Supply and Demand offset Global Tensions for Crude Oil

Supply and Demand offset Global Tensions for Crude Oil
Supply and Demand offset Global Tensions for Crude Oil

US Crude moved up a drop on Tuesday as increased tension in Syria raised the concern for supply glitch again. On Monday crude oil prices declined for the fifth straight session, on concerns about slowing economies, expected production and pipeline restarts and bigger-than-expected fall in Japan’s exports reflecting the global economic slowdown.

US Crude fell more than a percent on yesterday to trade below the 89.00 price level as restarting of TransCanada pipeline increased the supply and offset the concerns on Middle East. A bottleneck at a major oil pipeline has led to stoppages at refineries in Germany and the Czech Republic, further limiting Europe’s tight fuel supply ahead of winter and underpinning diesel prices already near record highs.

However, looming geopolitical concerns emanating from the Middle East is providing some amount of support to the energy complex. In the latest, seven people were killed and dozens wounded in gun battles in the Lebanese capital Beirut and coastal Tripoli due to unrest linked to the conflict in neighboring Syria.  

With a very light eco and events calendar, crude oil will be very sensitive to geological tensions.

Yesterday, the head of the International Energy Agency (IEA) said that the global oil market is well-supplied and only a serious supply disruption will merit any release of strategic oil stocks, “The market is sufficiently well supplied,” Maria van der Hoeven, executive director of the IEA, the West’s energy watchdog, said at the Singapore International Energy Week.

Iran’s exports have fallen sharply in the wake of the sanctions as consumers struggle both to pay for the oil and to secure insurance cover for tankers to ship the crude.

“We keep monitoring the situation, as we can see that there is around 1 million barrels a day of Iranian oil or maybe even a little more not in the market anymore,” Van der Hoeven said.

On the subject of demand and forecast the IEA director said slowing economic growth in Asia is adding to uncertainty in the oil market. The world is becoming increasingly dependent on Asia to supply oil products, the IEA’s Maria van der Hoeven said at a conference in Singapore. The IEA has lowered its forecast for global demand growth for 2012 by 500,000 barrels a day, partly because of signs of slowing in China, the Paris-based agency said in its Medium Term Oil Market Report.

U.S. natural gas futures ended lower on Monday for the first time in four sessions, pressured by profit-taking after an early front month moved higher and by reports extended forecasts for cold weather had been revised to be milder. Front-month gas futures on the New York Mercantile Exchange ended down 16.5 cents, or near 5 percent, at $3.452 per million British thermal units after climbing early to a new 2012 high of $3.648.

Fx Markets Quiet Except for the USD/JPY

Fx Markets Quiet Except for the USD/JPY
Fx Markets Quiet Except for the USD/JPY
The eco and events calendar remains fairly light today with the European Commission’s consumer confidence and French and Belgian business confidence releases. In US, the Richmond Fed manufacturing index will be published. Spain (T-Bills) and the US (2Yr Notes) will tap the market.

The European Commission’s consumer confidence is expected to show a stabilization at -25.9 in October, the lowest level since May 2009. Consumer sentiment is expected to remain poor due to record high unemployment rates and severe austerity measures weighing on household budgets. We believe that a further decline is likely after strikes and protests in several Southern European countries. The French and Belgian business indicators have a more than usual interest as they precede the publication of the PMI’s this month. For both, the headline index is expected to have stabilized in October. We hope to see some improvement which would underpin our expectation that the EMU manufacturing PMI has also improved, which would be for the third time. In the US, the Richmond Fed manufacturing index has made already a significant rebound over the previous months, from -17 in July to 4 in September, but is expected to stay broadly unchanged in October. A marginal increase from 4 to is forecast. We believe that the risks, if there are any, might be on the downside of expectations as all evidence suggests that the US manufacturing sector continues to struggle. Earlier released regional US business confidence indicators showed a mixed picture too.

This morning in Asian trading, markets were thin with light volume. The big movers have the JPY after the government began to bully the Bank of Japan to introduce addition stimulus at their next meeting. The Japanese trade balance unexpectedly widened in a report released yesterday, which supports additional easing. The EUR/USD is trading flat at 1.3054 and the GBP/USD is also flat at 1.6013

Yesterday the USD/JPY extended the rebound that started last week. The move was still driven by market speculation that the BoJ will ease policy further at the October 30 meeting. The pair tested the 79.66 resistance yesterday morning and cleared this barrier later in the session. During the day, US bond yields reversed the decline from Friday. This might have been slightly supportive for USD/JPY, too. Nevertheless, let’s assume that domestic factors (BOJ) were the key driver for USD/JPY trading. The pair reached a correction top at 80.01 overnight. Traders are still a bit surprised that the market is prepositioning in such a pronounced way for BOJ easing (in the past the reaction to any BOJ action was often limited and temporary). That said, the momentum in the USD/JPY cross rate is clearly positive and there is no reason the row against the tide at this stage. The June top (80.62) is the next high profile point of reference on the technical charts. Exporters need the JPY above the all important 80 level to make profits; below will have significant negative effects on the economy. The BoJ stimulus would help weaken the JPY.

Gold, Copper, Silver and More

Gold prices are treading water, recuperating from the weakness witnessed during last week. Looking forward, the market focus remains tuned to the upcoming Federal Reserve’s policy meeting this week, and their assessment of the current economic scenario and likely throw light on future growth prospects. Investors remained cautious before Federal Reserve’s statement on Wednesday. Technical buying at the level also boosted the buying in Gold.

