Oil and Gas steady in early trading

This morning, oil prices have taken positive cues from this optimistic market ahead of US consumer confidence index which is likely to increase after Fed monetary easing. However, the down grade of  the Asian Pacific region by credit rating agency S&P is limiting gains and weighing on regional market. On the other side, increasing crude oil production and import may add more stock piling of crude oil in US. Rising refinery capacity may increase petroleum stocks. However, concern of declining gasoline demand is likely to pressurize oil prices. Talk of releasing strategic reserve before presidential election in order to keep gasoline price lower is another factor to weigh on crude oil prices. In the US the Obama administration has said that the Iran state oil company’s is involved in nuclear program, ahead of tomorrow’s speech of Iran President on Iran Nuclear program, oil futures prices may remain volatile.

Yesterday, Nymex Crude-oil futures retreated after several reports underscored sputtering economic growth in some of the world’s biggest oil consumers, raising fresh concerns about demand. Crude oil has been especially volatile in recent weeks. Traders bought crude last week on the hope that a resolution of the debt crisis in Europe will increase economic activity and demand for oil.

This weekend’s argument between the leaders of France and Germany has popped that hopeful bubble. Press reports out of Asia indicate that growth in China is slowing down faster than previously thought. Widespread protests over a territorial dispute with Japan have disrupted production at many Japanese-owned factories in China while the ongoing leadership transition has suffered a few bumps along the way which have increased the overall level of uncertainty in China. This has added to negative sentiment on oil. Negotiation talk between China and Japan are scheduled for today in order to resolve the Island dispute. South Korea has declared to lower its fiscal deficit by increasing its spending 3 percent for 2013 budget.

In the eurozone, the IMF has said that Greece is not going to ease its debt crisis soon due to delay in recapitalization and weakening economy. The Spanish stress tests are due this week and the euro is likely to remain under pressure which may ultimately weigh on oil prices.

This morning natural gas prices are trading above $3.00/MMBTU with gain of more than 1 percent. The National Hurricane Center reports that, tropical storm Miriam has reached category 2 level of Hurricane near to PADD IV region accounts for more gas production in US. MDA Earth Sat, another leading weather forecaster, said the 6 to 10-day forecast period would see cooler temperatures. Speculation of rising demand for space heating purpose may support gas prices to trade on higher side along with hurricane warnings.

Crude Oil Buoyed by Syrian Civil War and PBoC Stimulus

During the early Asian session oil futures prices are trading close to $93/bbl in international market. Intensified Civil war in Syria and concern of regional war between Iran and Israel are supporting oil prices to remain on higher. Yesterday, more than 50 people were killed after an airstrike hit the northern Syria. Poling by Israeli and Palestine members came to a conclusion that there may be a regional war in order to stop Iran nuclear program. Thus, this kind of Geopolitical issue is likely to play a major role for today oil prices as Syria and Iran both are linked to the strategic oil delivery points.

Nymex crude oil halted earlier declines on Thursday, with some oil dealers saying prices had fallen too far, too fast. Oil prices held unto most gains after U.S. data showed the number of Americans filing new claims for jobless benefits fell last week. Concerns about the economic weakness prompting central bank action, indications that OPEC’s top exporter Saudi Arabia is working to lower oil prices, and rising

U.S. crude oil inventories helped fuel this week’s price slide. Helping curb U.S. crude prices, data on Thursday showed U.S. manufacturing closed out its weakest quarter in three years this month and U.S. jobless claims held near two-month highs last week, suggesting stalled economic growth.

The National hurricane center reports that there is 60 percent chance of tropical cyclone formation near to Gulf region, which may support oil prices to trade on higher side on concern of supply disturbances.

This morning the People’s Bank of China has moved to inject liquidity into its local markets, conducting 101 billion yuan ($A15.3 billion) worth of open market operations in its banking system, Reuters News reports. According to the news agency, the injection is the first in three weeks and adds to the 966 billion yuan already added to the financial system so far this year. The moves have fuelled uncertainty over the extent Beijing is willing to boost the weakening Chinese economy.

China being one of the world’s largest consumer of crude oil, might help push up prices as stimulus should spark China’s manufacturing sector increasing demand on energy products especially crude oil.

There are no major economic releases for today. On basis of geopolitical concern we may expect oil futures to hold its upside movement for today session.

This morning natural gas prices are trading above $2.80/MMBTU with gain of more than 0.80 percent in Globex electronic platform. Tensions in the Middle East as mentioned above will weigh on all energy products, but the possibility of a hurricane will have a more direct affect on natural gas from the gulf region.

The largest LNG consumer Japan is likely to increase its LNG import by more than 15 percent in 2013, which may support gas futures prices to trade on higher side.  With additional stimulus from the Bank of Japan, production and manufacturing should increase and increase demand for gas.

Expectation of rising space cooling demand may keep gas prices high for today’s session. MDA Earth Sat, another leading weather forecaster, said the 6 to 10-day forecast period would see cooler temperatures and characterized the forecast for the 11- to 15-day period as “a bit cooler than expected as well. 

Chinese HSBC Manufacturing PMI Disappoints

This morning markets are reacting to lackluster eco data from China. Traders were hoping to see a turnaround in manufacturing in China, with all the stimulus and programs launched by the Chinese government to help get growth back to forecast. HSBC PMI printed this today at 47.80 showing a continued contraction in manufacturing. PMI needs to report above 50 to show expansion. This is now the 11th consecutive monthly report showing contraction.

Markets are expected to react throughout the day on this data; otherwise the day is very light on news and data.

U.S. stocks rose yesterday as investors dipped back into the market after the recent pullback from a rally that lifted the S&P 500 to just shy of five-year highs.

U.S. home resales jumped 7.8 percent in August, the fastest in more than two years. Housing starts also rose, a hopeful sign that a budding housing market recovery is gaining traction.

New-home construction in the US probably rose in August to the highest level in almost four years; showing residential real estate is sustaining a recovery even as the broader economy sputters. Builders broke ground on 767,000 houses at an annual rate, up from 746,000 in July and the most since October 2008.

The reports came as investors looked for improving economic data to help bolster a rally of 5.9 percent in the S&P 500 since the start of August.

Richmond Federal Reserve President Jeffrey Lacker said the shock from the credit crisis may impede efforts by the central bank to quickly bring down unemployment even with the use of record stimulus. Monetary policy is simply unable to offset all of the ways in which various frictions impede the economy’s adjustment to various shocks.

European stocks climbed, halting a two-day decline, after the Bank of Japan joined the Federal Reserve in opting for further asset purchases to support the economy.

German Chancellor Angela Merkel and French President Francois Hollande, already trying to save Europe’s single currency, are being thrust into another joint project: building a cross-border aerospace company.

