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September 2015 Archives

September 1, 2015

Disappointing Chinese PMI Stops Gold Slide

Tuesday, September 1, 2015

Gold futures are higher this morning after further data indicated that China's economy is slowing more than previously thought . The renewed fears that the world's second largest economy may continue to suffer through a slow growth cycle has brought back the Gold bugs. Traders will have plenty of US job data to mull over this week, which may give traders a better idea whether or not the FOMC will decide to raise interest rates later this month. Strong US data could take the wind out of the sails of Gold bulls, as it would favor higher interest rates.

Fundamentals

Chinese PMI came in at 47.30 Index Points in August. This was slightly better than the preliminary estimate of 47.10, but it was worse than the July figure of 47.80. The large drop from June to July was unsettling for investors, who were already nervous over Chinese growth. With the exception of February, Chinese PMI has been below 50.00 for 2015. The Index has been sub-50 during 9 out of the past 10 months. The spread between Gold and Silver may widen further, as Silver could see significantly lower industrial demand whereas Gold is more of a pure currency and defensive play. Barring a panic, slumping Silver prices could drag down the Gold market. Physical buying of Gold had picked up last week, due to the bloodbath in the equity markets. However, physical demand remains fairly lackluster at the moment, overall, and future demand prospects are not that appealing. The precious market has seen outside support from the Crude Oil market, which has seen a 27% rise in only 3 trading sessions.

Technical Notes

Turning to the chart, we see the December Gold contract rebounding from support near the 1115 level. Prices have held above the 20-day moving average, suggesting a near-term low may be in place. Prices have also held above the 50-day moving average, which can be seen as bullish.

Rob Kurzatkowski, Senior Commodity Analyst

September 2, 2015

Sugar Stocks Surplus Sinks Sweetener

Wednesday, September 2, 2015

Despite prices at multi-year lows, both large and small speculators continue to add to their net-short positions. According to the most recent Commitment of Traders report, non-commercial traders added an additional 2,763 new net-short positions during the reporting period ending August 25. This brings the large speculative net-short position to 15,547 contracts. Non-reportable traders added 26 contracts to their overall net-short position, bringing their position to a net-short 1,363 contracts. Commercial traders are on the other side of the trade adding 2,790 new net-long positions to increase their overall net-long position to 16,911 contracts.

Fundamentals

Bearish traders remain in firm control of the Sugar futures market this year as not even the prospects for a production deficit in the 2015-16 season is expected to shake the market out of its multi-year price slump. The International Sugar Organization (ISO) is expecting Sugar demand to exceed production this season by nearly 2.5 million metric tons, with production falling just over 1% from last year. While normally a production deficit would be considered a bullish factor for prices, the bearish overhand of global Sugar stocks totaling nearly 25 million metric tons, would more than make up for the production shortfall. In addition, the continued weakness in emerging market currencies, particularly the Brazilian real, should entice producers to continue to supply the market with Sugar even at current price levels as they will receive larger amounts of their own currency once conversion takes place from their sales in dollars and euros. For the 2016-17 season, the prospects are a bit brighter with the potential for a strong El Nino adding a potential risk factor for commodities production, as well as the increased demand for Ethanol in Brazil, with higher biofuel blending mandates making it more profitable for many Cane producers to use its production for fuel rather than for food.

Technical Notes

Looking at the daily chart for March Sugar, we notice the market attempting to form a base just above 11.50. Last Monday's "spike" lower was more of an anomaly due to the steep sell-off seen in the equity markets that morning. Prices are holding near the 20-day moving average and the 14-day RSI has recovered somewhat from oversold levels, with a current reading of 41.44. 12.08 looks to be the next resistance level for the March futures with support found at 11.28.

Mike Zarembski, Senior Commodity Analyst


September 3, 2015

The Roller Coaster Ride Continues

Thursday, September 3, 2015

Stock indices snapped back yesterday, recovering some of the losses from Tuesday's trading sessions on positive job data from ADP. Chinese markets will be closed on Thursday and Friday to commemorate the 70th anniversary of the end of World War II. This does not necessarily mean that sanity will return to the equity market, due to the ECB meeting today and non-farm payroll data on Friday. The August non-farm payroll report may be especially important in light of the fact that it is the last NFP before the September FOMC rate meeting. There is much speculation that the central bank will raise interest rates if the labor market continues to show improvements.