However Fed is not expected to take much further action in this meet after recent stimulus announcement. Traders will be paying more attention to their statement on the economic situation.

Gold demand in India rose significantly on Monday as a rebound in rupee slashed prices 1 percent ahead of the peak festival season.

International gold futures closed higher on Monday, for the first time in 3-sessions, recovering a small fraction of the heavy losses sustained at the end of previous week.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,336.9 tons, as on Oct. 22. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,888.55 tons, as on Oct, 18.

Silver is also following suit.

Precious metals continue to trade range bound with no eco or event data on the calendar.

Selling is evident in the non‐ferrous complex, as poor flow of macroeconomic numbers in China and slowing metal imports has raised questions regarding the demand prospects in the world’s largest metals consuming nation.  

Copper declined to a six-week low on COMEX, after a report signaled declining economic growth in Japan and Caterpillar Inc’s forecast of sales growth at the slowest in 4-years, fanning concern that a global slump may reduce demand for the metal. Copper futures for Dec. delivery closed down by 0.4% at $3.622 on the COMEX.  Data on Monday showed Chinese copper production in September matched its second-highest level this year as tight scrap supplies and favorable export policies encouraged smelters to keep output high.

Brazilian mining company Vale said, that it will shutter the Frood nickel mine in Canada by the end of 2012 as the sluggish global economy has reduced demand and prices have been continuously declining.

LME aluminum stocks rose by to 5.06mn tons, close to the record of 5.13mn touched in February.

Markets are expected to remain quiet throughout the day. Political risk is could be a market mover, but with US elections around the corner and the last debate behind, candidates are expected to be traveling and speechifying to garner votes. Spain’s Prime Minister won election in his district without having much market consequences. Nothing is expected from Merkel or Hollande today.

Spain Election Results Calm Euro Traders

In a quiet trade, the EUR/USD traded slightly better after results showed that Spanish Minister Mariano Rajoy’s party hung on to power in his home region of Galica. This vote was an important test of his popularity and power as it came during a period of austerity. Many traders have been thinking that the Spanish government has been reluctant to make a formal request for financial aid from the European Central Bank because it would cause it to lose support of the people. 

Although traders believe today’s vote will prevent the Euro from selling off further, there are still lingering concerns that any more delays by Spain to ask for financial aid is going to make investors nervous enough to pare positions, thus weakening the single-currency. Worries over Greece are another concern; however prices are expected to hover around 1.3000 over the near-term.

 

With no major economic events to react to today, the GBP/USD followed the direction of the Euro. That being said, the Sterling is trading slightly better as traders turned optimistic that Spain would be able to resolve its election issues and finally make a request for money from the ECB. Although the U.K. economy faces major problems of its own, much of its success is directly correlated to the performance of the Euro. 

December Gold continues to linger around support with buyers showing little interest at current price levels although there appears to be a bid in the market preventing it from collapsing. Since the Fed announced in mid-September to provide additional stimulus, gold has been slowly drifting lower. Additionally, the ECB’s decision to begin buying distressed bonds has also stripped the market of its uncertainty, causing a drop in demand for gold. Gold is being treated as an investment rather than a reserve currency which may mean that it is headed lower towards a value zone. 

December Crude Oil is trading mixed. Oversupply concerns are providing the bearish pressure while optimism about an improving economy is helping to underpin the market. Because of improvements in the job and housing markets, bullish traders believe that the worst could be over for crude oil and that increased demand should soon begin to drive the market higher. 

Boredom Sets in for the EUR/USD

Boredom Sets in for the EUR/USD
Boredom Sets in for the EUR/USD
Over the weekend, the Spanish PM won re-election in his native region (Galicia) where he increased his majority. In Basque country on the contrary, the separatist/nationalist parties gained at the expense of the PP party of PM Rajoy. Nevertheless, it keeps the possibility of Rajoy asking for a bailout open, which is a support for risk appetite. It has now become obvious why Rajoy was delaying a request for a bailout; it was all about votes and elections. The EUR/USD has nearly erased Friday’s losses and Asian equities are narrowly mixed, distancing themselves from Friday’s disaster on the Dow and NASDAQ. In Europe and the US, the eco calendar is empty and the event calendar uneventful.

Whether US equities will find their composure or not today might be the most important driver for EUR/USD. But that is all about earnings reports and confidence.

Friday was a risk-off environment linked to US earnings disappointments (partly published in late trading Thursday) dominated trading in all markets and led to extra profit taking in EUR/USD. Traders also were disappointed after the lack of breakthroughs at the EU Summit as an additional trigger, just like another statement of Rajoy that he is in no hurry to ask for a precautionary bailout package.

Bonds did rather well on Friday and changes in the global bond markets were modest too. Pre-weekend profit taking in all markets on the back of substantial moves earlier last week is probably a better explanation.

This morning trading has been light in thin conditions, suggesting indeed that Friday’s moves had no longer lasting meaning.  EUR/USD closed the session at 1.3024, 42 ticks’ loss from Thursday’s 1.3066 close. This morning the EUR/USD is exchanging at 1.3059.

As the week closed the EUR/USD traded sideways until mid-morning European time, apparently untouched by the EU statement that was released overnight. Around mid-morning, the pair started to fall in a move that would only be briefly interrupted in early US trading and at first wasn’t much influenced by equities. In the US session, attention turned to the technology sector with Google, Microsoft and Apple registering sharp losses, due to earnings disappointment and in case of Apple a reassessment of the outlook of its results that will be published on Friday. GE and McDonalds results weren’t liked either. Equities moved much more than other markets on Friday and the ST technical picture is becoming more interesting (support nearing), but also here we consider the moves as profit taking. The risk-on climate doesn’t seem to be in danger for now.

