Metals Recover A Bit On Bargain Shopping

Metals Recover A Bit On A Weaker USD
Metals Recover A Bit On A Weaker USD

Gold prices recovered some of their losses after U.S. first quarter economic growth was revised lower. Gold is trading at 1235.25 gaining $5.45 this morning. The US’s gross domestic product, the broadest measure of all goods and services produced in the economy, grew at a 1.8% annual rate between January and March, the Commerce Department said Wednesday. This was less than earlier readings and below the 2.4% gain forecast by economists.

Gold yesterday dropped sharply and hit 3-year lows, on growing expectations that the US Federal Reserve will slow the pace of economic stimulus later this year and continued liquidation from ETF’s.  Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 969.5 tons, as on June 26.

Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,890.87 tons, as on June 26. The US dollar index, which measures the greenback against six other major currencies, rose to 82.964 from 82.553 on late Tuesday in North America. The dollar index posted its sixth straight session of gains. The USD eased a bit in the Asian session.

Eurozone bonds rose across the board, after European central bankers reassured markets they would keep exceptional monetary policy measures for the foreseeable future. The euro pared some of the losses against the dollar, after final data showed US gross domestic product growth was more tepid than previously estimated in the first quarter, but was held back by a moderate pace of consumer spending, weak business investment and declining exports. The People’s Bank of China said on late Tuesday, it had provided cash to some institutions facing temporary shortages and would continue to do so if needed.

Industrial metals prices slipped yesterday however, recovered some ground on concerns about the outlook for demand from top consumer China as moves by the country’s central bank to ease fears of a credit crunch failed to fully reassure investors. Industrial metals prices are trading higher on international bourses today. Traders can expect a further rise in the prices of metals on account of bargain hunting at lower levels. Silver is trading at 18.733 recovering along with gold this morning as buyers continue to take advantage of low prices.

Copper is trading at 3.057 trading in the green as traders take advantage of the weakened US dollar. The dollar declined by a few pips making low priced commodities a special appealing. Copper closed lower on the London Metal Exchange yesterday, weighed by concerns over Chinese metals demand and a weaker-than expected reading on U.S. economic growth.

Dovish ECB Comments Drive EUR/USD Lower

The EUR/USD fell below 1.30 for the first time since early June, erasing almost all of its gains for the month. Technical analysis indicates the market has been dropping an average of .008 per day since topping on 1.3415 on June 19. In addition, the market is threatening to take out a Fibonacci level at 1.3033. This move could trigger an acceleration to the downside. The daily chart indicates there is plenty of room to the downside with 1.2950 the nearest downside target.

The catalyst behind the drop in the Euro was dovish comments from European Central Bank President Mario Draghi. He reiterated that monetary policy will remain stimulative. This reduced the desire to hold the Euro as a speculative investment. Furthermore, with the Fed considering ending its stimulus and the ECB leaving the possibility of more stimulus on the table, the advantage is to the dollar. This favorable interest rate differential should keep the pressure on the EUR/USD over the near-term.

Speculation that the Bank of England will implement additional stimulus while the U.S. is considering curtailing its stimulus activity is helping to pressure the GBP/USD. Like the Euro, the interest rate differential is working against the British Pound.

Overnight, U.K. government bonds rose as interest rates fell. This triggered a drop in the Sterling against the dollar. The catalyst behind the move was a comment from Bank of England policy maker David Miles who said the economy remained weak and renewed his call for more asset purchases.

eur 2

The stronger U.S. Dollar helped pressure August gold. After consolidating for two days and showing signs of a temporary bottom, short-sellers hit the market hard on Wednesday, driving the market into territory not seen for several years.

The over 2% drop in gold took the market down to levels not visited since September 2010. It also served as a sign that the worst of the financial turmoil may be over. In addition, investors are factoring in the possibility of reduced stimulus, a move that would be indicative of lower inflation. Many bullish traders who were banking on high inflation because of the stimulus are finally liquidating long-term positions because it doesn’t look like runaway inflation will be an issue over the near-term.

Crude oil futures traded flat to lower after this week’s inventory report failed to reveal any new information. The bigger picture suggests the market is range bound while the shorter-term outlook calls for lower prices because of high supply.

Traders are also watching interest rates and the U.S. Dollar. A firmer dollar will likely lead to lower prices since foreign demand is likely to drop. An escalation of the skirmish in Syria could underpin the market, but this is only speculation at this time. 

Stock Market Ready for Liquidation?

I advise you to look at buying stocks—but not quite yet; the time for buying hasn’t arrived. Just like a fire or liquidation sale at a retailer, the best buying opportunity in the stock market is when the discounts are at their heaviest. We’re not at that point yet.

As I have noted in my commentaries following the Federal Reserve Chairman’s recently proposed exit plan for the Fed’s bond buying and its effect on interest rates, the stage is set for the stock market to readjust to the norm. By this, I mean the rapid gains we have seen in the stock market over the past few years—specifically this year—are soon to be a thing of the past.

With the Fed planning to scale back on its monetary stimulus and, in turn, drive up bond yields, I do not envision a massive and sustained period of selling in the stock market, but instead a brief opportunity to buy some discounted stocks sometime on the near horizon.

Some are calling for a bear market to surface, but I don’t agree. While the Fed’s money printing may soon be over, as long as interest rates remain low and the economic renewal is actually in place, we could see an upward move in corporate America and the stock market—but it won’t come easily.

With the second quarter coming to an end this Friday, the focus will shift to the earning season, when I’ll again be looking at the revenue side to see if there’s any progress. Recall this year’s first quarter, when revenue growth in corporate America was weak and numerous companies fell short on revenues. The reality is that companies need to produce in order to support the equities prices.

Let’s take a look at the research by FactSet in its recent commentary (source: “Earnings Insight,” FactSet Research Systems Inc. web site, June 21, 2013):

Revenues for S&P 500 companies are estimated to grow a dismal 1.2% in the second quarter, down from a much higher 2.7% at the end of the first quarter. This slow growth doesn’t get my vote of confidence for corporate America; but it does indicate the continuation of low interest rates.