Fundamentals

While equities will get a break from fresh economic news out of China for the remainder of the week, the negative pressure from the world's second largest economy is likely far from over. Chinese manufacturing is below 50 on the PMI in July, meaning it is now in the contraction zone. The government put a restriction on construction and production in the lead up to the WWII anniversary commemoration, meaning August and September could be sluggish as well. The 13 percent drop in Chinese exports could lead to another Yuan devaluation. For the next two sessions, however, traders have time to refocus their attention on the ECB and US economic data. The ECB decided to keep interest rates steady and the policy statement from Mario Draghi paved the way for potentially more quantitative easing. ADP reported the US economy added 190,000 jobs in August, suggesting the job market is heating up. It will be interesting to see if tomorrow's non-farm payroll data will line up with ADP and show solid growth.

Technicals

Turning to the chart, we see the Sep e-mini S&P contract bouncing back after trading down to the mid 1800's last week. Prices have been reluctant to test the 2000 level, instead flirting with the 1980's before falling back. If prices are able to break through 1980 and 2000, the market could see more sustained momentum.

Rob Kurzatkowski, Senior Commodity Analyst


September 4, 2015

Are the Dog Days of the Dow Done?

Friday, September 4, 2015

This morning's release of the non-farm payrolls and unemployment rate might be the most highly anticipated economic report in years. It's often been pointed out that the US Stock Market isn't the same as the economy. The recent wild ride in equities and commodities will certainly be considered as the Federal Reserve meets on September 16th and 17th, but they will also peruse the most recent economic data when deciding if they will finally raise US interest rates from the 0% where they have been stuck at since December of 2008.

Fundamentals

August is a tricky month to measure unemployment and new jobs created. Vacations can cause the initial number to require a substantial revision. The initial report for August of 2014 was 142,000 jobs created which was subsequently revised upward to show a far more robust 213,000 jobs created. The unemployment rate will also be of interest. 5.2% is expected, which is inching closer the 5% rate which many economists consider to be the natural rate of unemployment. Dropping below 5%, such as in the late 1990's, would tend to put pressure on wages, potentially leading to wage push inflation. Other recent economic reports the Fed may consider are the lower July trade deficit, which showed a rise in exports, as well as the ISM services index for August which came in at a strong 59%.

Technical Notes

Turning to the three month continuation chart, we see a bearish chart with some indications of a potential reversal. The Mini Dow has bounced off recent lows and the 20 day Simple Moving Average (SMA) will be a nice resistance test. The Mini Dow found support near the 15662 level, which was tested several times, but held. 14 day Relative Strength Index is at a mildly bearish 37.35. The recent volatility of the past couple of weeks has caused the divergence between the 20 day SMA and 50 day SMA to widen, with the 20 day SMA showing a steeper downward slope.

Dale Jennings, Commodity Analyst


September 8, 2015

Gold Starts Week on Sour Note

Tuesday, September 8, 2015

Gold futures got off to a slow start to the week amid the global rally in equity markets, lessening the defensive demand for the metal. Gold futures have been a bit weak after spiking 2 weeks ago during the sharp global sell-off in equities. The metal has plenty of fundamental question marks, suggesting trading could be driven by emotion and the precious metal market could be rather reactive to news. Economic news has been extremely choppy the past several weeks, which has contributed to price volatility.

Fundamentals

Friday's non-farm payroll report failed to provide much clarity on whether or not the Federal Reserve will raise interest rates later this month. The report gave further evidence that the US economy continues to add jobs, but the figure itself disappointed some traders. An exceptionally strong report would have made the rate hike all but a slam dunk, but Friday's data was encouraging rather than outstanding. China reported its trade balance last night, which showed the gap between exports and imports widening to $60.24 billion in August, up from $43.03 billion in July. While this may have irked some traders due to the volatility, the trade balance far exceeded expectations of $48.20 billion. At the very least, the huge jump in the trade surplus could give currency traders a bit of a reprieve, as it would make it highly unlikely the People's Bank of China will devalue the Yuan again in the near-term. This may bolster the US Dollar and, in turn, could have a negative impact on Gold prices. There are still plenty of economic questions facing large economies around the globe, but there may be a lessened sense of panic among traders. Slow growth and possibly higher interest rates in the US do not bode well for Gold as an inflation hedge.