The pair seems to be just bored. There shouldn’t be much activity today and the EUR/USD can be expected to remain in a fairly tight range. The only risk and driving factor might be unexpected press or news from Spain, but none is expected at this writing.

Crude Oil Shows Small Gains, Natural Gas Big Gains

Crude Oil Shows Small Gains, Natural Gas Big Gains
Crude Oil Shows Small Gains, Natural Gas Big Gains

In the Asian session this morning, WTI crude oil gained 0.18% as the global oil demand has grown considerably in the past decade or so, rising from about 76 million barrels per day (mbpd) in 1999 to around 90 mbpd to date as per data from Menafin.

Crude oil futures traded steadily above $92 per barrel in early trades, after pipeline carrying Canadian oil to the United States was shut for 3-days, adding to supply worries heightened by tensions in the oil-producing Gulf region. However, oil prices later declined to close lower, on stronger dollar and demand concerns. Brent crude prices fell for the fourth straight session, dragged down by fresh global economic concerns and expectations a major Canadian crude oil pipeline to the United States would restart on schedule.

Last week’s EIA inventory damped any enthusiasm in WTI due to the strong build in EIA crude oil inventories. The report stated: U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.9 million barrels from the previous week. At 369.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year.

Crude oil futures moved lower, weighed down by broad based weakness in the commodity complex. However, oil prices have managed to sustain above the psychological levels of US$90/bbl. Supply disruption at an oil pipeline, transporting Canadian crude oil to the United States, is providing considerable measure of support to the energy complex. In the latest, TransCanada Corp has stated that the restart of its 590,000 barrel per day Keystone oil pipeline would be delayed until today, a day later than expected.

Last week’s data dump from China also weighed heavily on crude oil, with China’s growth falling to 7.4% tumbling all year. The report came in at expectations, but markets were hoping for a better than expected report. This morning Japan reported a continued widening of their trade balance Japan’s exports fell a bigger‐than‐expected 10.3% in September from a year earlier, with exports to China slumping 14.1% in the year to September.

Tension between Syria and Turkey remain high, but have leveled off over the past few days, while the Israel-Iranian rhetoric quiet and rumors are that the Iranian’s are willing to make concessions over their nuclear development in light of the global embargo, which is hurting the Iranian economy. Oil is expected to remain in the low 90’s or possibility dips into the 89 range unless tensions or news elevate it.

Natural Gas continues to mystify the markets. Natural gas rallied to a 10-month high last week on NYMEX, on speculation that above-normal demand from electricity generators will help reduce a supply surplus. There are no storms or weather phenomenon in the picture or increased heating or cooling demands at present. NG is being supported by positive eco data from the US as traders are beginning to see the recovery moving out of stall mode.

Central Banks Buying Gold To Offset Risk

Central Banks Buying Gold To Offset Risk
Central Banks Buying Gold To Offset Risk
This morning in Asian trading, gold rose 0.37% as the euro gained against the U.S. dollar. Precious metal expected to increase further due to increasing demand from central banks in China, India, US and Europe as they shift reserves from major currencies that have greater risks to more secure assets including gold.

At the end of last week gold futures dropped more than $20 per ounce to tally a 2% w-o-w loss, as disappointment over recent corporate earnings, US economic data and the latest European summit drove gains for the US dollar.  On Friday, US stocks slid the most since June and Treasuries rose as companies from General Electric (GE) Co. to McDonald’s Corp. and Microsoft Corp. posted results below estimates and Eurozone leaders failed to discuss aid for Spain at a summit. On Wall Street, corporate America’s premier corporations earning figures are of particular concern. The beat rate for revenue forecasts is just 41.4%, compared to the long-term average of 62%.

Gold imports by India, the world’s largest buyer, are set to climb for the first time in six quarters as a decline in domestic bullion prices stokes jewelry and investment demand ahead of major festivals.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,334.19 tons, as on Oct. 19. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,888.55 tons, as on Oct, 18.

South African workers officially ended a month long strike at major bullion producer Gold Fields on Friday, but there was still no end in sight for wildcat walkouts that have paralyzed other gold and platinum producers.

Gold prices breached the crucial support level ofUS$1,730/ounce and in the process registered a low of US$1,716/ounce. Similarly, Silver has breached the support levels of US$32.5/ounce and registered the low of US$31.9/ounce.

In US, market focus will be on the upcoming Federal Reserve’s policy meeting this week, and they will give an update the current economic scenario and likely throw light on future growth prospects.

Base metals moved lower, impacted by persistent demand concerns and poor flow of macroeconomic concerns in China. Selling pressure was evident in the non‐ferrous complex, with LME copper prices moving as low as US$7,983/ton.  

This morning a report in Japan showed that exports fell a bigger‐than‐expected 10.3% in September from a year earlier, with exports to China slumping 14.1% in the year to September.

Listen to Earnings Reports before you trade Stocks (C, COF)

Citigroup and Capital One Financial earnings reports had a huge impact in their stock charts this week. Both earnings reports beat the estimates and stock prices advanced considerably. First came the Q3 2012 earnings for Citigroup on Monday morning, announcing $1.06 earnings per share compared to the EPS estimate of $0.96.