Japanese stocks rose on Wednesday, sending the Nikkei 225 Stock Average to the highest close since May 2, after the Bank of Japan unexpectedly expanded its easing program to keep the rising yen from undermining a recovery, following stimulus measures from the US Federal Reserve last week.

Australia’s AAA credit grade was affirmed by Standard & Poor’s Ratings Services, which cited the country’s stability, policy flexibility and economic resilience. The nation has the ability to absorb large economic and financial shocks, although its strengths are moderated by a dependence on resources exports.

Gold fell by 0.23% after US Federal Reserve’s last meeting showed  up the Fed. Reserve is reluctant to brief up the economy with a USD40 bn/month bond buying programme. Gold’s rise after the stimuli is the longest such streak since June. Silver also fell by 0.28% but remained on high parameters.

Oil declined by  0.30%  near the lowest close in more than six weeks in New York after stockpiles rose the most since March in the U.S., the world’s biggest crude user.

Copper fell by 0.09% and traded near the lowest on hopes that Chinese Government will initiate some relief stimulus to provide some force to the Chinese economy in the near-term, but impact seems little

Fundamental Update for Crude Oil and Natural Gas

Crude oil futures prices for the month of October are heading for its last four month’s high near $99/bbl in electronic platform. Optimism from FOMC meet declaration on yesterday is reflecting on the global market, where Asian equities are up by more than one and half percent on average. Federal Reserve Bank has kept the interest rate unchanged at 0.25 percent and planned to purchase $40 billion in MBS every month. Thus Fed’s asset purchase program or stimulation for economy is supporting oil futures on expectation of rising demand in world’s largest economy. During Asian session, we may expect oil futures prices to open in a higher note ahead of concern of declining industrial production of third largest energy consumer Japan. However, Euro-zone inflation numbers in the form of Consumer Price index may increase, which may support oil prices to take positive cues during European session.

The US session is loaded with number of economic releases where most of the indicators are likely to paint a growing economy picture.

News and rumors are bound to hit the airwaves on the release of the strategic reserves, moving to higher levels. With the fresh round of QE introduced by the FOMC yesterday, the Obama Administration will be forced to act, to hold energy prices down to keep consumer confidence up before the elections.

As per National Hurricane Center, tropical storm Nadine is just below hurricane strength, which may create supply disturbances in PADD III region. Another tropical storm Kristy is also near to PADD V region may have impact on production and refining units, which may again support oil prices. Thus, oil prices may take positive cues out of this.

Most importantly, geopolitical issue related to Middle East – Libya which may continue to act as a catalyst for the upside movement. Libya, since the revolution has increased oil outputs and any disruption or possible terrorism and tensions could see oil skyrocket.

Natural gas prices were about the only commodity that did not seem to benefit by the introduction of new monetary policies by the Fed, remaining just above 3.00 before and after the statements yesterday. NG is trading below $3.03 with a marginal loss in this morning. As per US energy department, natural gas storage has been increased by 27 BCF, higher than survey. Inventories are currently 342 Bcf (11.1 percent) greater than last year at this time and 284 Bcf (9.0 percent) greater than the 5-year average. Weekly demand has been declined by 4.9 percent in the last week.

Thus, weak fundamental report may weigh on gas prices movement for the day. Similar to crude oil, NG is subject to supply disruption due to the possible weather in the gulf. Natural gas prices may take positive cues out of this, ahead of rig counts data releases tonight.

Fundamentals Ahead of the FOMC

There was little eco activity of any consequence today, while in the early hours all eyes were focused on Germany, but once that was done, traders turn to the next attraction, tomorrows FOMC meeting.

Germany’s constitutional court declared Germany’s participation in the European Stability Mechanism (ESM) to be within its constitutional rights.  This continues the court’s bias in favor of not standing in the way of initiatives like the EFSF, aid packages to specific countries like Greece, and now the ESM.  All the court had to do today was to state whether it would suspend approval of the ESM while reviewing objections over coming months, and it chose not to do so.  This would have otherwise delayed ESM implementation until early next year and raised market apprehension over the viability of the whole funding apparatus and related initiatives. 

That opens the way for the ESM to be signed into law by German President Joachim Gauck and for it to be operational by next month.  It also removes one impediment to a Spanish request for aid from the troika (ECB, EC and IMF) since why bother admitting a problem in need of assistance if there are doubts about the ability to deliver it.  In addition, approving the ESM was an impediment to conditional bond buying by the ECB given that the condition was that stressed sovereigns must first apply for aid from the troika including through the ESM.  The only obvious caveat is that the court said that any further increases in German funding for such an apparatus must be approved by parliament, and cannot be limitless which is similar to its prior rulings.

Elsewhere in Europe, was a surprise out of Great Britain, with jobless claims falling by 15k in August and the quarterly change in employment increasing to +236k. The catalyst for the strong jobs data is somewhat of a mystery in light of the fact that UK GDP has contracted for three straight quarters the new jobs are not just centered on Olympics-related hiring in London. Year to date employment is up over 400k in the UK as a whole, of which 124k jobs are in London, which implies that while there has been an ‘Olympics effect,’ the growth looks to have been fairly well distributed around the country. In light of the weak underlying economic growth over the past three quarters, there is a sense that the jobs boom is simply unsustainable.

French inflation came in at 0.7% m/m on higher energy prices and the end of the summer clothing sales. Of note, food prices fell in contrast to developments in Germany and Italy, where higher food commodity prices are passing through into retail costs.

The rub is that with inflation throughout Europe running somewhat higher than 2% (even Germany’s CPI is running at 2.1%), the ECB will need to tread more carefully as it uses monetary policy to address the European financial crisis – soft inflation is no longer a reasonable justification for monetary policy.

Eurozone industrial production rebounded during July, growing by 0.6% m/m after contracting by 0.6% m/m in June. The rebound was led by capital goods output with most other categories declining. Does this mean that Asian demand for European capital goods is rebounding?

But let’s be honest at this point markets are only paying attention to one thing, with all eyes and ears glues on the FOMC decision, statement and speech tomorrow afternoon. As hours count down, traders are positioning themselves ahead of the release. No one knows for sure what to expect from Mr. Bernanke and company, there are several different programs that could be announced, volume and size will also be important and the FOMC can determine to do a little now and a little later or bring in the big guns all at one time. 

Commodities and Equities Trade Strong

All the Asian indices are trading on a positive note with South Korea’s Kospi and Japan’s Nikkei being the top two gainers, up 1.4% each. Hang Seng is up by 1.1%, while Strait Times and Taiwan are trading higher by 0.4% and 0.9% respectively. Shanghai is trading marginally up by 0.2%. U.S. stocks advanced on Tuesday, rebounding from the previous day’s pullback, as investors geared up for key decisions out of Europe and from the Federal Reserve later this week. The Dow rose 0.5% and the S&P 500 rose 0.3%. The day’s gains put the Dow back at its highest level since December 2007, while the S&P 500 is within spitting distance of the multi-year high it reached last week. The tech-heavy NASDAQ finished flat.

