3.3355 per pound on the COMEX of the New York Mercantile Exchange.

Crude Oil and Natural Gas Updates

During early Asian session, oil futures are seen hovering below $82/bbl with loss of more than 0.80 percent in electronic trading. Most of the Asian equities are trading in a negative note as euphoria over Spain bailout fades.

Question has come out that, who will pay for Spain bailout? So, we may expect the seventeen nation currency Euro to remain under pressure with the above question mark ahead of Italy bond auction on Thursday. So, weakening Euro may weigh on oil prices. From fundamental front, Saudi Arabian Oil Minister Ali al-Naimi said OPEC may need a higher output quota and the U.S. issued more exemptions from sanctions for buying Iran’s crude. The production quota is expected to increase by OPEC members above 30 billion barrels per day, which may have negative impact on oil prices.

On other side, due to fall in Iran crude oil import by some of the major Iranian oil consuming nations in last six months, US have expected them from the sanction. The list includes India, South Korea, Malaysia, Sri Lanka Turkey and Taiwan.

Most importantly, oil market is eyeing for OPEC meet on tomorrow, which may create a sluggish trend in oil prices. From economic data point, economic release in the form of fall in import prices index is expected whereas fall in monthly budget may create a negative picture of the US economy. So, oil prices may further come down during US session. Overall, we may expect oil prices are expected to trade under pressure throughout the day today.

Leading oil producer Saudi Arabia put itself on a collision course with fellow OPEC member countries on Monday by calling for an increase in the cartel’s output target despite a recent fall in crude prices.

The United States extended exemptions from its tough, new sanctions on Iran’s oil trade to seven more economies Monday, leaving China the last remaining major importer exposed  to possible penalties at the end of the month.

Output at the biggest U.S. refinery could be cut by more than half for up to five months after Motiva Enterprise’s failed to restart a major new crude unit at the Port Arthur, Texas, plant over the weekend, sources familiar with operations said on Monday. Any oil stock release would have to be motivated by a crude supply disruption, not by the price of oil, the head of the International Energy Agency (IEA) said on Monday, adding there were currently no major gaps in supply.

Workers from   Britain’s Croydon oil refinery on Monday disrupted the supply of fuel heading to some petrol stations in the southeast of the country to protest against the plant’s closure and demand the government intervene to save 900 job

Currently, gas futures prices are trading below $2.220/mmbtu with loss of more than 1.2 percent. Natural gas demand is expected to decline on account of normal weather expectation. As per US weather channel, weather is likely to remain normal which may not pull demand of gas and ultimately weigh on prices. Currently, the storage level is at 2877 BCF, positioned storage volumes 732 Bcf above year-ago levels. In the coming week, also the injection level is likely to increase on the back of rising supply and lower demand, which may weigh on gas prices. Most importantly, As per National Hurricane Center, as of now there is no tropical storm formation is seen in North Atlantic region. Normal temperature in consuming region of US, may pressurize gas demand for the day.

Spain Gets Approved for 100b euro Bailout — Show Us the Money !!!!

After weeks of denying the need for a bailout, and numerous market and financial manipulations, the Spanish government has finally officially requested assistance from the European Union.

Markets seemed to breathe a sigh of relief after the EU Ministers gave a favorable nod, which is hard to believe, any first year business student could have forecast this result, sure Spain tried to find underhanded methods of securing financing, using backdoor handshakes and sneaky methods, then last week the Spanish Prime Minister laid out his terms, No intervention, no austerity, no supervision and no explanations just give me the money, he demanded. That was met with a laugh I am sure Angela Merkel, smiled at that one. In the end Germany is ending up in control and with the final say in just about everything.

Back to our first year business student, just  the sheer size of Spain, the eurozone’s fourth largest economy is enough to rattle markets and with their banks failing, is quite obvious what they had to do.  Markets quickly regained their composure after bailouts were put together for Greece, Ireland and Portugal. But these are small players in a big sea, especially when compared to Spain, which is nearly twice as large as Greece, Ireland and Portugal put together.

Secondly, because Madrid was unable to win the political battle over the terms of the bailout, Spain’s debt burden looks set to increase by 20 per cent.

In the past few months, Span, with French support, has argued vehemently that the money from the eurozone bailout fund should be pumped directly into the troubled banks. But Berlin flatly refused to accept this approach. As a result, the eurozone bailout money will be funneled into Spain’s bank restructuring fund (known as FROB), which will in turn inject extra capital into struggling banks.