Earnings in the second quarter are estimated to grow at an anemic 1.1% versus the 4.3% seen at the end of the first quarter. This again is not encouraging, and suggests the U.S. economy is still fragile. In fact, based on the FactSet data, 87 S&P 500 companies have already provided negative earnings views—against only 21 with positive views.

The sectors with the weakest decline in earnings expectations include the materials (5.7% decline in expected earnings), information technology (down 6.3%), and the industrials (down 2.1%) sectors.

The financials sector, which I continue to like, is positive, expecting 17.7% earnings growth.

The second-quarter results could be messy for the stock market, but if stocks continue to correct, I would begin to look for some buying opportunities. If you want to take advantage, have some cash available.

Changes in the Chinese Economy That Will Alter Your Investment Strategy

We are all aware that the global economy is still relatively stagnant, running below optimal gross domestic product (GDP) levels. Specifically, the Chinese economy is not only experiencing a slowdown in growth, but also a liquidity crunch.

One of my concerns regarding the Chinese economy over the past couple of years has been the rampant increase in credit and loose lending standards. Because the Chinese economy has become such an integral part of the global economy, if imbalances within that nation aren’t addressed, this will lead to further speculative boom-and-bust cycles.

Last week, the interbank lending rate, which is the interest rate banks charge when they lend to each other, spiked to 13.44%. This compares to an average of 3% over the past 18 months. Since last week, the interbank lending rate has fallen back to 6.48%; still, concerns are mounting over liquidity constraints. (Source: Wassener, B., “Asian Markets Falter After Central Bank Statement,” New York Times, June 24, 2013.)

The global economy has relied too much on excess credit for growth and an increase in debt over the past decade. We have seen what happens with too much credit when the U.S. housing market crashed a few years ago.

But the Chinese central bank did not step in initially when the interbank lending rate skyrocketed. That is a sign to both banks and companies in China that they will not necessarily be bailed out without suffering costs associated with poor lending practices.

It’s a sign of China’s new leadership, which is trying to shift the Chinese economy into an increasingly domestically oriented economy built on lower levels of debt. The focus on lower levels of lending should lead to a stronger long-term Chinese economy.

However, the process of deleveraging is never easy, and in the short term, there are many painful steps that need to be taken. Because the Chinese economy has grown to be so large, those people who think it can continue growing at 10% or more per year clearly don’t understand the law of large numbers and the limits to growth.

As a country becomes a larger part of the global economy, it can only maintain a certain level of national growth. As the Chinese economy tries to shift to a more stable footing, it will naturally lead to lower levels of economic growth. That situation is much like the one here in the U.S., where the economy cannot grow at a pace faster than approximately three percent without serious consequences, even though the U.S. is still a leader in the global economy.

The chart for the Dow Jones Shanghai Index is featured below:

Changes in the Chinese Economy That Will Alter Your Investment Strategy
Changes in the Chinese Economy That Will Alter Your Investment Strategy

Chart courtesy of www.StockCharts.com

Even though the actions being made by leaders in China will be beneficial in the long run, the short-term pain for companies in the Chinese economy can be quite severe; in fact, that pain is causing many investors to sell their shares of Chinese stocks and sit on the sidelines.

Because credit is now beginning to be reduced through higher interest rates that raise costs, the Chinese economy will have lower levels of overall growth. But that growth will be on a much more solid footing.

The real question is: can the Chinese economy sustain a deleveraging process without too much damage to the global economy? Unfortunately, that is an incalculable variable because so much lending within the Chinese economy is not done through official channels, but rather through shadow lending facilities.

I certainly would not be foolish enough to try to predict the full extent of the debt that has been built up by corporations and local governments within the Chinese economy—but I do know that it is quite substantial. And while I think it’s a positive effort for the long run that the Chinese leaders are trying to reduce this leveraging within the Chinese economy, the pain that will initially be felt by the global economy could be substantial.

We are still in the early stages of this transitional shift within the Chinese economy; therefore, I will need to see several more months of data before being able to calculate the true extent of the impact this shift in China will have on the global economy.

Aussie Set for Increased Summer Volatility

Volatility levels in the Australian Dollar have risen to their highest levels in roughly 18 months, as changes in the policy stance at the US Federal Reserve are coming in conjunction with a major cash squeeze in China.  These events have added a layer of confusion to the market’s underlying sentiment with respect to high-yielding currencies and with the AUD/USD trading at its lowest levels since 2010, there is clear potential for these trending moves to continue. 

Specifically, the growing prospect that the US Federal Reserve will begin trimming back on its historic third round of quantitative easing (QE) stimulus has created a bullish scenario for the US Dollar (pushing the AUD/USD to new long-term lows).   This is because any reductions in monetary injections from the central bank will limit the available supply of the currency.  At the same time, the People’s Bank of China (PBoC) has signaled its intentions to limit credit growth sending the country’s benchmark stock indices into a renewed bear market.

Central Bank Expectations 

So, the main question deciding the fate of the Aussie as we move forward into the summer will be whether or not markets are mis-assessing the true intention of each of these central banks.  But in either case, volatility is currency pairs like the AUD/USD and the AUD/JPY is likely to remain elevated as these reasons for uncertainty are still far from seeing anything resembling a resolution.  China is a Australia’s largest export market (largely based on raw materials exports) so any news of weakness in China will translate to continued downward pressure on the Aussie.

AUD Still Heavy at Long-Term Lows

Given all these factors, there is little on the fundamental side to help the Australian Dollar, despite the fact that the currency is cheap relative to medium term averages.  The one-month implied volatility in the AUD/USD has risen as high as 15.5%, which is the most drastic monthly fluctuation since December 2011.