Investors are waiting to hear whether the Fed will announce new stimulus measures when it wraps up its two-day policy meeting Thursday afternoon. It’s expected that the weak August jobs report gives the central bank even more reason to enact a third round of quantitative easing. Investors are waiting to see how the ruling may impact the European Central Bank’s plans to preserve the euro, which remains near its highest level against the U.S. dollar since May. Global markets finished mixed ahead of the decision

The European markets ended Tuesday’s session with mixed results. The markets had been largely negative in early trade, but the positive open of the U.S. markets in the afternoon provided a boost, which allowed several markets to finish in positive territory. Britain’s FTSE 100 was down 0.02% while DAX in Germany ended up 1.3%. France’s CAC 40 rose 0.9%.

Gold futures rose toward a 6-month high, as the dollar fell following a warning by Moody’s Investors Service on US credit-worthiness while demand remained strong among investors for ETF products.

Holdings of bullion in exchange-traded products (ETPs), often used as a gauge of investor appetite for gold, rose by 91,932 ounces on the day to record 72.49mn ounces, following broad based inflows into most major ETPs.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,293.14 tons, as on Sept 4. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,803.55 tons, as on Sept 10.

Credit rating agency Moody’s said the United States may lose its “triple-A” debt rating if next year’s budget negotiations do not produce policies that decrease debt.

The ICE dollar index, a gauge of the greenback’s moves against six other major currencies, fell at 79.866, down from 80.408 on late Monday.

Copper rose to a 4-month high, on speculation that the Federal Reserve will announce more measures to boost the US economy, brightening the outlook for commodity demand.

Aluminum stocks held at three major Japanese ports stood at 261,000 tons at the end of August, up 11% from 235,100 tons a month earlier, as per trading house Marubeni Corp.

Crude oil futures extended their gains to a fifth session, on expectation that central banks will move to stimulate growth and the dollar weakened after a warning that US could lose its top-notch debt rating.

Oil consumers have enough crude supply in the market and the risk to global demand growth remains skewed downside, exporter group OPEC said in a report that builds a case against any use of strategic reserves by consumer nations to lower prices.

The OPEC countries oil production rose by about 260,000 barrels per day in August, despite a European Union embargo on Iran’s exports. Crude oil stocks rose 221,000 barrels, Gasoline stocks fell 4.2mn barrels and distillate stocks rose 2.5mn barrels, as per API.

Natural gas rallied more than 6% and topped $3 per mmbtu for the first time since August, on speculation that production cuts in the Gulf of Mexico last week helped reduce a supply glut.

Whats Up With Gold, Silver and Copper

On Tuesday morning base metals are trading substantially down at the London Metal Exchange taking cues from the equities. This morning Asian markets have also retreated following US trading on Monday. However, markets still saw glimmers of hope that China’s central bank would take actions due to its weak economic data, showing that copper imports for August declined 2.9 percent month on month in the face of sluggish downstream orders and weakening financing demand.

China remains the biggest problem at this point, the ECB seems to have tamed the EU for the time being and the FOMC is an odds on favorite for new QE later this week but China has not been immune to the global economic problems and they have landed flat in their laps at a very bad time.

Last week the Chinese President introduced an all new program of infrastructure construction to help kick start the slowing economy.

China’s industrial production remained at 8.9 percent last month from a year earlier, lower than market expectations while early morning New Yuan loans have increased and may provide recovery in base metals prices as the day progresses.

Copper rose to its highest level in four months on Monday, driven by the increased likelihood of more economic stimulus in China and the United States, two of the world’s top consumers of the metal. Building on Friday’s nearly 4 percent surge, copper prices pushed higher in relatively stronger volumes, after weaker import and industrial production data over the weekend from China reinforced expectations that Beijing will soon adjust policies to lift an economy mired in its softest period of growth in three years. In the United States, disappointing employment numbers last week increased the chances that the Federal Reserve will move this week to launch another round of bond buybacks, known as quantitative easing (QE), to stimulate the world’s largest economy, according to a Reuter’s poll.

From the eurozone, markets eagerly await the German Court ruling and Greek never ending drama as traders take profits as the shared currency has been posting smart gains in the last four trading session and may also support weakness in base metals during the day. A German constitutional court will rule on Wednesday whether Germany can contribute to the European rescue fund, which plays a crucial role in the European Central Bank’s plan to fight the region’s debt crisis.

As anticipations over QE3 measures have recently increased, longs have entered markets actively, but this kind of price increases is rather unstable from fundamentals perspective. In addition, rebounds in base metals have gradually neared resistance levels, and hence investors should be cautious that rebounds might be short-lived as of now.

Yesterday’s data showed that the US consumer credit has declined in first 11 months and has further added weakness in metals while the Japan machine tools are likely to remain weak. In the US today, the US small business confidence may improve slightly due to hopes of QE and general election nearing while the trade deficit of US may widen due to higher crude oil prices weakening the dollar.

While precious metals continue to trade strongly with gold and silver holding to recent record highs.

Precious metals edged higher today, paring losses from the previous session, with investors awaiting a key German ruling on the eurozone’s bailout fund and a U.S. Federal Reserve decision on possible measures to stimulate the economy. The chances of a QE3 announcement this week have jumped after disappointing U.S. employment data last Friday, sending spot gold to above $1,740 for the first time since end of February. Scrap continued to flow into Asia’s physical gold market as prices remained buoyed by market expectations for more stimulus measures.

Gold eased on Monday as investors took profits, but the metal stayed near a six-month high after last week’s disappointing U.S. payrolls data boosted hopes that the Federal Reserve could unveil new stimulus as early as Thursday. Gold rebounded on Tuesday and remains strong in Asian trading on Wednesday morning.

Silver futures prices have drifted lower at the early Globex on the back of weak Asian equities. Silver is more affected by the Chinese data then gold as it is two faced, industrial and precious metal.

Monday Morning Market Update September 10, 2012

Australia’s building industry shrank in August at the fastest pace in 11 months, led by a slump in apartments and weaker engineering construction as resource industry demand wanes, a private gauge showed. The construction performance index fell to 32.2 last month from 32.6 in July. The AUD remained strong trading at 1.0368 on the weakness in the USD on hopes of stimulus

Last week in the US, President Barack Obama, a day after getting his highest approval rating in more than a year, was confronted by a worse-than-expected slowdown in the job market that threatened to undercut enthusiasm for his re-election.