But because FROB is a Spanish government instrumentality, the cost of the rescuing the Spanish banks will be added to the €559 billion in debt already sitting on the central government’s balance sheet ( as it should be) and this is hardly likely to reassure the investors that Spain needs to fund its budget deficit, which is expected to come in at more than 5 per cent of GDP this year.

Investors will also be concerned to find out whether the money for the Spanish bank bailout is coming from the existing €440 billion bailout fund, or from the new €500 billion bailout fund, which is due to start operating next month. 

The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in uncommitted funds. And this includes the Spanish pledge of €93 billion, which we can only assume is now officially scrapped.

Investors could shy away from buying Spanish bonds if the money comes from the new bailout fund, because loans from this fund have a higher ranking in terms of repayment than other Spanish debt. 
But, even more importantly, investors will be worried that the latest Spanish bailout is merely reinforcing the doomed dynamic between debt-laden governments and troubled banks that lies at the root of the eurozone’s problems.

In some instances – such as Ireland – government balance sheets have been blighted by the cost of rescuing reckless banks.

In other cases – such as France – banks are under extreme pressure as a result of their decision to load up on the bonds of debt-laden countries such as Greece.

The latest €100 billion bailout of the Spanish banks will do little to arrest this downward spiral. Germany’s decision to force Spain to pick up the tab for bailing out its troubled banks means that market confidence in Spain will remain fragile. And this will continue to weigh on the Spanish banks, which hold massive portfolios of Spanish government bonds.

Financial Market Review – What Happened Last Week and What Might Happen This Week

U.S. stocks rallied, driving the Standard & Poor’s 500 Index to its best weekly gain since December, amid speculation European and American central banks will join China in trying to spur economic growth. The S&P 500 rose 3.73 percent to 1,325.66, rebounding from a 3 percent slump last week. The Dow Jones Industrial Average climbed 435.63 points to 12,554.20, the biggest increase since Dec. 23, after dipping below its 2011 closing level on June 1 amid a worse than-forecast jobs report. The optimism comes from the belief that there is going to be some kind of coordinated activity from central banks.

Economic reports sent out mixed signals, with a measure of service industries showing a surprise increase while factory orders unexpectedly dropped. Optimism grew that Europe was making progress on its debt crisis. Finance officials will hold discussions this weekend on a potential bailout of Spain as the nation is poised to become the fourth of the 17 euro-area countries to require emergency assistance.

Asian stocks were assorted this week, ending a five-week streak of declines, as global policy makers in the U.S., Europe and China signaled they would take steps to stimulate growth. Shares pared gains on the last day of the week amid concern China’s economy is slowing. Japan’s Nikkei Average gained 0.23 percent this week rebounding after the gauge plunged to its lowest level since 1983 and entered a bear market on disappointing U.S. jobs and China services data. Hong Kong’s Hang Seng Index slid 0.3 percent, while China’s Shanghai Composite Index retreated 3.88%. Taiwan’s Taiex Index lost 1.5%, while South Korea’s Kospi Index rose 0.06%

 European stocks posted their biggest weekly advance in four months as China cut interest rates and the European Central  Bank said it’s ready to add more stimulus if the economy worsens. ECB President Mario Draghi, who kept the benchmark interest rate at a record low of 1%, left the door open for further stimulus measures, while highlighting the limitations of the ECB’s tools in countering the region’s financial turmoil. A report on June 6 showed the euro-area economy stalled in the first quarter as companies cut spending to weather the debt crisis, offsetting a gain in exports. Gross domestic product in the region was unchanged from the fourth quarter, when it declined 0.3 percent. In Germany, Europe’s largest economy, a report showed exports declined 1.7% in April, for the first time this year.

Asian currencies gained this week for the first time since April on optimism stimulus measures in the world’s largest economies will support regional exports.

On the global arena along with the Greece election results, all eyes are on what will happen with Spanish banks over the weekend. Spain is expected to ask the euro zone for help with recapitalizing its banks, a deal that could ease the markets’ most immediate concern about the region’s financial crisis. The euro zone’s finance ministers will hold a teleconference to discuss the request, which at minimum could cost USD 50 billion, according to the International Monetary Fund.