Technical Notes

Turning to the chart, we see the December Gold contract failing to garner any sort of upward momentum. Prices stalled near the 1175.00 level before falling back. Prices may need to break through this level in order to gain some upward momentum. On the downside, prices could be vulnerable if the December contract is unable to hold the 1080.00 level.

Rob Kurzatkowski, Senior Commodity Analyst


September 9, 2015

Soybean Bulls Fear Reduced Chinese Imports

Wednesday, September 9, 2015

While large speculative accounts remain overall net-long the Soybean complex, we have seen as sharp drop to the long position of late. The most recent Commitment of Traders report shows non-commercial traders shed over 14,500 net-long Soybean positions during the reporting period ending September 1. This reduced the overall net-long position to 9,746. Both Soybean Meal and Soybean Oil also saw a large reduction in large speculative long positions, with a decline of 10,756 and 3,835 contracts respectively.

Fundamentals

Soybean prices have been in a slump since July as overall weakness in commodity prices combined with estimates for a better than anticipated U.S. harvest have seen the new-crop November contract shed nearly $2 per bushel from the summer highs. Now, it appears that weakness in Chinese economic growth will spill over into U.S. grain exports to the world's most populous nation. The USDA is estimating China's 2014-15 Soybean imports at 76 million metric tons. This is nearly 1 million metric tons below earlier estimates as economists believe that a fair portion of Chinese soybean imports are being used to add to government controlled stockpiles as opposed to meeting actual end-users demand. While the USDA still expects Chinese Soybean imports to rise to 78 million metric tons for the 2015-16 marketing year this is still below earlier estimates. While estimates for Chinese demand are still in flux, grain traders will be awaiting the USDA forecast for U.S. production on Friday with the release of the September Crop Production and supply/demand report. Private forecasters are still reeling from the USDA crop estimate in August in which government statisticians forecasted average Soybean yields at 46.9 bushels per acre and a crop of 3.961 billion bushels. This estimate ran contrary to pre-report estimates for production to total near 3.775 billion bushels with an average yield closer to 45 bushels per acre. While market opinion is generally in agreement that the USDA was too "optimistic" in its crop production and yield estimates, historically we do not see large revisions in the September report as the USDA prefers to wait until actual harvest totals start to be reported before making significant updates to its estimates. So it may not be until October 9 with the release of the October crop report before traders get a better feel for how this season's Soybean crop fared.

Technical Notes

Looking at the daily chart for November Soybeans we notice prices starting to consolidate near the 875.00 level following the steep sell-off that started in mid-July. However, the market remains well below both the 20 and 200-day moving averages and momentum, as measured by the 14-day RSI, is reading a relatively weak 40.80 as of this writing. We do note that trading volume has become light the past two weeks as it appears that traders are lightening up on positions ahead of the upcoming USDA report on Friday. Support is found at the "spike" low of 855.00 made back on August 24. Resistance is seen at the recent high of 888.50 which occurred on August 31.

Mike Zarembski, Senior Commodity Analyst


September 10, 2015

EIA Data Looms

Thursday, September 10, 2015

Crude Oil are lower ahead of today's EIA inventory report, dragged down by selling pressure in European equity prices. The Energy Information Administration lowered its price forecast for the remainder of 2015 and 2016, adding to the already bearish tone in early trading. The currency markets were spooked by China's recent devaluation of the Yuan and there is a certain uneasiness among currency traders, who believe other exporters may move to devalue their own currencies to stimulate activity. This has given the greenback a bit of cushion and may, in turn, lessen the demand for commodities. The currency markets have also been especially skittish of late due to the wild swings in equity prices and next week's FOMC meeting.

Fundamentals

The EIA reports its inventory data today due to the Labor Day holiday. Traders are expecting a Crude Oil build of 300,000 barrels for last week, while Gasoline and Heating Oil are forecast to be unchanged and rise 700,000 barrels, respectively. In its monthly report, the EIA had forecast WTI Crude Oil prices to average $49.23 this year, down from its earlier estimate of $49.62. In 2016, the administration lowered its forecast to $53.57 versus its prior expectation of $54.42. The EIA expects US Crude Oil production of 9.22 million barrels a day, down from the prior estimate of 9.36 million barrels. Production in 2016 is expected to fall to 8.82 million barrels a day. The disconnect between production and price estimates suggests that the EIA expects demand to remain weak well into next year. August OPEC production may have actually fallen slightly lower to 31.26 million barrels a day, according to a Platts survey. While the figure is lower than July, OPEC production would still be above the Oil cartel's target ceiling of 30 million barrels a day.