Treasury yields rose for the first time in three weeks as European official’s detailed plans to curb the region’s debt crisis and investors braced for more stimuli from the Federal Reserve as the US economic recovery falters. Thirty-year bond yields climbed the most on concern the announcement of a third round of debt buying at next week’s Fed policy meeting may lead to an acceleration in inflation.

Although the weakness in the jobs data was hailed by traders and speculators as it was the final puzzle piece needed to secure support for additional QE by the FOMC at its meeting on September 12-13th. Odd makers are now making book at more than a 66% chance of stimulus from the Feds.

European stocks posted the largest weekly advance since June as European Central Bank President Mario Draghi outlined an unlimited bond-buying program to regain control of interest rates and stem the sovereign debt crisis. The new Outright Monetary Transaction program for buying bonds and sterilizing them through the ECB is being accepted positively by politicians and economists around the globe.

UK stocks advanced, extending a two-week high for the FTSE 100 Index, as industrial production surged by the most in 25 years. Last week was a positive week for UK eco data, with PPI and PMI reporting above forecast.

Asia’s benchmark stock index posted its first advance in three weeks as shares rallied by the most in nine months on Sept. 7, after the European Central Bank unveiled a bond-buying program and China boosted stimulus measures.

This morning the Japanese releases were negative showing a continued slow down, each month Japan releases all of its data at one time.

Chinese President Hu Jintao said a slowdown in exports is putting downward pressure on the world’s second-biggest economy, and he pledged to boost domestic demand and promote more balanced growth. Over the weekend China began its monthly data dump, with pretty lackluster results, overall showing that the government efforts to turn around the declines have not helped so far. There is more and more reason to believe that the Chinese government will follow the US with stimulus of its own.

The Chinese President noted that the economy faces “notable downward pressure,” signaling more stimulus may follow approvals for subway and road projects as the government kicks off a huge infrastructure program.

In the commodities markets gold rose by 0.17% after US Federal Reserve’s last meeting showed many members favored more stimuli unless the pace of the economic recovery picks up. Gold’s fall after seven-day advance is the longest such streak since June.  Some physical “buying” of gold from Europe this week drenched the bullion price, while the amounts have been “quite small” so far. Silver also increase by 0.82%.

Oil fell by 0.05% for the first time in three days in New York on concern eased that rising economic worries faltering demand of oil will be a passé, however a cause of concern’ as US Federal Reserve is all geared for a next round of easing.

Copper fell by 0.10% and traded near the lowest on hopes that Chinese Government will initiate some relief stimulus to provide some force to the Chinese economy in the near-term.

Today is all about the ECB keep an eye on Gold

Wall Street ended little on changed on Wednesday, as investors await the outcome of a crucial meeting of European Central Bank officials early Thursday and the latest U.S. employment data on Friday.

The Dow Jones edged up nearly 0.1%, while S&P 500 lost 0.1%. Nasdaq fell 0.2%.  Investors are expecting ECB president Mario Draghi to announce the details of a new bond-buying program for euro-area governments that agree to certain terms. The program will involve unlimited purchases of bonds, which will be “sterilized” to ease concerns about printing money, according to Bloomberg.

Meanwhile, traders are keeping a close watch on all economic numbers ahead of the Federal Reserve’s Sept. 12-13 policy meeting, since the reports will likely influence the central bank’s decision on whether it will announce more quantitative easing. 

European stocks closed mixed yesterday, as reports of unlimited bond buying by the European Central Bank helped support equities despite economic slowdown signals. Only Britain’s FTSE 100 slid 0.2%, while France’s CAC 40 gained 0.2% and DAX in Germany added 0.4%.

This morning Asian indices are trading on a mix note with the Strait Times and the Hang Seng trading lower by 0.2% and 0.1% respectively. However, the Nikkei and Taiwan are up by 0.1% each, while the Kospi and Shanghai are trading in the green by 0.6% and 0.3% respectively. So when I say mixed I really do mean mixed.

Base metals are trading marginally down after yesterday’s gains at LME electronic platform. Even, early morning news indicated that Moody’s credit rating agency downgraded Ireland and Portugal from Aaa to A3 and Baa3 while Goldman Sachs lowered the Chinese growth forecast from 7.9 to 7.6 percent and may continue to weaken metals.

As we expected the ECB would not opt for interest rate cut below 0.75 percent primarily due to near zero deposit rate. Now, if the ECB lowers interest rate then the deposit rate may go below the 0 percent mark. Therefore, the ECB may opt for bond buying but again the largest stakeholder of the central bank the German Bundesbank may continue to oppose with its chief even hinting resignation is likely to keep markets at tenterhook.

From the economics calendar today, the eurozone GDP may contract with a slight improvement in German factory orders, however markets are likely to remain buoyant as investors wait for the details of bond buying program. Later today the US starts to heat up with jobs growth in ADP numbers and unemployment figures ahead of tomorrow’s Nonfarm payroll report.

Mounting on the strongest anticipation on ECB to pledge unlimited bond buying vowing for a euro salvation, the yellow metal is showing strength at the early Globex. The euro is continuing its strength against the dollar and thereby supporting the metal. Expect ECB to keep the interest rate unchanged at 0.75% as they cannot pursue price stability with the fragmented euro area since a change in rate will only be affecting one or two countries at the most.

However, they may be launching a new sovereign bond purchasing program and Draghi needs to unveil the program details. Any deviation from the oath however is likely to be injurious to the euro. Gold is therefore likely to stay firm at least till the European hours after which volatility can certainly be seen.

Silver should see a double whammy today, as a successful bond program could increase manufacturing and production and the demand for industrial metals, while keeping precious metals high.

Crude Oil and Natural Gas Fundamentals

Wednesday morning, oil futures prices are holding almost flat at $95/bbl with a reaction to the inventory data expectation. As per US energy department crude oil stocks are likely to fall by more than 5 million barrels in the last week along with other petroleum stocks. However, refiners are likely to cut their capacity utilization due to hurricane season. On the other side, largest oil consuming nation US’s vehicle sales has been increased in the last month might be supporting prices slightly.

U.S. crude-oil futures fell Tuesday amid declines in broader markets as worries re-emerged about the economic outlook following weak data on the manufacturing sector. Prices tumbled from positive to negative territory early in the session as investors fled from a poor reading on the U.S. manufacturing sector. While U.S. fuel-product supplies have dropped in recent weeks compared with average levels, signs of weakness in the global economy, particularly in China, have tempered hopes about continued oil and fuel demand. Still, traders, worried about increasing tension in the Middle East, are reluctant to bet on big declines. Rhetoric from Israel and Iran about Iran’s nuclear program has grown more contentious in recent weeks.

ECB president Mario Draghi has said about buying bonds while may go for unchanged interest rate. Thus, ahead of tomorrow’s meet global market is getting skeptical which is showing in the equity market. The shared currency is likely to remain weak ahead of tomorrow’s meet and lower economic data expectation from euro-zone.