Stock Market Correlations 

Another factor to consider that the Australian Dollar is highly correlated with stock markets and the wider global sentiment with respect to equity markets.  Because of this, any weakness in benchmark indices like the S&P 500 is likely to be interpreted as a negative for the Aussie as well.  Price action in both the S&P 500 and the CSI 300 Index (which tracks China’s largest companies) have shown significant reversals in recent weeks.  The S&P 500 is now trading back firmly below the 1600 level, and the CSI 300 has seen single-day declines of more than 6% already this month.  From its 2013 high, China’s CSI 300 has already seen declines of more than 20%.

Analyst forecasts for GDP growth in China have been revised lower (below 7.5%, which is the PBoC’s target rate for the year).  US GDP forecasts are likely to start seeing similar revisions if we see additional evidence that the Fed will start making reductions to its $85 billion in monthly assset purchases.  When seen together, all of this paints a cloudy picture for the Australian Dollar and ultimately suggests that, from a fundamental perspective, the currencies renewed downtrend has yet to find a bottom. 

Technical Analysis Perspective

AUD/USD:

Aussie Set for Increased Summer Volatility
Aussie Set for Increased Summer Volatility
 

Chart created by MQL5.com 

The AUD/USD has seen major declines in recent weeks, but looking at the pair from an indicator perspective, there is still room for this bear decline to extend its move.  There is little in the way of historical support at this stage, but we are currently dealing with the 38.2% Fib retracement of the rally from late 2008 (when prices were still trading in the low 0.60s).  Given the structure, any moves below this Fib support at 0.9140 will be a massive negative for the pair, as the next Fib support cannot be seen until 0.80.  This is the 61.8% Fib retracement of the same move and coincices nicely with the lows from May 2010.

AUD/JPY:

Aussie Set for Increased Summer Volatility1

Chart created by MQL5.com 

The AUD/JPY is generally used as a gauge of market risk, and the overall picture in recent weeks has not been positive.  Prices have moved lower to the 50% Fib retracement of the move from 74.40, which is now seen at 89.80.  The AUD/JPY is another pair that is seeing little in the way of historical support levels, so the key way of assessing support levels will be to look at Fib measurements.  Next downside target is seen at 86.20.

S&P 500:

 Aussie Set for Increased Summer Volatility2

Chart created by MQL5.com 

For correlation reasons, it is important to watch the S&P 500 as well, and the next downside target in the index is seen at 1530.  Bias remains lower as long as prices hold below resistance at 1605.  For more forex tips, tools, and trading signals, visit MQL5.com.

New Global Economic Reality Will Help This Stock Rise

While some areas of the world, such as the European Union (EU), are experiencing stagnant economic growth, other parts of the globe are experiencing stronger growth—but it’s coming at a cost.

One nation that has embarked on an aggressive policy to stimulate economic growth in relation to the global economy is Japan. The Prime Minister, Shinzo Abe, has made it clear that he wants to push a very aggressive monetary policy program to try and stimulate economic growth, which has led to a significant decline in the value of that nation’s currency, the yen.

Recent data show that to some extent economic growth is improving, as the value of shipments exported in May was 10% higher than those of the same period in 2012; that exceeded estimates from a Bloomberg survey of economists, which had earlier estimated a 6.4% increase. (Source: Coxon, M., “Japan exports surge both since 2010 in Boost for Abe: Economy,” Bloomberg, June 18, 2013.)

But while the export sector is seeing a rebound in economic growth, the weakness of the yen is resulting in a trade deficit, as the costs of imports rise. The domestic economy is also hampered by Japan’s decision to shut down its nuclear power plants.

As of right now, the balance is still positive, as the growth in Japan’s gross domestic product (GDP) for the first quarter was an annualized 4.1%, and most analysts estimate that in the second quarter, the nation will post a GDP economic growth rate of approximately three percent.

That could have a profound impact on the U.S. economy. The CEO of Ford Motor Company (NYSE/F), Alan Mulally, recently complained about Japan’s policies. According to Mulally, not only is the nation a currency manipulator, giving Japan’s companies an unfair advantage in the global economy, but Japan itself is closed to outside competitors. (Source: “Ford’s CEO Calls Japan Currency Manipulator Amid Weaker Yen,” Bloomberg, June 20, 2013.)

The economic growth in export-oriented companies in Japan will give them an advantage over non-Japanese export companies for some time. Because both the Bank of Japan and the Prime Minister are adamant in increasing exports, which they believe will generate domestic economic growth, investors will want to accumulate strong companies, such as Toyota Motor Corporation (NYSE/TM), on pullbacks makes sense.

Just take a look at the stock chart for Toyota featured below:

New Global Economic Reality Will Help This Stock Rise
New Global Economic Reality Will Help This Stock Rise

Chart courtesy of www.StockCharts.com

Considering the huge move up in price that Toyota had over the past year, I would certainly suggest waiting for a more attractive level to accumulate shares. While economic growth is stagnating in many parts of the global economy, the drop in the yen for companies such as Toyota could help tilt future revenues in their favor.

We will have to continue monitoring data on economic growth to determine if the global economy will accelerate or slow. If there are signs that the global economy is about to re-accelerate and the Japanese yen remains weak, this could be a very bullish scenario for companies such as Toyota.

This article New Global Economic Reality Will Help This Stock Rise was originally published at Investment Contrarians

Trading Point Acquires Prestigious XM.COM Domain

European financial services provider Trading Point of Financial Instruments Ltd has recently announced the successful acquisition of the rare two-letter-long domain name, XM.com, which belongs to the 676 highest worth domains in the world.

XM.com, from now on the short name of XEMarkets, the leading brand of Trading Point, clearly expresses the innovative and forward-thinking approach of the company’s top management in their continuous efforts to serve clients across five continents. “XM.com”, says Constantinos Cleanthous, Founder and CEO, “is a brand name that will as easily become a household name as the online trading products that it features”.

Since its establishment in 2009, Trading Point has gained the global recognition of their clients from well over 170 countries for their innovative mindset and the alertness to which they react to clients’ needs. The unique two-letter XM.com domain acquisition is a good example of how genuine innovators think: brand recognition can be only reinforced by thinking out of the box and being at all times ahead of industry peers.