The upcoming US economic calendar includes data on producer prices and retail sales on Wednesday. Reports on the consumer price index and initial weekly jobless claims are set for Thursday. Data on Friday includes Empire State manufacturing and US industrial production.

What Was and What Will Be …Asian, Europe and US Markets

Asian stocks pared gains for a second consecutive day, on the hopes of further monetary easing from the US and Euro zone. Asian currencies were also seen appreciating against the greenback. The SGX Nifty is trading higher by 60 points, tracking other peers.

On the Economic front, the BOE will announce its Interest rates which are expected to remain unchanged at 0.50%. Apart from that, we have the PMI service numbers from the UK, which are expected to show a slight downtick and could keep the pound under pressure. From the US, we have the Initial Jobless Claims and Continuing Claims that would be closely watched, given the last weeks ADP numbers disappointment. We could expect slight negative data from the labor market today and this could pressurize the dollar in evening session.

The rise in risk appetite over the last few days, along with hopes for monetary easing from the US and Europe are expected to have a positive effect on the most currency

U.S. stocks rallied on Wednesday, with the Dow and S&P 500 logging their best gains of the year, as investors grew hopeful that more stimulus for the global economy is around the corner. Dow Jones jumped 287 points, or 2.4%, its best one-day jump since Dec. 20. The day’s gains pushed the blue-chip index back into positive territory for 2012. S&P 500 rose 30 points, or 2.3%, its best daily performance since Dec. 20. Nasdaq added 67 points, or 2.4%.

Investors were encouraged after Atlanta Fed president Dennis Lockhart, who is a member of the Federal Reserve’s policy-setting committee, said that continuing Operation Twist is now “an option on the table.”  Stimulus hopes also grew for Europe. While the ECB left interest rates

The European markets finished solidly in positive territory on Wednesday after the European Central  Bank resisted calls for a rate cut. Britain’s FTSE 100 rose 2.2%, DAX in Germany gained 2.2% and France’s CAC 40 jumped 2.1%.

All the Asian indices are trading the green with Nikkei up the most 1.3%. Kospi is trading higher by 2.8% while Strait Times and Taiwan are up by 0.3% and 0.5% each. Hang Seng and Shanghai are up 1.4% and 0.3% respectively.

 The Euro rose against the US Dollar on Wednesday after the European Central Bank left its benchmark-lending rate unchanged. Traders also sold dollars on rising speculation that the Federal Reserve might launch another round of bond-buying to help stimulate the U.S. economy.

 Among the metals, Zinc gained 2.2% while Copper rose by 1.1%. Nickel and Aluminum ended higher by 0.7% and 0.3% respectively. Oil for July delivery rose 73 cents to settle at $85.02 a barrel. Gold futures for June delivery climbed $17.30 to settle at $1,634.20 an ounce

What Earth Shattering Events Does the EU have in store Today

Today, the focus remains on Europe with the ECB meeting the main event for markets. Also interesting will be the preliminary estimate of euro zone Q1 GDP (first details) and in Germany the industrial production data. The Fed will publish its Beige Book and Germany and Portugal will tap the market.

The first estimate of euro zone Q1 GDP surprised on the upside of expectations as the euro zone economy (unexpectedly) stayed out of a (technical) recession.

According to the first reading, euro area economy stabilized in the first three months of the year while a second consecutive quarterly contraction was expected. The second reading is forecasted to confirm this outcome and we have no reasons to distance ourselves from the consensus. More interesting will be the details (new info). We expect that the positive surprise was based in private consumption and net exports, while gross fixed capital formation was probably a serious drag on growth. In Germany, production is forecast to have dropped again after a sharp 2.8% M/M increase in March. The March data were boosted by a strong rebound in construction, due to the unusually warm weather, but also excluding construction, production was strong in March. For April, the consensus is looking for a 1.0% M/M decline, but we believe that a stronger correction is likely, due to less favorable weather and the weakening global climate.

At this months’ ECB policy meeting, the governors will discuss two issues and provide answers to two questions. First, will they cut official interest rates?  This will mainly depend on the outlook for inflation and economic growth. We think the answer here could be ‘yes’. Second, will they take extra ‘unconventional’ measures to ease the stress in especially the Spanish sovereign bond market?