Listen to Earnings Reports before you trade Stocks (C, COF)
Listen to Earnings Reports before you trade Stocks (C, COF)

That earnings report resulted to a 5% gain for C stock on Monday, printing a breakout on the daily chart. The resistance level that was penetrated was first indicated on April and was confirmed a week ago. Citigroup’s stock climbed a bit more the following days, before sellers took control of the market on Friday.

Given the trading activity following Citigroup’s earnings report, what should we expect for COF stock next week?

Capital One Financial Corp. earnings report conference call took place after the market’s close on Thursday. COF stock was trading close to the 50-day EMA on that day, patiently waiting for the earnings report to come out. The report actually surprised the stock market, since the announced EPS of $2.01 was way ahead of the average estimate of $1.66! That surprise is easily spotted on the daily stock chart of Capital One Financial.

cof-stock-chart

The COF uptrend was further improved by the earnings report and the stock price printed new highs on Friday’s closing bell. Confident shareholders welcomed the open’s gap up as well!

C stock gained 2 dollars more in the couple of days that followed the earnings report. Will COF stock price follow the same path and shoot for new highs on Monday and Tuesday? Given the already established uptrend, I wouldn’t be surprised if that is the case. I suppose traders who adopt a swing trading strategy are already long COF, while traders who look for breakouts will either buy COF shares on Monday’s open or have already bought COF stock on Friday!

Disclosure: I have no positions in any stocks mentioned.

EUR/USD Tumbles on Lackluster Banking Plan

A couple of events led to the weakness in the EUR/USD today. Firstly, the sell-off in global equity markets triggered by an unexpected bearish report by Google, crushed demand for higher risk assets. This event sent traders running to safety of the U.S. Dollar. 

Secondly, an agreement early Friday by the leaders of the 17 Euro nations to promote a single supervisory body failed to garner investor support. Concerns were raised because once again, officials came back with a vaguely worded proposal. Investors are also questioning the urgency of the European officials now that the Euro has stopped free-falling. With interest rates dropping in Spain and Italy, EU officials seem to have lost interest in fixing things quickly. The charts indicate the EUR/USD may break to 1.2979 to 1.2943. 

The weakness in the global equity markets is also spilling over to the British Pound. The current downswing actually began late Thursday when U.S. equity traders dumped shares following the bearish news regarding Google. This led to a shift in investor sentiment, encouraging investors to move money back into the safety of the U.S. Dollar. 

The GBP/USD is set to finish the week lower after a promising start to the week. Thursday’s reversal to the downside has helped form another lower top at 1.6178, keeping the current down trend intact. Support could come in at 1.6052 to 1.5976, but don’t expect a change in trend to up until the U.S. Dollar takes out key support and investors return to a “risk-on” mode. 

The stronger dollar also pressured December Gold. Since trading to nearly $1800.00 a few weeks ago, gold has felt pressure as some of the uncertainty in the markets has been lifted. Additionally, after the Fed’s new stimulus plan was announced, money seemed to flow into equities instead of into gold. Now that investors are treating gold as an investment rather than a reserve currency, they are not likely to re-enter on the long side until it reaches a value zone. The charts have identified this as $1722.60 to $1704.78. 

December Crude Oil held steady despite the stronger dollar. The way the market has been trading lately, it appears to have reached a balance point. The charts indicate resistance at $94.22 to $95.75 and support at $89.79 to $87.20. Currently, crude oil is trading between both of these zones. Since the main trend is down on both the weekly and daily charts, this could be a distributive formation. With supply high and the economy improving, it could also mean that traders are anticipating greater demand. 

Simple Swing Trading Strategies for Stock Trading

What is a swing trading strategy? Swing trading strategies are usually short-term trading strategies that focus on swings of stock prices. When stocks are trending either upwards or downwards, they rarely go up or down in a straight line. Most often than not trending stock prices retrace and print pullbacks on charts, increasing the chance of a new swing towards the established trend.

Simple Swing Trading Strategies for Stock Trading
Simple Swing Trading Strategies for Stock Trading

Take a look at the PepsiCo stock chart. During the 2012 uptrend of PEP stock price, traders could take advantage of at least 4 swings that occurred when the price retraced to the 50-day EMA (exponential moving average) level. As long as the stock price continued advancing, swing traders needed to wait for a pullback to buy PEP shares, in order to avoid buying at high prices. Buying high and selling low isn’t exactly the best trading system! Swing trading stocks allows traders to take advantage of an established trend by entering at much more reasonable prices. Swing trading is also effective when short-selling stocks in downtrends.

rimm-stock-swing-trading-downtrend

The 2012 decline of RIMM stock price is a perfect example of swing trading a stock that is printing new lows almost every month!

Yet, swing trading strategies also apply to consolidating markets, or in other words when stock prices move horizontally. I recently showed how to profitably swing trade the X stock, while the price was trading inside a well-defined sideways range.

x-stock-swing-trading

Perhaps traders would have missed the first indicated swing but not the following two.

Now, pointing out the swings when we already know what happened is easy obviously. The real question is how to pinpoint the entry points before the swing takes place. For successful swing trading stocks traders need to know the basics of support and resistance, how to manage their risk with stop loss and trailing stop orders and wait for confirmation usually by candlestick patterns.

Global Financial Highlights

Global Financial Highlights
Global Financial Highlights

Australia’s dollar headed for its biggest weekly gain in more than a month as signs of improvement in the global economy supported demand for riskier investments. Yesterday China’s data met and some exceeded expectations, while GDP fell to 7.4% which was disappointed but expected.