The two-letter XM.com domain name definitely has the potential of achieving global brand awareness for the company’s financial services: it is memorable, outstanding, and last but not least addresses a very diversified multicultural client base.

Why the Fed’s New Plans Won’t Change a Thing This Year

In an interview on CNBC, John Boehner, Speaker of the United States House of Representatives, accused Federal Reserve chairman Ben Bernanke of generating the market sell-off.

In fact, Mr. Boehner actually should’ve thanked Bernanke for the stock market rally that drove the Dow and S&P 500 to record highs. It was only because of the Federal Reserve’s easy monetary policy that stocks were able to climb so rapidly despite a somewhat sluggish economy.

And there’s still no definite date to cut the bond stimulus; in order for the stimulus to end, the economy will need to drive higher in its recovery and the unemployment rate will need to fall to seven percent.

It’s not a sure bet that the Federal Reserve’s plan will ever come to fruition. There’s also an assumption by the Federal Reserve that the U.S. economy will ratchet higher.

The eurozone continues to be gripped in a recession, as indicated by the most recent Purchasing Managers’ Index (PMI) readings, which showed contraction. And then you have Big Red China, which is continuing to show dangerous signs of slowing—factory orders are declining, and unless the country can get its consumers to spend (part of its 10-year plan), China could see its economy falter even more.

My point is that the horizon is not clear for the U.S. economy. If China and the eurozone struggle, it’s likely that the demand for American goods will be affected, which will drive gross domestic product (GDP) growth down and result in stagnant job creation.

Under that scenario, the Federal Reserve may be forced to hold back on cutting all of its bond buying.

But one thing is clear, the era of the Federal Reserve’s low interest rates will likely continue into 2014 and beyond; and will keep going unless the U.S. economy undergoes a massive and altogether unlikely recovery.

The reality is that the low interest rates will continue to allow the flow of easy money into the economy—that has not changed. Yes, there will be some pressure with the higher yields in the mortgage market and bonds, but overall financing rates will continue to be near historical lows.

For Mr. Boehner, he can rest assured the party on Wall Street has not come to an end.

The easy gains may have been made, but there will still be numerous opportunities to pump up your 401(k). Mr. Boehner should go and thank Bernanke for the stock market riches.

This article Why the Fed’s New Plans Won’t Change a Thing This Year was originally published at Investment Contrarians

 

US Stocks Gain on Positive Data

During yesterday’s session, all major US indices ended in green territory, still far from their recent record-highs, though. The S&P500 moved away from its nine-week low, reached on Monday, supported by better-than-expected economic news. Data showed that Durable Goods Orders and New Home Sales have increased more than analysts expected, reporting a surge by 3.6% and 476,000 in May, respectively. The Consumer Confidence results also recorded a sudden increase to 81.4%, opposite forecasts for a 75.4% reading.

Analysts commented that the current increase on Wall Street is caused by different types of market participants such as hedge funds and large and small private clients attracted by the recent market downturn.

The S&P500 rose by 14.94 points, or 1%, to 1588.03 points, reporting its largest increase since 13 June. All 10 industries within the index ended with growth, led by financial and energy companies. 

US Stocks Gain on Positive Data
US Stocks Gain on Positive Data

The Dow climbed by 100.75 points, or 0.69%, closing at 14760.31. The Dow Jones Transportation Average rose by 1.9% after all 20 rail, sea, and air companies included in the index reported increases. 

df1

The Nasdaq100 gained 18.30 points, or 0.6%, closing at 2866.50 points.

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The stimulus measures, combined with a good financial performance of US companies, were at the heart of the stock market rally which started after reaching its bottom in March 2009. During the current quarter, the S&P500 has reported an increase by 1.2%; however the index has declined by 2.6% in June. If by the end of the week, the S&P500 does not witness a rally to make up for the previous losses, the index will end its run of seven consecutive months of gains.

 

Among the companies that registered a rise was the energy-efficient homebuilding company, PultGroup Inc., whose shares rose by 5% to $34.89 per share. The cruise company, Carnival Corp, also increased by 3.9% and reached $19.02 per share.

On the other end of the stick was the largest pharmacy chain in the US, Walgreen Co., which lost 5.9% to %45.22 per share, its biggest loss since September 2011. Netflix Inc. also registered a decline to 1.3%, or $212.90 per share.

Looking further in the day, the US session is due to produce the country’s GDP along with the Core Personal Consumption Expenditures, which are expected to cause high volatility on the markets.

 

 

Source: dfmarkets.co.uk

 

Disclaimer: The Content of these charts and analyses does not constitute any form of advice or recommendation by Delta Financial Markets to buy, sell (or refraining from making) any trade or investment. You may wish to seek independent advice before entering into transactions.

Delta Financial Markets shall not be held liable by you or any others for any decision made or action taken by you or others based upon reliance on or use of information or materials obtained or accessed through use of these technical analyses and charts. DF Markets assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon the information on this page. DF Markets shall not be liable for any special, indirect, incidental, or consequential damages.

 

Energy and Metals Trading In The Red

Gold - Oil BNSCrude oil slipped from the highest price in three days after an industry report showed U.S. fuel stockpiles increased. The API report released late yesterday showed an unexpected climb in inventory. The contract lost ground after the American Petroleum Institute, in its weekly report on U.S. commercial crude-oil inventories, said supplies were unchanged in the week ended June 21. A survey of analysts had forecast a decline of 2 million barrels.

U.S. crude inventories fell by 28,000 barrels for the week to June 21, data from the American Petroleum Institute showed, much smaller than the forecast drop of 1.7 million barrels based on a Reuter’s poll of analysts. The U.S. Energy Information Administration will release its stockpiles report later on today. The market is still oversupplied, OPEC is still pumping at around 30 million barrels, and demand is flat. So unless we see some change on production we should see prices continue to fall.