From economic data front, PMI numbers from Europe and German are likely to remain under growth which may weigh on the shared currency and weigh on oil prices. Increasing nonfarm productivity with slower pace rise in unit labor cost may support oil prices in the US session on speculation of higher demand on the back of increasing demand from US consumer.

Crude oil prices declined, as concerns about slowing economic growth and curbed demand for petroleum countered hopes for more monetary stimulus from central banks in the United States and Europe.

Global crude oil markets are reasonably well supplied, but there are signs of tightening in refined fuel products, as per the head of the International Energy Agency.

G7 finance ministers have voiced concerns about the effect of high oil prices on the global economy but officials in Italy and Germany last week indicated opposition to releasing strategic petroleum reserves.

Natural gas prices are trading almost flat at $2.854/MMBTU in Globex electronic platform. As per US energy department, natural gas storage is likely to increase in a slower pace than prior week, may support gas to trade on higher side.

An active hurricane season with presence of tropical storm Leslie which is becoming stronger but not moving much may keep threat of supply disturbances. This may support the trend in gas prices.

Natural gas futures rose nearly 2%, yesterday up for the fourth straight session along with stronger cash gas as industrial demand returned after the long US Labor Day holiday weekend.

The use of natural gas in U.S. trucks and fleet vehicles could skyrocket over the next two decades as low prices and new infrastructure provide incentive to switch to the cheap fuel was recently cited in an article in Reuters which is helping to support prices

The number of rigs drilling for natural gas in the United States slid by 13 last week to a 13-year low of 473, as per data from Houston-based oil services firm Baker Hughes showed.

Commodities Continue to Soar on Hopes of Stimulus

With the US and Canadian markets closed for the Labor Day End of Summer Holiday, expectations for a quiet low volume day, were anything but. Commodities continue to soar, even with the COMEX and the NYMEX closed and US traders on holiday.

Gold rose to its highest level in more than 5-months, as lackluster manufacturing data from around the globe fanned speculation of imminent easing measures from central banks. Gold is trading this morning at 1693.65 and continuing to climb

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,289.52 tons, as on August 28. Silver holdings of iShares silver trust, the largest ETF backed by the metal, declined to 9,721.33 tons, as on August 30.

Moody’s Investors Service changed the outlook on its Aaa rating for the European Union to negative, warning it might downgrade the bloc if it decides to cut the ratings on the EU’s four biggest budget backers: Germany, France, Britain and the Netherlands. Although, the ECB’s President Mario Draghi told European lawmakers on Monday that purchases of short term sovereign bonds by the European Central bank would not breach European Union rules, The Euro strengthened against global currencies, after ECB president Draghi told European lawmakers, that he is open to the central bank buying government bonds on the secondary market. The German Constitutional Court will issue a ruling on the legality of the EFSF and the ESM on September 12, 2012.

The ICE dollar index, which measures the US unit against a basket of six major rivals, slipped to 81.172 from 81.242 in North American trade on late Friday. With US markets closed for the labor day holiday the DX moved on global sentiment and the outlook and interpretation of Mr. Bernanke’s speech.

Copper futures rose to a one-week high on Monday as weak factory data from China, worries over US jobs growth and Europe’s debt crisis strengthened expectations, that central banks and policy makers in the three regions will take action to boost economic growth.

Copper futures for Sept. delivery closed slightly lower at $3.4405 per pound on the COMEX of the New York Mercantile Exchange. LME lead stocks have dropped by almost a third over the past 2-weeks, and this could trigger a spike in short-term prices in September.

Lead stocks have slumped by around 92,000 tons or 32 percent, since Aug. 13 and half of those draw downs are due for delivery out of Singapore.

Crude oil futures closed on positive on Monday, as investors focused on the possibility of more stimulus measures and other moves to try to revive economic growth while traders ignored Chinese data, which showed a deepening slowdown in the world’s biggest energy consumer. Japan reported that for the first month, it did not import any crude oil from Iran. Crude oil dipped a bit on profit taking but recovered quickly, trading more on hope and dreams of monetary stimulus from China, the US and the ECB. Crude is trading this morning at 97.14 as rumors of strategic reserves once again begin to make the news. Last week Spain and Italy both stated that they were against any release of reserves.

The big event this week will be the much awaited announcements from Mr. Draghi due on the 6th. Markets are anticipating a big show, but Draghi and the EU have been known to oversell and then disappoint markets, which would see commodities tumble.

Oil and Gas in Holding Pattern

Finally the day has arrived the much awaited 31st August where all the eyes are at Fed Chairman’s Bernanke speech in Jackson Hole’s meet. Today Mr. Bernanke has more press coverage then the President or the Queen and more fans and headlines then the leading actor or singer. Move over Madonna.

Thoughts of easing by the Federal Reserve are there overshadowing the global financial market which is reflecting on the regional equity market.

Contraction in Japan’s industrial production reported today along with lower manufacturing activities concern in China is adding pressure on markets.

The third largest consumer of energy is Japan’s vehicle production which has increased by 16.7% in the last month, but at a substantially lower increase then the prior month of 20% rate. This will affect the import of crude oil to Japan and lessen demand.

The National Hurricane Center, says that tropical storm Isaac has turned as depression inland, which eased the concern of supply disturbances.

The U.S. Treasury Department, International Energy Agency, a 28-member group of oil consuming countries are prepared to call upon a meet to take appropriate action to ensure that the market is fully and timely supplied.

Crude oil prices are trading almost flat at $94.66/bbl in the international market.

From economic data front, the eurozone unemployment rate is likely to remain high at 11.3%, whereas German retail trade may climb up slightly. The euro is likely to remain subdued for today’s session ahead Mr. Bernanke.

Form US, declining wholesale inventory may reflect on higher factory orders for the last month. So, a little spike can be seen during US session. Ahead of the economic symposium in Jackson Hole, oil prices are likely to trade under pressure with a speculation of releasing oil reserves and prevailing easing concern by major central bank.

Natural gas prices are likely to remain under pressure today. Yesterday the US energy department report showed that, gas storage has been increased by 66BCF, higher than prior week and survey also. Though consumption has been increased in the last week after two weeks of fall, the demand level is still low in comparison to last year at this same time. Active hurricane season has created supply disturbances and weekly supply declined by 2.84% in the last week. 

Metals and Energy Report Aug. 27, 2012

Gold recovered from early losses to close higher and returned to a four-month high, buoyed by hopes of fresh stimulus by global central banks and some renewed demand from ETF’s and rise in physical demand. Indian spot gold rose to a record high, tracking overnight gains in the global market while weaker rupee added further support, dampening demand for physical gold. India’s gold imports are set to fall further this year, as global bullion prices are driven higher by surplus cash in the market and by a weaker dollar, delegates at a major conference on the metal said on Friday.