Consumer confidence rose to a six- month high and an index of US leading indicators climbed as a nascent housing recovery started to ripple through the world’s largest economy. The Bloomberg Consumer Comfort Index rose to minus 34.8 in the week ended Oct. 14, the highest level since April, from minus 38.5 the previous week.

US stocks fell for the first time in four days after Google Inc. reported lower-than-estimated earnings. The yen weakened, while Spain’s bonds rose as the nation raised more than planned at a debt sale. The overall view in the US is that the economy is back on a recovery road, as we have had a week of solid eco data, except for a mixed, confusing unemployment report, that might involve some statistical errors. The Philly Fed Index surprised markets coming in well above forecast.

European leaders committed to their goal of establishing a euro-area bank supervisor by year-end, opening the prospect of direct aid to Spain’s banking sector. The EU will seek to agree on a framework that makes the European Central Bank the main supervisor by Jan. 1. The marquee event today will be the press release from the EU Summit due early this afternoon. Traders are worried that Spain will not ask for a bailout, leaving markets hanging. Greece has been given a two year extension on austerity measures while their creditors review this budgets and plans. Yesterday violent riots broke out in Athens over the austerity measures and many people think that additional time will not help Greece and that more drastic economic might need to be implemented.

UK retail sales rose more than economists forecast in September on increased demand for winter clothing and school uniforms. The UK’s FTSE 100 Index climbed for a fourth day, reaching a seven-month high, as European Union leaders gathered in Brussels to tackle the region’s debt crisis.

China’s stocks swung between gains and losses as overseas investment dropped and a Chinese central bank adviser said the government won’t provide big stimulus after data yesterday signaled the economy may be picking up.

FDI in China fell for the 10th time in 11 months, as companies reined in spending amid a slowdown in the world’s second biggest economy.

 Japanese shares swung between gains and losses as exporters rose on the Yen’s seven-day advance against the dollar. Traders are now expecting the Bank of Japan to offer additional stimulus on their October 30th meeting.

The EU Summit Could Shake Up Oil Futures

The EU Summit Could Shake Up Oil Futures
The EU Summit Could Shake Up Oil Futures
This morning in the Asian session crude oil prices are trading almost flat at $92.10/bbl. Today is one of the crucial days for the Global markets as the final speech and press release is expected from the EU summit. Germany and France, the two major nations are butting heads over the formation of banking union or fiscal union. Likewise, Spain may refrain from asking for a bailout which may keep the shared currency under pressure to weigh on oil prices. If Spain does not make a request, there will be a lot of violence in the markets. Another important reason is that investors might be in a fear of repeating last 25 years of history of market crashes.  If the dollar gains on the euro, on negative responses from the Summit, we might see this weigh on oil and overall commodity prices today

A slowdown in China’s Foreign Direct Investment has also weighed on the regional equity market. Oil prices might be taking negative cues out of the above factors. During European session, we may see a highly volatile market ahead of EU summit result. However, the shutdown of Keystone Pipeline for coming three days may create supply shortage in US, although with the unexpected high inventory this week, this should not be an issue. Although it may support prices to hold a positive bias with limited gains in International market.

Tensions in the Middle East are still on high, but rhetoric and attacks have subsided somewhat. The EU Summit might be making some comments or adding to the embargo against Iran, which could spark harsh words and threats from Iran. Although, thing will Iran seem to be succeeding at the bargaining table as of late.

Natural gas prices are trading almost flat at $3.6/MMBTU after rising yesterday Nymex natural gas prices increased around 2.9 percent yesterday on the back of forecast for more cold weather in the next month which will increase the demand for the fuel. On one side threat of supply disturbances is supporting gas to take positive cues on the other side; it is concern of above normal weather condition which is limiting gains. As per US Energy department, storage level injection has been increased by 51 BCF, which is lower than prior week injection. This, may support prices for a while whereas Slow down in world economic situation and US energy independence plan might be weighing on gas prices. Though pull back is expected in the US session due to expectation of higher industrial production in the last month.

Spain Weighs on Gold and the Euro

Spain Weighs on Gold and the Euro
Spain Weighs on Gold and the Euro

Gold prices tumbled 0.5 percent on the back of weak global sentiments taking cues from unfavorable jobs data of US economy. Further, strength in the Dollar Index also exerted downside pressure on the gold prices.  Further, reports that the Chinese government might not provide big stimulus after observing positive industrial production and retail sales data from the nation weighed on the gold prices. 

Gold futures fell due to weakness in stock markets and uncertainty over the commitment of Germany and France to battle the eurozone debt crisis prompted the bullion market to consolidate gains after its recent rally.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,333.89 tons, as on Oct. 15. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,888.55 tons, as on Oct, 18. The dollar index, which measures the US unit against a basket of six major currencies, rose to 79.356 from 79.022 in North American trade late Wednesday.

European leaders early on Friday, agreed to have a new supervisor for eurozone banks up and running next year, a step that will pave the way for the bloc’s bailout fund to pump capital directly into banks throughout the single currency area. As the EU Summit draws to an end, closing speeches and statements are due sometime today. Traders are expecting announcements on Spain, Greece, Iran and Cyprus. It is beginning to look like Spain will not request a bailout at this time, which will affect the euro and gold prices today.