WTI crude slipped 41 cents to $94.91 a barrel, and has lost over 2 percent for the quarter so far. U.S. data showing strong gains in orders for durable goods, the largest annual rise in house prices in seven years and rising consumer confidence indicated the economy was starting to pull out of a soft patch. Fed Chairman Ben Bernanke said last week the central bank would likely begin to slow the pace of its bond-buying stimulus later this year. The data supports the decision by the Fed to pare back stimulus. However, the upbeat data from the United States was countered by weak economic signals elsewhere, casting uncertainty on global fuel demand.

Gold fell to the lowest level since Sep 2010 as U.S. economic data beat estimates, backing the case for reduced stimulus from the Fed Reserve as the dollar strengthened. Silver sank to the cheapest since Aug 2010. Gold prices fell Tuesday, relinquishing earlier gains, after data showed consumer confidence in the US hit a five-year high. Gold for August delivery, the most-active contract, was recently down $4.60, or 0.4%, at $1,272.50 a troy ounce on the Comex division of the New York Mercantile Exchange. This morning in the Asian session gold took a hard tumble falling by close to $26 to trade at 1249.15 after traders saw a slew of US economic data print above expectations ranging from home prices, home sales, durable goods, and manufacturing and consumer confidence. It was like a grand slam for the US economy yesterday. Today, traders will be closely watching the unemployment numbers ahead of next Friday’s nonfarm payroll release.

Silver prices are trading at $18.84, down 3.10%. There are no economic releases from the eurozone today. During the US hours, MBA mortgage applications might remain mixed while the GDP growth rate and personal consumption might increase due to the recovery in the economy, which should support the dollar and pressurize silver prices. At the domestic front, silver prices may open on a lower note due to the prevalent weakness in silver prices in the international market.

 

The Chinese Credit Crisis Crunchs The AUD, NZD & CAD

The Chinese Credit Crisis Crunchs The AUD, NZD & CAD
The Chinese Credit Crisis Crunchs The AUD, NZD & CAD
Confidence among U.S. shoppers climbed in June to the highest level in more than five years, an indication spending will probably accelerate after cooling this quarter. The Conference Board’s index rose to 81.4. Orders for U.S. durable goods rose more than forecast in May, reflecting broad-based gains that signal manufacturing is stabilizing. Bookings for goods meant to last at least three years climbed 3.6% for a second month. While Home prices climbed more than forecast in the 12 months through April, rising by the most in more than seven years and showing further strength in the U.S. housing market. The S&P/Case-Shiller index of property values increased 12.1% from April 2012, the biggest year-over-year gain since Mar 2006, after advancing 10.9% a month earlier. US data printed in the green on Tuesday across the board sending the US dollar rebounding and climbing this morning to trade at 82.87 after hitting a high of 82.95 as the Asian session opened. Of course the strength of the US dollar and the economy sent gold tumbling to trade at 1249.15 down close to $26 this morning.

Tuesday was full of US data but little else throughout the rest of the world, news flow was also light with center stage remaining focused on China, after lackluster data and a credit crunch upset the global markets. China’s efforts to rein in shadow banking, which contributed to the nation’s worst credit crunch in at least a decade, haven’t driven up costs for borrowers in at least one place: Wenzhou. On June 20, as the nation’s banks demanded a record 30% to lend to each other for one day, small businesses in the export hub paid 23.42% for one-month loans from pawn shops, small lending companies and individuals. That’s almost unchanged from this month’s average of 23.17%. China’s financial markets were calmed on this morning after days of turmoil by the central bank’s pledge to prevent any lasting credit crunch, but stocks kept slipping as investors braced for tougher conditions in the world’s second-largest economy. The People’s Bank of China (PBOC) said late on Tuesday it had helped some banks and was ready to act again as the lender of last resort for those caught in a short-term squeeze. However, it was also sticking to its stance of tightening market conditions as it seeks to rein in sharp growth in informal lending. The central bank wants to curtail funds flowing into China’s vast “shadow” financial system that fuels property and stock speculation and push money into more productive areas of the economy to secure more sustained growth.

Worries about the Chinese economy and its credit situation weighed heavily on the commodity currencies and its neighbors in the Asian Pacific region that are so dependent on their trade with the Sleeping Giant. The Australian dollar remained near record lows trading at 0.9246 down 16 points while the New Zealand kiwi fell to trade at 0.7726 as traders remain focused on China and the FOMC tapering programs. As the US dollar continues to gather momentum it is very difficult for these currencies to recover. The Canadian dollar fell to trade at 1.0505 as gold and oil tumbled, China’s economic woes are weighing heavily on the export nation.

Forex Traders Need To Get Over The Fed

rss-56385-FOMC-Monetary-Policy-Meeting-and-Bernanke-s-Press-Conference-1-150x150The Federal Market Open Committee meeting took place a week ago and the Fed meeting seems to remain the main news headlines ever since. Even though problems popped up in China, the Federal Reserve tapering question remains in the spotlight. Every investor, every speculator and ever market analyst seems to have their own take on Mr. Bernanke’s comments. Fed Chairman Bernanke tried his best in his comments and press conference to try to take confusion and misinterpretation from the markets. He told plain and simple, that the Fed would consider tapering its monetary policy when the economy was strong enough to handle a cut back. He did not indicate what, when or to what extent, he left this question open to economic data and recovery. He also indicated this would be a slow process not a turning off or on of a switch.

In the press release the FOMC acknowledged that there has been “further” improvements in the labor market (compared to “some” improvements in the previous statement). The Fed seemed to downplay the actual soft inflation environment by mentioning that it is “partly reflecting transitory influences”.

The rest of the statement was largely unchanged. Again, the Committee said it stands ready to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. The Fed left interest rates at zero and its asset purchase program unchanged at US$85 bn/month (of which $40 bn is MBS debt and $45bn is long-term Treasuries). It also reiterated that “exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored”. The FOMC is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Fed restated that it will keep up the asset purchases until the outlook for the labor market has improved substantially.