Technical Notes

Turning to the chart, we see the October Crude Oil contract trading lower and choppy after 3 sharp up days to end the month of August. Prices broke through but failed to hold above near-term resistance near the 48.25 level. The October contract was also unable to break through the 50-day moving average. Prices have flirted with the 20-day moving average in overnight trading. A close below the average may suggest that a near-term high may be in place.

Rob Kurzatkowski, Senior Commodity Analyst

September 11, 2015

Corn Prices Trade Off Recent Lows Ahead of USDA Report

Friday, September 11, 2015

Here are the average estimates for this morning's USDA crop report:

Corn production: 13.5 billion bushels-Aug est. 13,686 billion bushels

Corn average yields: 166.6 bushels per acre-Aug est. 168.8 bushels per acre

Soybean production: 3.83 billion bushels-Aug est. 3.916 billion bushels

Soybean average yields: 46.0 bushels per acre-Aug est. 46.9 bushels per acre

Fundamentals

Grain bulls may turn to the Corn market as their best hope for a rally this year as private forecasters continue to expect the USDA to lower its Corn production estimates as the harvest begins. In particular, analysts note concerns about the yield potentials in the eastern Corn Belt, where a cool and wet spring may have damaged the emerging crop. Globally, Corn bulls note that it appears South American producers will curtail Corn acreage in favor of Soybeans in the upcoming crop year which could help to limit Corn export competition in 2016. The weekly Crop progress report was released one day later than usual this week due to the Labor Day holiday, but crop conditions remained unchanged for the week with the Corn crop rated 68% good to excellent and the Soybean crop at 63% good to excellent. As I mentioned earlier this week in my Xpresso article on Soybeans, the USDA has historically only made minimal changes to its estimates in the September report, preferring to wait on actual harvest data to refine their numbers. So any major changes either higher or lower may catch market participants by surprise.

Technical Notes

Looking at the daily chart for new-crop December Corn futures, we notice prices once again holding in the support zone (highlighted in blue) between 360.00 and 370.00. The recent rally which has taken prices from 360.00 to nearly 375.00 has occurred on lower than average trading volume and appears to be the result of short-covering buying ahead of the USDA report. Prices are testing the 20-day moving average which has held as resistance for the past several sessions. The 14-day RSI has moved from near-oversold levels to a more neutral reading of 45.76. The next chart resistance level is seen at the August 25 high of 386.75, with chart support found at the august 12 "spike" low of 357.50.

Mike Zarembski, Senior Commodity Analyst

September 14, 2015

Gold Seeking to Retest Lows?

Monday, September 14, 2015

After a brief run up during the recent spike in volatility caused by the Chinese equity markets, Gold prices have again turned south. Neither the earlier Euro zone uncertainty nor the Chinese market plunge seems to have caused traders to rush into Gold, the traditional 'safe haven' during periods of market uncertainty.

Fundamentals

Gold has been in a 2-year bear market, which has seen failed rallies on the back of various news events. Continued strength in the US economy and labor market has offset political and economic events since the Gold market turned bearish in 2013. A recent U.S. Commodity Futures Trading Commission report showed a drop of 36% in net long positons for the week ending September 8th. This week features the FOMC meeting and the possibility of the long awaited hike in U.S. interest rates. The anticipation of a rate hike has driven the U.S. Dollar higher, and Gold prices tend to be inversely correlated with Gold prices.

Technical Notes

Turning to the 3-month continuation chart, we see that Gold is now trading under both the 20- and 50-day Simple Moving Averages (SMA). The 20-day SMA is still above the 50-day SMA, a bullish sign. Traders will be looking to see if the recent down days for Gold will cause the 20-day SMA to again cross below the 50-day SMA. The 14-day Relative Strength Index is in oversold territory at 25.7. Support is found at the 1075 level, which is not too far from the important psychological level of 1000.

Dale Jennings, Commodity Analyst

September 15, 2015

Loonie Grinding Lower

Tuesday, September 15, 2015

The Canadian economy is officially in recession, after experiencing negative GDP growth for the first two quarters of 2015. The Canadian Dollar has been falling for most of 2015, and the surprise rate cut in January only accelerated the downward trend. An upcoming general election could make for some volatile trading days ahead for the Canadian Dollar.