We think the answer here will be ‘no’. Putting all elements together, we think that by cutting interest rates because of weaker growth and lower inflation, the ECB can demonstrate it continues to act within its mandate. The ECB of Trichet might have used the June meeting to prepare for a cut in July, but the Dragh-led ECB acted pro-actively in November and December of last year, cutting rates as its forward-looking assessment showed such action was appropriate Therefore, we see no reason why it shouldn’t do the same on Wednesday. Such a decision would also clearly separate standard and nonconventional policy actions, a signal the ECB will be happy to send. On top of this, the ECB will keep the door open for further non-conventional measures to help ease market stress, but only on the condition that EU political leaders first do their part of the job.

Overnight, Die Welt ran an article citing unidentified sources that Europe considers offering Spain a precautionary EFSF credit line to shore up its ailing banking sector. Spain could apply even before the Greek election. Such a credit line would allow the country to try to fund the recapitalization on its own with EFSF funds as a back-up facility if that wouldn’t succeed. For Spain, the advantage is that the precautionary credit has little conditions attached. Until now, Spain refused to ask for a bail-out

What to expect from Crude Oil and Natural Gas

Currently, oil futures prices are trading near $85/bbl with gain of more than 0.80 percent as crude oil inventory declined for the first time in more than last two months of time. As per American petroleum institute, crude oil inventory has been declined by more than 1700K barrels; this is the first time fall in last 11 weeks of time. Petroleum stocks have increased as refiners have increased their capacity to meet the upcoming summer demand in US. Likewise, as per US Energy department, crude oil stocks are also likely to fall, which may again support oil prices. Actual DOE data will be releasing later today. From, economic front ECB interest rate declaration is there where expectation of providing liquidity is there to support the debt ridden countries. European leaders may go for third LTRO but may keep the interest unchanged at 1 percent ahead of Greece Election on Jun17.

Most of the Economic data releases from both Euro-zone and German are expected to benegative, which may weigh on euro and ultimately limit the gain in oil prices. US unit labor cost and nonfarm productivity may result negative for the economy which may further weigh on oil prices. Currently, most of the Asian equities are trading on higher side on optimism from Euro-zone economy and higher Australian GDP reported today early morning. We may expect oil prices to continue the positive trend during today’s session, though gain may be limited during European session. Investors must be cautious ahead of inventory report due later today, which may change the price direction.

Currently, gas futures prices are trading almost flat at $2.446/mmbtu. Natural gas futures prices as International Energy Agency (IEA) said US is expected to cross Russia by increasing its gas production by 2017.Thus, gas prices may take some positive cues on expectation of rising demand  in future.  Currently, the storage level is at 2815BCF, positioned storage volumes 732 Bcf above year-ago levels. In the coming week, also the injection level is likely to increase but in  a slower pace by 60 BCF, which may add some points on higher side today. On the other side, as per National Hurricane Centre, weather condition is expected to remain hot, which may pull demand from residential sector. Speculators have been talking up the market again, be mindful of market manipulation by traders.

The eco calendar is thin, but a rise in the USD on news flows from the eurozone, could have an effect on US dollar denominated commodities.

Watch these events closely:

Spain remained in the news, with budget minister Cristóbal Montoro spooking markets with some of his comments. He said Spain “does not have the door to the markets open” and also said that a bailout of Spain would be “impossible”. What he meant by this latter comment is that as Spain does not require a bailout, bailing it out is an impossibility (the sequel to his ‘impossibility’ comment was “Spain cannot be rescued in the technical sense of the term… Spain does not need that”). Whether Montoro is correct or incorrect, the press did not interpret his comments in the fashion that he intended.

The ECB will make a rate announcement tomorrow, and Scotia’s European economics team thinks that the ECB is likely to cut its benchmark interest rate by 25bps, from 1.00% to 0.75%. Scotia’s ECB call is based on the view that growth has slowed down and inflation is low enough not to impede a looser monetary policy. The traditional econometric evidence suggests that a 10% fall in the euro nominal effective exchange rate can boost EMU GDP growth by around 1.4% over a two year horizon (over the past year, the euro nominal effective exchange rate is indeed down by close to 10%).

From Europe Yesterday to Asia Today

Asian stocks gained on Wednesday, as the Australian economy grew at a faster pace in the first quarter but, the gains are being capped ahead of Spanish bank worries and the ECB interest rate meet. The SGX Nifty is trading higher by 26 points, tracking other peers.