Mr. Bernanke went out of his way to make sure that markets should understand that altering the stance of monetary policy remains data-dependent. The current economic projection is consistent with a gradual scaling down of QE3 by the end of this year and most likely ending by mid-year 2014 as the unemployment rate declines to 7% according to the new forecast released at the end of the week.

The fact remains that when the Fed’s begin to taper or cut back the economy will be well on its way to recovery and that fundamental data should balance the value of the greenback. Granted yesterday’s data release ranging from durable goods, to consumer confidence, housing sales and manufacturing excelled well above expectation would indicate that the economy is well on its way to recovery and signal a hastened decision to taper, but if the Fed’s begin to slowly taper, do you think the dollar will come tumbling down or soar above the 83.00 price range that is current maintains. Will the GBP fall below the 1.54 level where it is trading this morning or will the euro simply collapse and tumble from the 1.3070 price this morning to the forecast range of 1.25 at the end of the year.

U.S. Dollar Pares Losses on Strong Economic News

After an early session setback, the U.S. Dollar mounted a small comeback. This is helping to pressure the Euro, British Pound, crude oil and gold. From the opening, it looked as if overbought conditions were going to drive the dollar lower, but the release of a series of strong economic reports forced sellers to change their tune.

On Tuesday, it was reported that U.S. home prices rose 2.5% in April. This was the biggest monthly increase ever according to S&P/Case-Shiller data.  A report by the Federal Housing Finance Agency also showed a gain. Durable goods orders increased in May for a second consecutive month and consumer confidence in June rose to 81.4, its highest level in more than five years.

USD 5

All of these reports lent support to a tapering of the Fed’s aggressive asset purchases later in the year. Although almost all traders agree the Fed will take action by the end of the year, speculators increased bets last week that the Fed was poised to make its move from stimulus as early as September.

The strong fundamental news triggered a reversal in the EUR/USD after the market had begun to show signs that it was ready to pull away from a retracement zone at 1.3106 to 1.3033. If it can hold support at 1.3066 then it could attempt to regain the 50% price level at 1.3106. Sustaining a move over this price could launch the start of a new rally.

At this time, the focus isn’t on Europe as much as it is the Fed. However, because of the fragile conditions in the Euro Zone, the European Central Bank has to keep open the possibility of additional stimulus. With the U.S. considering ending its stimulus program, the advantage is too the dollar. This will put a lid on any substantial rallies in the EUR/USD.

A similar situation exists for the GBP/USD. A generally weaker U.K. economy combined with new Bank of England leadership could mean additional stimulus. Although this Forex pair posted a potentially bullish closing price reversal on Monday, the inability to hold on to early gains clearly means there is a bias to the downside. Even if the market rallies, gains are likely to be limited.

The sharp sell-off in August crude oil created oversold conditions on the daily chart, leading to Tuesday’s strong short-covering rally. The market had been under pressure since June 19 when the Fed hinted at ending its stimulus program.

Speculators anticipating the central bank would soon begin tapering its monthly bond-buying stimulus, drove up interest rates and consequently the U.S. Dollar. This hurt demand because it made crude oil priced in dollars more expensive for foreign buyers.

With supply already at record levels, a drop in demand could lead to a change in the main trend to down on the daily chart. Today’s trading action suggests the market is more range bound rather than bearish. This may be an indication that it is being underpinned by speculators looking for problems in Syria to escalate. This could lead to a disruption in supply.

August gold could be forming a support base, but the lack of buying power is holding the market in a range. The strong dollar continues to put pressure on the precious metal. Speculators are betting the Fed is going to cut stimulus. This is bearish because it strengthens the dollar. In addition, the Fed has taken away the uncertainty about its next move. Prior to June 19, traders were buying gold as a hedge. Now that the need for the hedge has been lifted, sellers have once again taken over the market. 

History Says Much Larger Sell-Off Looming for S&P 500

While Fed Chairman Ben Bernanke’s announcement that a reduction in the asset purchase program will begin later this year was not a surprise to me, stocks felt the impact as selling ensued across the board.

However, though the S&P 500 did pull back, it is still near its all-time highs. Over the past few weeks, I have been recommending that readers reduce their overall exposure to the S&P 500, and any other assets that have benefited from the stimulus program for that very reason.

In addition to beginning the reduction of asset purchases, the Federal Reserve chairman stated that he expects to end any asset purchases by next year, and to begin raising the Fed funds rate in early 2015, as opposed to previous Federal Reserve statements that indicated that the Fed funds rate would begin to rise in late 2015.

While Bernanke was careful to note that this did not mean that monetary policy would begin tightening immediately, it is clear that the next move will be toward a reduction in monetary stimulus.

This will certainly impact the stock market and any other asset class that has benefited from easy monetary policy. Many investors in the S&P 500 have been blindly buying, not basing their buys on fundamentals, but rather, assuming the Federal Reserve will continue monetary stimulus indefinitely.

As I stated many times before, the current monetary policy program by the Federal Reserve is only temporary.

The chart for the S&P 500 Index is featured below:

 

History Says Much Larger Sell-Off Looming for S&P 500
History Says Much Larger Sell-Off Looming for S&P 500

As I previously mentioned, the sell-off in the S&P 500 is only minor in relation to the magnitude of the movement that’s been going on since November. Having said that, when the Federal Reserve begins reducing its asset purchase program later this year—I suspect it will be either in September or October—this will coincide, in my opinion, with a much larger sell-off for the S&P 500.

History is also on the side of caution for the S&P 500 during the months of September and October. Those two months are notorious for having poor performance records, including several famous crashes.

For the S&P 500, the Fibonacci retracement levels show approximate regions that investors can use as a roadmap for possible areas to target.

Naturally, we will have to digest much more economic data before the Federal Reserve makes any such move. Because the S&P 500 has discounted much of the revenue growth over the next year, at current levels, I think it’s priced close to perfection, leaving significant downside risk.

With the summer upon us and the Federal Reserve close to making a significant shift in monetary policy this fall, I would look to raise cash that one can deploy to buy stocks once the S&P 500 drops to levels that are attractive once again.