Fundamentals

Persistent downward pressure in Crude Oil has continued to exert downward pressure on the Canadian Dollar. Canadian GDP came in at -.08% for the first quarter of 2015 and -.05% for the second quarter. The oil rich provinces of western Canada are seeing higher unemployment as the energy industry sheds jobs. Still, there are some positive signs ahead for the Canadian economy. The GDP for June came in at a positive 0.5%. Housing prices in Toronto and Vancouver continue to climb. Canadian voters will be going to the polls on October 19th. There is currently a very tight three-party race, and economic news could very well determine if voters return the Conservative party to power or if they elect the Liberals or New Democratic Party candidates.

Technical Notes

Turning to the 3-month continuation chart, we see a general pattern of lower lows and lower highs over the past 3 months. The Canadian Dollar is far below the 50-day Simple Moving Average (SMA), while the 20-day SMA is providing a strong resistance line. Many of the recent candlesticks show a fairly wide daily trading range but a final close near the day's open. 14 day RSI is a neutral 55.52.

Dale Jennings, Commodity Analyst


September 16, 2015

Bond Prices Consolidate Ahead of FOMC Meeting

Wednesday, September 16, 2015

Fed officials will have a slew of new economic data to ponder ahead of the two-day Federal Open Market Committee (FOMC) meeting this week. Data such as Retail Sales, Industrial Production and Capacity Utilization hit the wires on Tuesday. Wednesday morning, the Fed will get another update on inflation with the release of CPI data for August. Thursday morning will see Housing Starts as well as Weekly Jobless Claims.

Fundamentals

Bond traders are keeping their powder dry to start the week, as the Treasury futures prices remain range bound ahead of the September FOMC meeting that will conclude Thursday morning. The million dollar question is whether the Fed will finally announce the first interest rate hike since June 2006 or once again postpone the inevitable and push back the timing of an interest rate hike to the end of October at the earliest. While there are certainly signs that the U.S. economy is on much firmer footing since the Fed took drastic actions back in 2008 to move the Fed Funds rate to near zero during the worst days of the global financial crisis, concerns about the Chinese economy as well as increased volatility in global equity markets may cause FOMC voting members to shy away from even a token rate increase until conditions show some signs of stabilizing. However, a "punt" on a rate hike may actually trigger more volatility as market participants react to the continued uncertainty on when the Fed will actually raise rates. At some point, the Fed will need to finally "rip the band-aid off the wound" and let the markets begin the process of adjustment to a rate hike instead of continued "hyperventilation" being experienced in the market based on the uncertainty of timing of a Fed interest rate move.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice prices have consolidated below recent highs since the start of September, as it appears traders are taking a wait and see attitude towards any actions by the Fed prior to establishing any meaningful long-term positions in the long-end of the yield curve. Trading volume has fallen sharply since the start of the month, which highlights market participants' hesitation towards the Treasury market ahead of the FOMC meeting. Prices are holding just above the 200-day moving average (MA), but are still just lightly below the 20-day MA, giving a modest bias towards Bond bears. The 14-day RSI is confirming the neutral to slightly bearish bias with a reading of 39.20. Near-term support is seen at 150-31, with resistance found at 156-02.

Mike Zarembski, Senior Commodity Analyst

September 17, 2015

Bears Get a "Crude" Awakening as Oil Prices Rally

Thursday, September 17, 2015

Weekly Energy Information Administration Energy Stocks Report (Week Ending Sep. 11)
Crude Oil: -2.1 million barrels to 455.9 million barrels
Gasoline: +2.8 million barrels to 217.4 million barrels
Distillates: +3.1 million barrels to 154 million barrels
Cushing: -1.9 million barrels to 54.5 million barrels
Refining Utilization: 93.1% up 2.2%

Fundamentals

While the talk of Oil price potentially falling below $30 per barrel have made media headlines, the Oil futures market is actually showing some signs that a bottom may be forming. The lead month October WTI futures are currently trading just above $47 per barrel as of this writing, which is nearly $10 above the lows made back in August. On top of the recent price rally, Wednesday's release of the weekly Energy Information Administration's (EIA) energy stock report showed a surprise draw in Crude Oil inventories as domestic production is finally starting to see some cutbacks as drilling rig counts fall. However, before one becomes too bullish on Crude Prices we should note that U.S. Oil inventories are still at multi-decade highs and Oil products, such as Gasoline and Distillates, saw larger than expected builds. Outside of Oil market specific fundamentals, market participants continue to ponder whether the Federal Reserve will finally act to raise the Fed Funds rate for the first time since 2006 with a "punt" by the Fed on a rate hike viewed as a bullish scenario for Oil, as well as other commodities on the belief that the value of the U.S. Dollar will fall if the Fed postpones actions on interest rates this afternoon.