On the Economic front, the ECB will announce its Interest rates, which are expected to remain unchanged at 1.00%. The ECB president’s conference after the meet will be closely watched and is expected to give direction to the euro. From the US, we have the Nonfarm Productivity, which is expected to decline to -0.70% and could hurt the USD later today.

U.S. stocks finished higher Tuesday, but the gains were limited as investors weighed an upbeat U.S. economic report against Europe’s ongoing debt problems. Dow Jones rose 26 points, or 0.2%, snapping a four-session losing streak. S&P 500 added 7 points, or 0.6%, and Nasdaq rose 18 points, or 0.7%.

A better-than-expected reading of the ISM Services index gave markets a lift. The index for May rose to 53.7, surprising economists who had forecast the index would fall to 53.1 from April’s 53.5.

But ongoing concerns about Europe’s debt problems kept the gains in check, as the Spanish banking system teeters on the edge of collapse and Greece comes closer to a possible exit from the euro.

European equity markets edged lower in a volatile session on Tuesday, as investors balanced the uncertain prospects of decisive stimulus steps from G7 policymakers, concerns about the eurozone crisis and a darkening technical picture. DAX in Germany slipped 0.2%, while France’s CAC 40 rose 1.1%. London’s stock market was shut in celebration of the Queen’s Diamond Jubilee.

The Euro dropped against the US Dollar on Tuesday as fears over Spain escalated after the country warned about its access to credit markets and a meeting of Group of Seven finance chiefs offered no action to assuage investors.

Oil for July delivery rose 31 cents to settle at $84.29 a barrel what gold futures for August delivery rose $3 to $1,616.90 an ounce.

Global Exchanges, Metals and Energy in the Morning

All the Asian indices are trading the green. Shanghai and Hang Seng are up by 0.3% and 1% respectively. Nikkei and Kospi are trading in the green up by 0.6% and 0.9% respectively while Strait Times and Taiwan are up by 0.9% and 1.9% respectively.

Worries about a global growth slowdown and uncertainty surrounding Europe’s debt crisis kept investors on edge and trading choppy on Monday. Still, U.S. markets ultimately closed the day not far from where they opened. The S&P 500 closed flat. NASDAQ gained 12 points, or 0.5%. Dow Jones dropped 17 points, or 0.1%. Factory orders declined 0.6% in April, the government reported on Monday. The report was weaker than the 0.1% increase expected.  

Anxieties over the health of the Spanish banking system and the possibility that Greece could soon exit the euro remain high. Fear and Greed index remained deeply entrenched in extreme fear territory.

The European markets closed mixed on Monday, on a relatively light trading day. The U.K. market was closed due to the Queen’s Diamond Jubilee and will be closed again on Tuesday. DAX in Germany fell 1.2%, while France’s CAC 40 rose 0.1%. British markets were closed for a bank holiday.

Gold eased slightly on profit-booking, after central banks refrained from adding additional stimulus measures to boost their economies amid Europe’s intensifying fiscal crisis and signs of a slowdown in the US.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,273.88 tons, as on June 1.

Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,638.9 tons, as on June 4. The dollar index, which measures the US unit against a basket of six major, fell to 82.878 from 83.035 on late Thursday.

In Europe, France and the European Commission signaled their support for an ambitious plan to use the euro zone’s permanent bailout fund to rescue debt stricken banks, in n effort to reassure investors that they can contain an escalating crisis.

Copper prices declined to an 8-month low on COMEX, but later rebounded on support from a rally in euro against the dollar and steadier tone in equities.  Copper fell for the fourth straight session, unable to sustain an early bounce from a 7-month low, as mounting fears over the global economy continued to weigh on the demand outlook for industrial metals.

Copper futures for July delivery closed slightly down at $3.307 per pound on the COMEX of the New York Mercantile Exchange. Some US copper fabricators have resorted to buying primary metal rather than scrap due to tightness in supply, which remains supportive to cathode premiums, traders said.

The premium for primary aluminum shipments to Japan in the July-September quarter has been set in a range of $200-$210 per ton for several deals, a trader said.

Crude oil futures close to 1%, as the euro strengthened against the dollar after European leaders agreed to discuss closer banking cooperation.

Natural gas rose from a four-week low, on speculation that warm-weather forecasts for the eastern US will increase fuel demand from power plants.