A letter released on Friday from Chairman Bernanke to US Congressional Representative Issa, written just days ago, stated that the Feds, could and should do more to assist the economy and listed out their arsenal of weapons. Encouraging the markets that Mr. Bernanke would announce plans at his August 31st Jackson Hole address and action at the FOMC on September 13th.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,286.5 tons. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,820.81 tons, as on August 23.

A bid by some Republicans to return to the gold standard is unlikely because of a lack of international agreement on the matter and insufficient supply, according to the industry funded World Gold Council

German Chancellor Angela Merkel said after meeting with Greek Prime Minister Antonis Samaras in Berlin that Germany would not judge his country’s performance on its reform targets prematurely, but would await a report by the “troika” of international lenders due next month.

Chancellor Angela Merkel pledged to support the New Greek government as it struggles to reform its economy, saying the heavily indebted Greece must remain in the euro zone.

The metals pack weakened on poor eco data from China, after the HSBC PMI release showed that China was still falling and that a soft landing had not occurred. Although this offers more hope of stimulus the continued decline in global growth and manufacturing are weighing on the industrial metals

Copper futures eased slightly coming off one month highs, as hopes for more stimulus measures faded and on signs that Spain, the fourth-largest economy in the euro zone, could need sovereign aid soon.

Crude oil futures declined, following a trade journal report that the International Energy Agency may release strategic oil reserves as early as in September after dropping its resistance to a US-led plan. However, the threat to Gulf of Mexico oil production from Tropical Storm Isaac limited oil price major losses. Continued rumors of the release of the strategic reserves continued to grow over the weekend with no denials from the White House. A recent article suggests that the IEA which was originally against any release had changed its stance and now supports a release of the reserves if necessary to bring down prices.

Natural gas futures tumbled almost 4%, as high supplies and waning fears about Tropical Storm Isaac pushed prices to a nearly two-month low. The number of rigs actively exploring for oil and natural gas in the US declined by 16 this week to 1,898. 1,408 rigs were explored for oil, 486 were searching for gas while four were listed as miscellaneous, as per Houston-based oilfield services company Baker Hughes Inc. With all its up and downs for the week, Natural Gas ended trading on Friday when it had opened the previous Monday. 

Japan’s Trade Balance Slips to Deficit Pressures Metals

Asian equity markets opened weak after weak a closing of the US exchanges and further declined due to narrowing Japan’s trade balance. Yesterday US markets saw the Dow reach a new high before turning to decline. Japan slipped back into a trade deficit in July, as exports languished and imports of gas and generating equipment surged, the Ministry of Finance has reported. The deficit was 517.4 billion yen (6.5 billion US dollars) in July, according to provisional trade figures. That compares with a 69.7 billion yen surplus a year earlier and a modest surplus of 62 million yen in June of this year. Exports fell 8% from a year earlier in July to 5.3 trillion yen (66.9 billion US dollars), while imports rose 2% to 5.83 trillion yen (73.6 billion US dollars), the ministry said.

Japan has managed to eke out small trade surpluses in some months over the last year, but reported a record annual trade deficit for the fiscal year that ended in March.

Base metals are trading down by 0.1 to 0.63 percent at the London Metals Exchange. Early morning, pessimism has again crept in the markets in the form of weak trades data indicating continued weakness in economic activity. Further, the Chinese equities have also remained weak though the Premier hinted at $23 billion of investments in durables and housing to boost demand for industrial metals including iron-ore.

 During the European session yesterday, the Luxemburg Prime minister also the chief among the Euro-zone finance ministers would visit the Greek counterpart to discuss the possibilities ahead of the European summit. Further Germany is scheduled to auction 5 billion 2-year notes and amidst such developments, investors may grow weary regarding the actions and may likely weaken metals.

There are no major releases scheduled from the European Union and metals may remain subdued and continue to fade along with the shared currency.

As the US session opens later today, markets should perk up and may become volatile.  The US existing home sales and mortgage applications may increase at a slower pace after recent surge in leading and coincident indicators and may support gains in base metals. Also the minutes of FOMC may provide some reaction while similar to BOJ the Fed may also refrain from additional easing and may disappoint gains.

Anticipation of better US housing might limit other currency pairs and may boost dollar index restricting other currency buying.

Gold prices are trading almost flat at $1639 levels may be taking slight ease breath and preparing to make a rally ahead of the FOMC minutes.

Meanwhile, weaker than expected trade figures of Japan today has further weighed although there doesn’t seem to be much impact on gold rather this may prompt investors’ to remain long in gold.

Data releases from US are likely to have marginally positive impact on the dollar or gold.

An important point to discuss here is minutes of FOMC meeting held last month is likely to turn markets upside down if depending on comments and interpretations of the minutes.

This morning silver prices are trading at $29.27 slight dip from previous close. Certainly, when all Asian equities are trading down we should see some dip in the industrial metals and so the impact is now felt over silver this morning. As discussed above the Japanese trade balance has shrunken for the month of July we have been seeing all Asian peers are in red now. Of course, negative cues have been also followed from last day’s Wall Street’s performance. As discussed, going ahead we do not see any data releases from euro-zone/Germany but likely meeting may have optimism on euro so we could see precious metals or few other asset classes might perform better, so we could see some more soothing on silver trend. Nevertheless, equities movement across the globe should have to be tracked carefully. By any means, if equities continue to trade down then we might see slight submissive impact on silver too. The FOMC minutes, would have the same affect here as for gold and the metals pack.

Crude Oil Eases in Asian Trading

As of this writing, crude oil prices are trading almost flat at $96/bbl in international market although price is showing a bit of weakness in Asian trading on Tuesday morning.  

Concern of China easing after property price rose high in July is weighing in Asian equities market. Thus, lower equity market might be weighing on oil futures prices.

Ahead of tomorrow’s meet of Greece Prime minister with Luxemburg Prime Minister to discuss Greece request on extension of Fiscal adjustment program, Euro is gaining some points. Thus, optimism from this week’s meet in order to extend its time period for austerity may limit the fall in oil prices. There are no major economic releases due for today.

As per US Energy department, crude oil stocks are likely to increase along other petroleum stocks for the first time in last four weeks of time. Increase in import and concern of lower demand may create higher stocks. So, higher stocks level may drive oil prices low. As per National Hurricane Center, there is 30 percent chance of tropical cyclone formation, which may not create much impact on oil production and supply. ( a side note, hurricane season runs from late July to early November )

 From PV-O analysis, a fall in crude oil prices and higher volume and open interest indicates that investors are ready to take the bearish market in this commodity.