Technical Notes

Looking at the daily chart for October Crude Oil, we notice an upside "breakout" from the descending triangle formation. Prices have remained above the 20-day moving average during the formation of the Triangle pattern acting as support for the past couple of weeks. Trading volume has also declined during this time frame, which is consistent in the formation of this consolidation pattern. The 14-day RSI has turned positive with a current reading of 54.32. The recent high of 49.33 remains as near-term resistance for the October futures, with support found at the August 28 low of 41.78.

Mike Zarembski, Senior Commodity Analyst

September 18, 2015

Bears Well "Fed" as Cattle Prices Fall

Friday, September 18, 2015

Fed officials voted 9 to 1 to keep interest rates unchanged at 0.0% to 0.25%, as forecasts call for slower economic growth rates in 2016 and 2017. Richmond Federal Reserve Bank President Jeffrey Lacker was the lone dissent in the rate decision, with a preference for a 25-basis-point rate hike. Markets were volatile following the announcement, with the E-mini S&P 500 futures trading in a 25-point price range in 5 minutes time. U.S. Treasury Bonds rallied, with the 30-year bond rallying over 1 full point as of this writing.

Fundamentals

Taking a break from 'Fed Talk", I thought we would explore the Live Cattle futures market, which has been in a bearish trend since June. The lead month futures are trading at their lowest levels in over a year, as traders fear that relatively expensive beef prices, especially compared to pork and poultry, will hurt retail demand. With the "official" end of the summer grilling season upon us, retailers have traditionally featured tougher beef cuts more appropriately used for fall dishes such as stews, which are generally less expensive than more "prime" cuts such as steaks that are utilized for grilling. However, even cheaper cuts of beef are still relatively expensive by historical standards, which may discourage "sales" by grocers and keep wholesale demand subdued. Cash market traders report meat packer demand starting to increase, but only if they can secure market-ready Cattle at lower prices. Cash prices are down nearly 5 cents per pound from last week's sales, which are still running below levels seen this time last year. Livestock traders will end the week focusing on the news wires, as the monthly USDA Cattle on Feed report will be released this afternoon at 2 pm central time. Pre-report estimates are for Cattle on Feed as of September 1st to be 103.7% of last year's totals. Placements in August are expected to be 100.5% vs. last year, with marketing in August at only 93.7% of last year's totals. Traders looking for how the financial markets reacted to the Fed announcement can get a summary in the "Today's Spotlight Market "section of this newsletter. With all the market uncertainty surrounding the Fed announcement this week, I am sure the only "Fed Talk" many traders will want to discuss are the merits of 'Grass Fed" or "Corn Fed" during this last weekend of summer.

Technical Notes

Looking at the daily chart for October Crude Oil, we notice an upside "breakout" from the descending triangle formation. Prices have remained above the 20-day moving average during the formation of the Triangle pattern acting as support for the past couple of weeks. Trading volume has also declined during this time frame, which is consistent in the formation of this consolidation pattern. The 14-day RSI has turned positive with a current reading of 54.32. The recent high of 49.33 remains as near-term resistance for the October futures, with support found at the August 28 low of 41.78.

Mike Zarembski, Senior Commodity Analyst

September 21, 2015

Mr. Market's Wild Ride

Monday, September 21, 2015

Political debate may have captured the eyes of news devotees on Wednesday, but all eyes were on the Federal Reserve on Thursday afternoon. The Fed elected to not raise rates and the markets reacted like a bucking bronco. The equity markets couldn't pick a direction, vacillating wildly between gains and loss. Treasure Bond futures rocketed and Gold joined the rally on Friday. Since no press conference is scheduled for the October Federal Open Market Committee meeting, the next chance for a rate increase is likely in December.

Fundamentals

The past week saw the release of a great deal of economic data, most of it being bullish for the equity markets. Retail sales for August rose 0.2%, Inflation as measured by the Consumer Price Index, actually dropped by 0.1%. Finally, initial jobless claims fell by 11,000 for the week ending September 12 to 264,000, showing ongoing strength in the labor market. Still, the recent period of volatile international equity markets and potential slowing growth abroad was enough for the Fed to keep rates at their historically low level.