The euro is also staying at a weak province as ratio of the Spanish bad loans increased for 17th consecutive month to a record 10.5% of total lending. Asian equities are trading mostly at a feeble note after Chinese data dashed hopes for further easing. Going ahead, gold seems to stay weak as the EU summit is underway. Although Greece was approved for a two years of timeline to meet the austerity need for their international aid, lenders will still be reviewing the country’s situation. But with unemployment staying at the highest we don’t think buying time would be helping Greece to come out from the problem amid continued strike by the workers. Overall, the euro seems to remain under pressure and hence gold too. Reports today might show the US existing home sales are falling. As the mortgage applications fell and new home sales improved along with housing starts, home buyers may not be eyeing for an old house. German PPI may also retreat a bit.

Although with the above said, it will be the news and statements from the EU Summit that will be the prime market making factor today, than followed by US data. If housing is positive, we might see some big action.

Gold Pressured Ahead of Euro Zone Policy Meeting

December Gold traded weaker on Thursday ahead of a meeting of Euro Zone policymakers. A clash between Germany and France over the power of the European Union to control national budgets and the creation of a single banking supervisor was the catalyst behind the drop in gold prices. Germany is against giving the European Central Bank new supervision powers. The Euro weakened on the news, driving up the U.S. Dollar and curtailing demand for higher risk assets.

Since nearing the psychological $1800.00 level several weeks ago, the momentum was sucked out of the gold market, leading to a sideways-to-lower trade. Investors seem to be mixed as to whether to trade gold as an investment or as a reserve currency. As a reserve currency, gold is likely to be influenced by the movement of the dollar. As an investment, investors will be looking for value. This likely means that investors will refrain from chasing the market higher while looking for value on breaks.

The EUR/USD and GBP/USD were also under pressure after economic reports caused investors to question the strength of the U.S. recovery. Investors were disappointed by the report on weekly jobless claims. This report offset less-than-stellar reports on Philadelphia manufacturing activity and leading economic indicators. U.S. weekly jobless claims were higher than expected, while the Philadelphia Federal Reserve’s index on regional manufacturing conditions indicated sporadic weakness.

Demand for higher yielding assets began to fall overnight after reports showed that China’s economy cooled in the third quarter. The report revealed that China experienced its slowest pace of growth since the first quarter of 2009.

It was generally a risk-off session as many Forex traders decided to pare positions ahead of the Euro Zone policymakers meetings. Investors aren’t expecting any may developments from the summit. Talk is circulating that Spain may wait until next month before making a formal request for financial aid. In addition, the policymakers are not expected to decide on whether Greece gets a fresh round of aid. Because of this uncertainty, the EUR/USD could become range bound, similar to what it just experienced. However, it could take a hard hit, if headlines suggest that the deals with Spain and Greece will be stalled further.

Supply issues continue to pressure December Crude Oil. Traders are questioning the strength of the U.S. economic recovery since it hasn’t translated into greater demand for crude oil. A stronger dollar is also making crude oil more expensive, leading to speculation that demand will remain low. This is likely to mean that supply will hold steady or rise. 

Fx Markets Overshadowed by EU Summit

Fx Markets Overshadowed by EU Summit
Fx Markets Overshadowed by EU Summit
Yesterday, investors didn’t know which card to play in EUR/GBP trading. In line with EUR/USD, the pair reached a correction top at 0.8138 after the Moody’s decision to keep Spain in the investment grade category. However, there were no follow through gains in Europe. EUR/GBP hovered in a tight range mostly just north of the previous 0.8100/15 resistance. The UK labor market data were better than expected. UK unemployment fell from 8.1% to 7.8% unexpectedly and claimant count tumbled.

At the same time, the minutes of the previous BoE meeting left all options open for the November meeting. The report openly mentioned differences in views between members on the outlook and the likelihood that further easing in policy would be required. The report also repeated recent quotes from BoE’s King that there were limits to what monetary policy could be expected to achieve. Markets had apparently hoped for a less neutral/more pro-easing tone from the MPC. EUR/GBP lost 15/20 ticks after the release of the minutes. However, this road was also blocked and EUR/GBP kept a perfect sideways trading pattern further out in the session. EUR/GBP closed the session at 0.8124.

Later today, markets will look out for the UK retail sales. Economists expect a rebound after the decline in August. After the yesterday’s ‘neutral’ tone in the Minutes of the October meeting, there might be some market nervousness in case of a strong report. We still assume that the BoE will raise the amount of asset purchases in November, but some uncertainty might creep into the market in case of more good eco data. This might support sterling, in the first place against the dollar, but also gains the euro.

As is the case for EUR/USD, high profile news from the EU summit remains a wildcard for EUR/GBP trading. A new rally developed, but until Tuesday it failed to take out the 0.8114 top. This happened after the Moody’s decision to keep Spain in the investment grade category. The 0.8169 range is now coming in the picture. The MT picture in this cross rate remains constructive. That said, the pair had a good run of late and is moving into overbought territory.

Remember prior EU Summits and the amount of newsflow and rumors. Many of these Ministers like to see their names in print and want to push their own agendas, so the comments and interviews may not always be the same as the reality or the outcome of the Summit. Sit tight it should be a bumpy ride over the next 48 hours.

Crude Oil Hit by Revisions, Forecasts and Downgrades

Crude Oil hit by revisions, forecasts and downgrades
Crude Oil hit by revisions, forecasts and downgrades

Yesterday, the EIA weekly inventory report, showed a gain of 2.9m barrels of crude oil, against a forecasted increase of 1.5m barrels. This is weighing heavily on crude oil. Crude was supported by positive data from the US, which is helping to validate the theory that the US economy is out of stall mode and once again on the mend. This morning China released its much anticipated GDP numbers, printing at 7.4% growth, as markets expected, but it is still a dismal report. Although, retail sales, industrial product and fixed investment reported well above forecasts, giving a glimmer of hope to markets.