Markets are no longer paying much attention to the headline grabbing rhetoric from Israel and the violence in Syria seems to have subsided

Natural gas prices are trading below $2.770MMBTU in international market with loss of more than 0.20 percent from yesterday’s closing. As per US Energy department, natural gas storage has increased by 20 BCF, lower than prior week due to fall in supply in the last week. However, US consumption has been fallen by more than 2.74 percent and demand declined by 2.43 percent in the last week.

However, demand was at 11 percent high during the same period in the last year. On the other side, declining consumption due to mild weather condition may weigh on gas prices in today’s session. As per US weather channel, temperature is likely to remain normal which may not pull gas demand high. 

Tuesday Morning Financial Market Update

Europe’s leading shares fell yesterday; dragged down by weakness in banks, as the European Central Bank and Germany’s finance ministry deflated optimism the ECB would cap peripheral bond yields in an effort to contain the euro zone’s debt crisis. U.S. Stocks eased off their worst levels to end mostly flat in another thin session Monday, but still remained around four-year highs, lifted by gains in techs.

Asian stocks were off to a flat start on Tuesday as investors await further clues about any action from the ECB to ease the region’s fiscal crisis.

Spain’s 10-year bonds advanced for the first week this month on speculation the government will request a sovereign bailout that would trigger European Central Bank purchases of its debt.

German 10-year bunds dropped as Chancellor Angela Merkel signaled support for the ECB’s plan to help reduce indebted countries’ borrowing costs and attach conditions to the providing the support. Spanish Prime Minister Mariano Rajoy reiterated that he is considering requesting purchases.

Asian stocks rose this week, with the benchmark index posting its longest weekly winning streak since March, after China’s Premier Wen Jiabao said there’s more room to adjust monetary policy and U.S. economic reports signaled strength in the world’s largest economy.

China’s July housing data showed prices of new homes rose in the largest number of cities in 14 months, as sentiment improved after interest rate cuts and incentives for first-time buyers.

The euro remained higher before Luxembourg Prime Minister Jean-Claude Juncker visits Greece to discuss the country’s request for an extension to its fiscal adjustment program

Gold rose by 0.13% after the ECB president said policy makers will do whatever is needed to preserve the euro and amid increasing expectations of further stimulus measures in the US. But market concerns remain. Some physical “buying” of gold from Europe this week spiked the bullion price, while the amounts have been “quite small” so far. Silver rose by 0.02%.

Crude oil rose by 0.02% for the first time in three days in New York on concern eased that rising economic worries faltering demand of oil will be  a concern in the world’s biggest crude consumer.  Brent crude squeezed margins and has begun stifling demand from petrochemical makers.

Reports that Saudi Arabia is producing oil at its highest capacity in three decades were released yesterday.

European governments are rushing to boost stockpiles of crude oil and fuel, three agencies in control of strategic reserves said on Friday, anxious to comply with new EU rules and ahead of feared supply disruptions in the Middle East.

Crude oil prices slipped just under $96 per barrel, in choppy trading as investors remain worried about the European Central Bank’s ability to address the euro zone debt crisis while tight North Sea supplies and Middle East turmoil limited losses.

Natural gas futures closed higher, after three straight losing sessions. Prices were supported by concerns about rising tropical activity and some technical buying.

Is the US Housing Market Improving ?

New-home construction in the U.S. dipped in July, while the number of building permits jumped to the highest level in four years, indicating the industry will keep improving in the second half of the year. Building permits are considered a leading indicator for housing starts.

Starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008.

Housing starts estimates in the Bloomberg survey ranged from 730,000 to 800,000. The prior month was revised down from a previously reported 760,000 pace.

Confidence among America’s homebuilders shot up to a five-year high in August, thanks in part to a burgeoning recovery in property values across the nation, with builders reporting current prospective sales conditions the best since the housing market tanked.

/Wells Fargo builder sentiment index was released Wednesday, inching up two points in August to 37, up from 35 in July, making Augusts’ numbers the fourth consecutive increase and the highest reading since February 2007.

The turnaround in home prices, which saw a more than 2 percent increase last month, has ignited hopes the housing market is finally turning around and has a lot to do with the boost in builder confidence, says Dave Crowe, NAHB’s chief economist.

Earlier this month “Freddie Mac” released its July housing reports;

  • The Freddie Mac House Price Index for the U.S. showed a 4.8 percent gain from March to June 2012, the largest quarterly pickup in eight years; the national index posted a June-to-June rise of 1 percent, the largest annual appreciation since November 2006.
  • Rental vacancy rates have fallen to 8.6 percent, the lowest since the second quarter of 2002. The for-sale vacancy rate has dipped to 2.1 percent, the least since the second quarter of 2006. 
  • Nationally, the for-rent market now appears to be in relatively good balance, with the rental stock close to overall rental demand, resulting in “normal” vacancy levels.
  • This continuing shrinkage in excess vacant stock is important because it means that in most markets the REO homes on the for-sale market are not competing with an oversized vacant housing inventory.
  • Even if national indexes dip in the seasonally weak autumn and winter months, the declines probably won’t be big enough to erase the good second-quarter news on home values.

Data on the US housing sector will feature prominently this week via two releases on sales activity: existing home sales will be released on August 22 and new home sales will be released on August 23. Scotia is anticipating fairly tepid growth for both, forecasting a half-percentage point rise for each during July. The interesting issue here is that even amidst widespread reports that housing market activity is accelerating, most of the leading indicators for home sales show activity as flat or negative.

Pending home sales fell in June as did the average level of mortgage applications as registered by the Mortgage Bankers Association. The one bright spot in terms of leading indicators for housing sales is that aspects of the NAHB’s housing market index perked up in July.

This week’s release of existing home sales and new home sales are expected to tell the story, the eco releases from the past two weeks, including retail sales, consumer confidence, unemployment all point to a more positive recovery of the US economy. If housing data this week’s supports this picture, then we will see a fall in the expectations of fed stimulus and more positive sentiment by traders.

Threat of Cyber Attack and Release of Oil Reserves Weigh on Crude Oil

Gold rose nearly 1%, on comments by German Chancellor Angela Merkel and disappointing US manufacturing and housing data fueled speculation that central banks could take measures to stimulate the economy.  Also the Chinese Premier signaled that the PBoC was ready to offer a stimulus package to try to get China back on track.

Gold futures for December delivery rose $12.60 to $1,619.20 an ounce.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,258.15 tons, as on August 10. Silver holdings of iShares silver trust, the largest ETF backed by the metal, declined to 9,733.39 tons, as on August 15.

Worldwide gold jewelry demand fell 15%, on a year-over-year basis to 418.3 tons for the second quarter of 2012, largely due to a sharp decline in Indian jewelry demand, according to the World Gold Council. Gold jewelry accounted for 42% of global gold demand in the given period.