For long-term investors, the time to accumulate the S&P 500 is when the market sells off significantly—not when it’s at all-time highs.

This article History Says Much Larger Sell-Off Looming for S&P 500 was originally published at Investment Contrarians

Why the Fed’s Decision to Stop Buying Bonds Is a Smart Move

Well, Ben Bernanke finally had his wits about him when he suggested that the Federal Reserve might begin to taper its bond-buying program by the year’s end, and then end the program altogether sometime in 2014.

In my mind, that shows that the Fed is thinking clearly—like it or not, that’s what Wall Street wanted.

Of course, there was also the warning that the cuts would only happen if the economy continued to grow at a rate that met the Fed’s expectation. That may or may not happen.

Bernanke said he will look to taper the bond buying when the unemployment rate falls to around seven percent. They expect that to happen by the end of this year.

The news drove bond yields higher, which is bad for equities.

The reality is that Bernanke likely won’t increase interest rates until the end of 2014, or even until 2015. The Fed will leave interest rates intact until the unemployment rate falls to 6.5%, or if inflation rises to above 2.5%.

Unemployment could decline to 6.5% by the end of 2014 in the best-case scenario, according to the Fed, but the consensus among the Fed members is that higher interest rates will not surface until 2015.

Cheap money will likely be around until 2015; and even at that time, the move to increase interest rates will likely be gradual rather than sharp.

This means that those looking for cheap financing will continue to be able to. The cheap money will continue to drive consumer spending and the stock market until bond yields surge higher.

To me, that means we will have a few more years in which there will be very little incentive to save money in banks and more of a willingness to spend. The aftermath could be higher consumer inflation, but as long as it stays below 2.5%, the Fed may hold off on raising interest rates.

The problem that I have mentioned in the past will be the continued buildup of personal and commercial debt, which is fine in the current low-interest-rates environment, but a few years down the road, mounting interest payments on debt could wreak havoc for the economy.

For those seeking income from bonds, it will continue to be a difficult process given the recent record-low yields. And unless they bolt much higher, investors will likely still opt for dividend stocks.

For the time being, the money printing continues, but I believe the Fed’s decision to cut some of its stimulus by year-end makes sense. An exit strategy is in place, even though it’s not warmly accepted—based on the reaction of traders—despite the fact it was obviously a good play by the Fed.

This article Why the Fed’s Decision to Stop Buying Bonds Is a Smart Move was originally published at Investment Contrarians

Reduced Monetary Stimulus Pressures Energy Prices

Reduced Monetary Stimulus Pressures Energy Prices
Reduced Monetary Stimulus Pressures Energy Prices
Crude oil hit a high of 95.10 but eased down to trade at 94.71 in the Asian session. Crude oil futures were slightly lower Monday as investors grew wary about credit being tightened in China, the world’s second-largest oil consumer. Light, sweet crude for August delivery recently traded down 12 cents, or 0.13%, at 93.57 a barrel on the New York Mercantile Exchange. Investor fears about the growth of the Chinese economy grew after the People’s Bank of China, the country’s central bank, indicated that it was clamping down on easy-money policies. China is dominating the markets as investors focus on the reason and the effect of policy changes by the PBOC.

U.S. crude futures steadied above $93 a barrel, after falling for the past three sessions and posting their worst week since April amid worries over Chinese demand and U.S. economic stimulus being pared back. Market attention continues to remain focused on the US Fed, but China is weighing heavily and slowly taking center stage.

There was very little fundamental data on Monday, so markets moved on sentiment shifts and news flow, which was light also. The U.S Federal Trade Commission has followed the European Union in opening a formal probe into how crude oil and refined fuel prices are set, Bloomberg News reported on yesterday. Tanzania’s oil importers are seeking over 300,000 tons of oil products for delivery from late July to August, similar volumes to previous requirements, industry sources said this morning. Canada’s largest pipeline company was investigating on Sunday the cause of a 750-barrel spill of synthetic crude that forced it to shut three oil pipelines in northern Alberta. This was it for headlines yesterday and this morning.

U.S. natural gas futures ended lower for a third straight session on Monday, with milder forecasts for later this week and next week outweighing the heat currently blanketing the Northeast and Midwest. Natural gas is trading at 3.756. Natural gas remains in the headlines with more and more attention focusing on the use and demand for the cheap energy supply. Israel’s government on Sunday approved limiting natural gas exports to about 40 percent of the country’s newly-discovered offshore reserves.

A consortium led by Japanese trading house Itochu Corp is likely to agree as early as Saturday to build an LNG plant in Russia with Gazprom, the Nikkei newspaper reported, to meet Japan’s growing energy needs. Traders can expect prices to trade lower for the day on account of expectations of milder weather and increasing worries over the power demand in the US.

Bargain Hunters Buy Silver Dump Gold

Bargain Hunters Buy Silver Dump Gold
Bargain Hunters Buy Silver Dump Gold
Gold is trading at 1277.65 while silver is trading at 19.545 this morning. Gold fell in New York as prospects that the Fed Reserve will reduce monetary stimulus curbed demand for the metal as a protection of wealth. Silver also slipped and platinum plunged to the lowest since November 2009. Traders will be closely watching todays slew of US data, which could give direction to the Federal Reserve decision as to when to begin tapering its programs. Traders will see durable goods orders and housing data which are both expected to print higher than forecast. The rest of the trading day should remain quiet and focused on news flow as there is very little data due out before the North American session.

This morning, most of the Asian equity markets are trading on the higher side, barring the Chinese markets which are down more than 4.5% on the back of concerns caused by the credit crunch. The subsequent announcement by the People’s Bank of China that it may not inject liquidity further added to the concerns. The euro is trading flat at 1.3120. The dollar index is also trading flat at 82.45. There are no major economic data releases expected from the euro-zone. However, a string of data releases from the US in the evening such as durable goods orders, the S&P Case Shiller home price index, House price index, consumer confidence index and new home sales are expected to be positive, which may support the dollar index.