Crude U.S. crude oil futures tumbled into negative territory after the weekly oil inventory report showed a bigger-than-expected build in oil stocks. Prior to the report’s release, U.S. crude oil had been trading in positive territory on better sentiment about the euro zone following a move by Moody’s to reaffirm Spain’s credit rating.

China is the second largest consumer of energy products and the falling GDP will continue to weigh on crude prices, as lower growth, leads to lower demand. A decline in prices is limited by the positive data from the US the world’s largest consumer of energy.

The International Energy Agency (IEA) reduced it oil demand growth forecast for the current year yet again today amid weak economic scenario around the world. In its monthly oil market report the IEA revised its expectations of global oil demand growth to 700,000 barrels a day this year. However, the agency kept its 2013 demand growth forecast unchanged at 800,000 barrels a day. The sluggish oil demand was met last month by a decline in supply from the Organization of Petroleum Exporting Countries, which fell to an eight-month low in September, the IEA said. Lower output from Nigeria, Angola and Saudi Arabia failed to offset increased supply from Iraq and Libya, though OPEC’s production continued to outpace demand for its oil, according to the IEA. Iranian production also continued to decline last month, as the impact of strict Western sanctions intended to deter the country from pursuing its nuclear program was felt.

This morning, oil futures prices are trading almost flat at $92.15/bbl. Goldman Sachs has cut down the Brent price forecast from $130 to $110 yesterday, which might be weighing on oil prices along with higher domestic crude oil production.

Most importantly, the global finance market is waiting for the EU summit starting on today, where the anticipation of Spain may ask for bailout in today’s meet which may keep the shared currency on higher side. Today’s trading focus will be on the EU Summit.

Gold Faces A Chaotic Day

Gold Faces A Chaotic Day
Gold Faces A Chaotic Day

Asian markets are trading on firm note as Chinese GDP growth was in line with economist estimates and industrial production also remained on a positive note along with favorable data from the US economy.  

US Building Permits increased by 0.89 million in September as against a previous rise of 0.80 million in August. Housing Starts rose by 0.87 million in September from earlier rise of 0.76 million in August.

China’s Gross Domestic Product (GDP) grew at slow pace of 7.4 percent in Q3 of 2012 as against a rise of 7.6 percent in Q2 of 2012. Fixed Asset Investment increased by 20.5 percent in September from previous rise of 20.2 percent in August. Industrial Production increased by 9.2 percent in September as compared to earlier rise of 8.9 percent in August. Retail Sales also grew by 14.2 percent in September with respect to rise of 13.2 percent a month ago.

The US Dollar Index continued to show weakness and ended 0.5 percent on the back of rise in the risk appetite amongst the market participants as favorable home sales data indicating that the economy is on the path of recovery. This led to decline in the demand for the low yielding currency.

This morning, gold moved up continuing its two days rally. Positive data from China and positive news on US housing number has supported the gold prices.

Yesterday, gold inched up, rising for a second day with the support of a stronger euro as concerns about the bloc’s debt crisis eased after Moody’s affirmed Spain’s rating and German business sentiment improved. The euro hit a one-month high and the dollar index dropped to its lowest in nearly two weeks, reflecting a pick-up in risk appetite after Moody’s Investors Service affirmed Spain’s investment grade. In the United States, the latest data showed the world’s largest economy still faces challenges, suggesting to investors that economic growth was not strong enough for the Federal Reserve to curtail its stimulus measures.

Today should be very chaotic day for gold. On one side, the optimism has hold the euro’s gain and gold too recovered from the September 13 low, while on the other hand the European government is seems to be confused on how to deal with Spain, Greece and the economy so we have to wait for the actual outcome while we cannot absolutely rule out the possibility of Spain not asking for the bailout. Greece has faced a growing revolt among the coalition partners against an additional 13.5billion euros austerity, a prerequisite for the international bailout. They are already in need of two years of timeline to implement the austerity. However, buying time may not be supportive for the shared currency.

Furthermore, the fact that the gold physical market in Asia has improved markedly from three weeks ago provides us with some comfort that there could be better support for gold going forward. That said, we still don’t expect the physical market to chase the price higher. The buying interest is still weak for this time of the year. the Gold Physical Flow index indicates that the physical market buying strength is still well below levels  seen last year October.

Eco reports today are also likely to show improvement in the Philadelphia Fed manufacturing while leading indicators may also show good picture for the near future. Although the Empire Index disappointed traders last week. Not to be overlooked today will be press conferences, news releases and interviews from the EU Summit, as the EU Ministers love to see their names in print. This alone might cause chaos in the markets.

Swing Trading Day 11b: 5 new Stock Picks

The 5 new stocks I added in my swing trading portfolio are DRYS, ACAD, STI, UAL and VVUS. I went long the first 4 stocks while VVUS was the only stock I could pick for short selling in a day that I lost count of uptrend breakouts! Maybe the next stock trading strategy I’m going to test would involve this kind of breakouts!

DRYS stock price is trading inside a slightly upward channel. Well defined support and resistance levels offer good entry points and I decided to buy DRYS stock instead of waiting to short-sell at the resistance level, due to the slightly upward slope.