Indian gold jewelry demand in the second quarter of 2012 fell by 30% to 124.8 tons amid record high local currency gold prices due to depreciation in the rupee against the US dollar.

China’s gold jewelry demand dropped 9% on a year-over-year, to 93.8 tons, as Chinese consumers were discouraged by the slowing of GDP growth in the country during the second quarter.

The ICE dollar index, which measures the US unit against a basket of six major rivals, fell to 82.392 from 82.649 in North American trade late Wednesday. It touched a high of 82.881 earlier.

German Chancellor Angela Merkel appeared to back recent comments by the ECB President Mario Draghi and said his recent vow to do all necessary to defend the euro zone is in line with European leaders. Merkel also said time is of the essence in making progress on the euro zone sovereign debt crisis, adding that she feels European leaders are on the right track.

Copper rose more than a percent on Thursday, supported by a weaker dollar and expectations that recent financial data could spur growth supporting measures that would boost global metals demand. Among the Metal prices, Copper ended marginally higher by 0.1%, while Aluminum, Zinc and Nickel fell by 0.8%, 1% & 0.4% respectively.

Crude oil futures extended gains into a third session and rose above $95.5 per barrel, garnering support from lingering geo-political concerns and a weaker dollar to post a fresh three-month high.  Oil for September delivery notched up $1.27 to $95.60 a barrel. 

Overnight oil prices did an about face after three days of gains following reports that the U.S. was gearing up for a move to keep a lid on prices. Oil prices fell after news reports suggested the U.S. might tap its strategic reserves to slow the rising price of oil.

The black gold was finding support; however, on news of a cyber attack against Saudi Arabian oil giant Aramco as well as rising geopolitical tensions in the Middle East. The Saudi oil giant has said the attack has not affected production. However, Barclays added that in a market that is starting to focus more on geopolitical issues in the Middle East, the idea that there may be parties intending to sabotage oil operations is likely to be unsettling.

 It said “any attack against facilities that did cause any significant physical disruption of Saudi flows would open up the extreme upside for oil, in the context of the current deterioration of the geopolitical context for the Middle East as a whole.”

 Natural gasfutures declined in a choppy trading session, brushing aside a bullish inventory report released earlier in the day. The Energy Department’s Energy Information Administration reported that natural gas in storage grew by 20bn cubic feet to 3.261 trillion cubic feet for the week ended Aug. 10.

Financial Market Fundamental Review, August 17, 2012

Yesterday the euro after opening weak and falling through the major part of the Asian session reversed and managed to rally above 1.2350. There were speculations in the market that Spain might very soon receive the first 30 billion euro tranche of the EU banking bailout.

During the US session a series of economic data flashed showing that Initial Jobless Claims barely missed expectation, Building Permits moved higher, Housing Starts were slightly lower and Philadelphia Fed Index was down along with manufacturing sales.

The number of Americans filing applications for unemployment benefits was little changed last week, bringing the average over the past month to the lowest level since late March, a sign the labor market has stabilized after employment picked up in July.  Americans this month were the most pessimistic on the economic outlook since late last year as fuel prices rose and unemployment remained elevated.

American builders took out more residential construction permits in July than at any time in the past four years, a sign the market will continue to improve.

Chancellor Angela Merkel backed the European Central Bank’s insistence on conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro.

U.K. retail sales unexpectedly rose in July as promotions helped to boost gasoline sales and food sales increased. Nonetheless, a lack of an improvement in the labor market and weak manufacturing data and statement from Angela Merkel to support euro was enough to trigger a sell-off in greenback.

The pound rose to its strongest level against the dollar in more than two weeks after U.K. retail sales in July increased more than analysts forecast and June data were revised upward.

Today’s Asian session opened on a positive note, taking cue from a strong and upbeat US session overnight. Despite of this risk on which we noticed in the European and U.S session yesterday, no major improvement has been noticed to the underlying fundamentals of these major economies. However any supportive comments from the policy makers have been enough to lift the market sentiment which is mired by pessimism.

There a number of data due to come out today in the European and US session.  Producer price Index will be released which will be released from the Europe is expected to drop against is prior figure and US consumer sentiment to remain almost unchanged.

European shares rose to within touching distance of their 2012 peaks, lifted by utility and banking stocks, propped up by persistent expectations of new stimulus measures to fight off the global economic slowdown and ease the euro zone crisis.

U.S. Stocks had their best session in nearly two weeks after German Chancellor Angela Merkel reiterated her support for the ECB’s plans to fight the euro zone crisis

What’s in Store for Gold and Metals Today

The Asian equities markets are trading on a positive note as increased hopes of easing from China after the Premier Wen Jibao commented that easing inflation allows more room to adjust monetary policy and positive signs are emerging in the economy, expressing confidence after July data showed a further slowdown in growth.

Riskier assets including metals are presently trading on a limited upside due to increased hopes of easing from global central banks although the possibility of easing in the US is declining on the backs of positive eco data. Commodities might open strong during the morning however; gains might continue to fade during the European session due to weak consumer confidence and inflation.

Further, the Greek Prime Minister said that he will visit eurozone leaders in the coming week and promised to promote austerity measures and try to win time for deficit-reduction.

Spain is about to receive an emergency disbursement from the 100 billion-euro ($123 billion) bailout of its financial system because of restrictions the European Central Bank imposed on bank borrowing, according to a person familiar with the matter.

From US, the inflation outlook and industrial production has been positive, markets will be closely watching today’s unemployment data.  The housing starts may remain weak, as homebuyers are more attracted towards rental homes after the 2008 crash, while building permits might continue to increase and may limit much downside.  These reports will help fill in the puzzle of what to expect from the central bank come September 13th.

The Philadelphia Fed is also likely to remain weak and may continue to weaken metals later today.

Negative eurozone and weak US labor and housing sector may continue to support downside while hopes of easing may limit the same. Any bull-run in metals will be short lived, between markets and data releases.

Precious metals prices edged higher yesterday as bleak data from the euro zone led to hopes of more stimulus measures from the debt ravaged region, although indications of an improvement in the US economy kept bullion near a 1-1/2 week low hit in the previous session

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1258.15 by Aug 15, remains unchanged from the previous business day.

According to the WGC, gold jewelry demand dipped 19% year-on-year in January-March 2012, and investment demand by 46%, on the back of a weak Indian currency. Globally the gold demand was down was down by 5% in April-June, according to the WGC though local prices jumped by 35% in the same period.

Industry experts say gold imports in India have dropped to around 350 tonnes in the first half of the year compared to around 553 tonnes in the same period in 2011.

With physical demand down, and risk aversion declining and support from the US Fed, declining, there is little to support gold or silver prices today. The final pieces of the puzzle will be the housing and jobs data, which are expected to print positive. Precious metal most likely gold is expected to decline; where as the positive data might support industrial metals.