Gold futures saw renewed selling pressure on Monday, as global equity markets fell on concerns over tightening credit conditions and growth worries in China. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 985.73 tons, as on June 24 while silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,881.87 tons, as on June 24. Silver traders are taking advantage of the tumble in prices to buy on the cheap, which is helping to limit losses.

Copper closed at its lowest level in almost three years on the London Metal Exchange Monday as investors cashed out of base metals amid a continuing credit squeeze in top metals consumer China. At the close, LME three-month copper was 2.2% lower on the day at $6,670 a metric ton. The metal earlier tumbled 3.0% to $6,613 a ton, its lowest price since July 2010. Aluminum closed 1.2% lower at $1,771 a ton.

Chinese Central Bank Problems Weigh On The JPY, NZD & AUD

Chinese Central Bank Problems Weight On The JPY, NZD and AUD
Chinese Central Bank Problems Weight On The JPY, NZD and AUD

This morning Asian stocks swung between gains and losses as raw material producers fell on concern a cash crunch in China will curb growth in the world’s second-largest economy. Japan’s Topix index erased losses as the yen fell. The JPY climbed this morning above 98 but eased in later trading to 97.35.

On Monday Wall Street fell, sending the S&P’s 500 Index to a nine-week low, after Chinese equities entered a bear market amid concern a cash crunch will hurt growth and as investors weighed the impact of a possible reduction in the Fed Reserve’s monetary stimulus.

Regardless of which side of the Atlantic or Pacific, Chinese data and credit dominated the markets. China’s biggest squeeze on credit in at least a decade is increasing the chance that Li Keqiang will be the first premier to miss an annual growth target since the Asian financial crisis in 1998. GS and China International Capital joined banks from Barclays to HSBC in paring their growth projections this year to 7.4%, below government’s 7.5% goal. The cuts followed a tightening in central bank liquidity that left the overnight repurchase rate more than double the year’s average. Chinese credit woes weighed heavily on the AUD and the NZD today, with the Aussie falling to 0.9206 and the kiwi at 0.7716. The combination of Chinese and US stimulus policy changes are affecting the global market place. The US dollar continues to climb trading at 82.68. The Fed Reserve under Chairman Bernanke has committed itself to a monetary strategy for this year and beyond that will be difficult to undo under a new chairman. Under Bernanke’s leadership, the Fed has set out clear markers for the conditions that need to be met to moderate and eventually end its asset purchase program and then begin increasing interest rates. The dollar index held a four-day gain amid declines in Asian stocks and prospects for the Fed Reserve to pare back bond buying as the economy strengthens.

The euro is trading at 1.3114 slowing easing down, with little economic data other than German business climate and Ifo prints on Monday, which were pretty much as expected the euro is trading on a negative bias with low volume and momentum. Traders are trying to assess comments from the IMF and a recent FT report that said there is a growing hole in the Greek budget which needs to be filled by eurozone funding; otherwise the IMF will withdraw its support. In the meantime, the IMF has issued warning on the French economic situation, which is predicting dire consequences for France. Across the border in Italy, ex-Prime Minister Berlusconi has been sentenced to 7 years in prison, which might cause some political turmoil.

Today’s focus will be US data including durable goods and housing data, with both expected to exceed forecasts and also give the FOMC additional support with their plans to taper stimulus in the short term.

 

China Credit Woes Weigh on Crude Oil

August Crude Oil futures broke sharply on Monday as news spread that China was experiencing credit problems. With credit being tightened, investors worried about falling demand from the world’s second-largest oil consumers.

Investors sold crude oil after the People’s Bank of China, indicated that it was clamping down on easy-money policies. This created a cash squeeze as the rates at which banks lend to each other had recently spiked. Investors fear that rising interest rates will hurt economic growth.

oil refinery

Although China’s looming credit crisis is the headline today, traders are still worried about the Fed’s next move. This may be the tapering of monthly stimulus as early as September. Speculation that the Fed may act sooner than expected is helping to boost interest rates, driving up demand for the U.S. Dollar. Since crude oil is priced in dollars, it has become more expensive for foreign traders.

In summary, it looks as if the combination of the events in China and the anticipated move by the Fed are the two key reasons why demand should drop. With supply at or near a record high, a drop in demand would worsen the problem.

August gold is trying to mount a comeback rally after last week’s huge sell-off. Last week, comments from Fed Chairman Ben Bernanke drove interest rates higher, triggering a rise in gold, and making it more expensive to foreign traders.

Additionally, speculators who bought gold ahead of the Fed decision liquidated their positions after the central bank’s next move become clear. The lifting of the hedges was enough to trigger a technical break through the support of triangle chart pattern.

Today’s weaker dollar is helping to fuel profit-taking and short-covering in the gold market. Although there may be some bottom picking going on, if there is a rally, it is likely to be triggered by short-covering rather than fresh buying.

The stronger dollar is the main reason behind the weakness in the Euro and British Pound. The lack of fresh economic news may mean that traders will have to rely on technical data today. Technically, the EUR/USD has entered a major retracement zone, bounded by 1.3106 to 1.3033. Since the market is oversold, it may reverse course at any time due to short-covering and profit-taking following the huge sell-off from 1.3416.

With U.S. interest rates rising and the U.K. considering another round of stimulus, traders are flocking back to the U.S. Dollar while selling the British Pound. Like the EUR/USD, the GBP/USD has also entered a key retracement zone which may mean a reversal to the upside is imminent. This move would not represent a change in trend, but would be a sign that the selling is greater than the buying at current price levels.

As long as the interest rate differential favors the U.S. Dollar, continue to look for pressure on the Euro and British Pound. The pressure is likely to continue to commodities such as gold and crude oil. The news that China is experiencing credit problems is likely to mean that gains will be limited in the Euro and British Pound. Besides the developing fundamentals, technical factors – namely oversold conditions could help underpin the market over the near-term until short sellers re-emerge.