Swing Trading Day 11b: 5 new Stock Picks
Swing Trading Day 11b: 5 new Stock Picks

ACAD stock on the other hand is clearly in an uptrend. The support level at $2.30 was confirmed twice and the new 5-day high that is printed today forced me to buy 300 ACAD shares, setting the stop loss right below the support level and the profit target at the resistance level for a possible 2-to-1 reward-risk trade.

buy-acad-stock-chart

Trading STI stock’s uptrend seems riskier. I use a much tighter stop loss and target a bigger than normal reward. Considerable resistance was met at $31 and I’ll need to monitor closely this one.

buy-sti-stock-chart

Deciding on buying UAL stock wasn’t that difficult, given the smooth 3-month uptrend that printed consecutive 60-70% pullbacks and new highs. Would the trend continue until UAL stock price returns to $25? I myself would be quite satisfied if the stock makes it at least to $21.5 once again for a 2-to-1 RR trade.

buy-ual-stock-chart

There is great potential for VVUS sellers. The gap down that took place in September and led to new lows, was filled in October and the downtrend’s resume looks promising. This short trade would be one of my biggest winners, if VVUS stock price plummets to $17.5 where I plan to trade out and make money in stock trading predicting downtrends.

short-selling-vvus-stock-chart

Increased Inventories Continue to Weigh on Crude Oil Prices

Despite the weaker U.S. Dollar, December Crude Oil futures could not muster much of a rally early in the session. The market is currently trading below $92 a barrel, down about 85 cents from its high. Sellers took control after the U.S. reported a bigger-than-expected rise in last week’s crude oil inventories and an unexpected climb in gasoline supplies. The loss would probably be much bigger if it weren’t for the dollar’s decline.

Pre-report estimates were calling for an increase of 1.5 million barrels in crude supplies, but the U.S. Energy Information Administration reported that crude supplies rose by 2.9 million barrels, encouraging investors to pare positions.  

Longer-term investors are getting mixed signals from the rise in crude oil inventories. While other economic reports such as housing are suggesting that the U.S. is mounting a slow recovery, the rise in crude oil inventories suggest otherwise. The timing as to when the excessive supply will top is the major concern. This is likely to keep prices capped, but increased demand for higher-risk assets will also keep it underpinned. The push and pull of these two factors is creating a sideways trade.

The EUR/USD continues to trade higher after Tuesday’s upside breakout. The news that Moody’s affirmed Spain’s credit rating at Baa3, kept it in investment grade territory, but the agency also gave it a negative outlook. Traders drove the Euro higher based on the first part of the announcement, choosing to ignore the possibility of a downgrade later if conditions continue to deteriorate. Upside momentum suggests that the Forex pair will challenge the September top at 1.3172 by the end of the week.

After turning up this week because of technically oversold conditions, the GBP/USD is trading higher after data showed that the unemployment rate in the U.K. declined unexpectedly. Additionally, the news that the Bank of England monetary policymakers were unanimous in deciding to maintain quantitative easing and low interest rates, also underpinned the Sterling.

The drop in unemployment could mean that the BoE will once again refrain from adding additional stimulus, a move that tends to weaken a currency. It may not mean that employment is ready to trend higher, but it may be an indication that quantitative easing is working to grow the economy.

December Gold is trading firmer because of the weaker dollar. Now that the uncertainty over Spain has been lifted, traders are treating gold as a commodity rather than a reserve currency. This will make it more sensitive to moves in the U.S. Dollar. 

Moody’s Wakes Up the EUR/USD

Looking forward to today’s trading; the calendar in Europe and in the US is thin. But the excitement is mounting with the EU Summit just a day away, news flow should keep markets hoping. The US housing starts and building permits are expected to confirm the recent improvement in the sector. These data should only be of intraday importance for EUR/USD trading. The focus will still be on Spain and, to a lesser extent on the earnings season. The recent news flow on Spain will fuel speculation that the country will ask for a precautionary credit line in a not that distant future, opening the door for the ECB to start buying bonds under its Outright Monetary Transaction program. There are still some obstacles, but Greece is coming closer to an agreement with its creditors, too. The euro and equities had already a good run of late and are close to important resistance levels. That said, we have the impression that that downside in EUR/USD is still rather well protected as the news flow from Europe remains constructive.

In the run-up to the earnings season, investors were quite nervous on the Q3 earnings and on companies’ the outlook for end 2012 and early 2013. After the first batch of Q3 earnings, we have the impression that market sentiment has improved a bit with respect to the outlook. For now, the market reaction to the earnings is not as hesitant as one might have feared at the end of last week. All this suggests that the euro positive momentum can stay in place. So, the focus will turn to the 1.3172 September top. It probably takes some more high profile news ( on Greece or Spain) for this level to be broken.

This was not the end of yesterday’s story. In the thin hours after the close in the US, Moody’s affirmed the Baa3 rating of Spain with a negative outlook. This action removes market fears that the Spanish credit rating might be downgraded to the non-investment grade status in the near future. EUR/USD jumped beyond the 1.3072 previous top and filled offers above 1.3120 overnight. For an in-depth analysis of the Moody’s rating action see our fixed income part of the report. The Moody’s action at least suggests that the steps that were taken by the EMU to address the crisis might improve the situation for the countries like Spain. Moody’s still assumes that Spain will ask for a precautionary credit line.

This morning, Asian markets are not overly enthusiastic on the rating action of Moody’s on Spain. Especially Chinese market underperforms the rest of the region. The cautious reaction in Asia is also capping the EUR/USD rally, at least for now.