Technical Notes

Turning to the 3 month continuation chart for the E-mini S&P 500 futures, we see some very choppy trading over the past month. Last week's trading saw the E-mini break above the 20 day Simple Moving Average (SMA), which had been a previous resistance level. As is common, a previous resistance level becomes a support level. Short term traders will be watching to see if this support holds. The E-mini is still trading below both the 50 day and 200 day SMAs, a bearish sign. 14 day RSI is a neutral 43.69. Long term resistance can be found around the 2100 level with 1900 serving as a longer term support level.

Dale Jennings,Commodity Analyst

September 22, 2015

Mixed Signals for Crude

Tuesday, September 22, 2015

Crude Oil futures are lower this morning, following the lead of the equity markets. The Oil market has been especially choppy of late, due to the erratic activity in stocks and indecisiveness over supplies. Traders have been trying to make sense of the near-term supply glut ahead of the refinery maintenance season, which typically adds to supply, while also weighing expectations of a production slowdown. According to a report from Wood Mackenzie, roughly $1.5 trillion in Oil and Natural Gas projects are at risk due to the price slump. The Federal Reserve's decision to keep interest rates steady has been negative for the Oil market. While the move from the central bank could be seen as negative for the greenback, traders are concerned about the economic outlook and its effect on energy demand.

Fundamentals

The supply glut in Crude Oil is not going to get worked down soon as we enter the refinery maintenance season. Historically, the period between the September and October sees a significant decrease in refinery input. Without an equally large slowdown in production, inventory levels could continue to swell. Some traders have begun to look at Oil prices with a longer-term view, which has been supportive of prices. US production is expected to fall, with the rig counts being at current levels and OPEC running near capacity, meaning there is nowhere to go but down for the cartel. According to Baker Hughes, the number of active US Oil rigs dropped by 8 last week to 644. This marks a decline of 957 rigs from last year.

Technical Notes

Turning to the chart, we see the November Crude Oil chart continuing to consolidate into a tighter range. This has resulted in a triangle pattern on the daily chart. A breakout from this pattern could result in 6.50-7.00 move in Oil prices in either direction. Currently, the oscillators sit at neutral levels.

Rob Kurzatkowski, Senior Commodity Analyst


September 23, 2015

Will Three Month's Really Make a Difference?

Wednesday, September 23, 2015

The U.S. Treasury Yield curve has flattened the past 12 months with the 2-year/10-year yield curve falling by 57 basis points to 1.45%. While the curve is still positively sloped, a flattening of the curve is not a positive sign for the economy as historically recessions have occurred once the curve becomes inverted i.e. short-term rates are higher than long-term rates. On the very short-end of the curve, the recent auction of 30 day T-bills drew a yield of 0.00% which means that investors will willing to lend the U.S. Treasury funds for no return interest. Even more interesting is the fact that some existing T-bills have fallen to a slightly negative interest rate, which makes lending at zero seem like a "good deal".

Fundamentals

While the voting members of the Federal Open Market Committee (FOMC), once again, delayed a move to hike the Fed Funds interest rate at their September meeting on a 9 to 1 vote, it is a bit ironic that several Fed officials have commented the past few days following the FOMC decision that they believe that a rate hike is still a possibility by the end of the year. This poses a question that I have yet to hear a good answer to, that is, what does the Fed expect to see in the next 3 or so months that they are not seeing now that will warrant an interest rate hike by December? Some reasons cited for the Fed inaction in September were growth concerns in China, global market volatility and inflation rates not meeting the Fed "target of 2%. I am not sure anyone really truly knows what the "real" economic growth figures are for China, as "official data" has generally been viewed as suspect. It will certainly take more than a few months to make any structural changes in China despite Chinese government's attempts to micromanage a smooth transition to a domestic based consumption economy. As for inflation concerns, commodity prices have certainly been in a slump, tied not only to slower demand from China, but also from a strengthening U.S. Dollar. If the Fed does raise interest rates, it could trigger a move towards additional Dollar buying which could in theory further suppress inflation. Finally, markets do not like uncertainty and it seems that the Fed is creating more uncertainty by holding back on raising rates, even a token 25 basis points, due to economic concerns but then have Fed officials talk up a rate hike shortly after the interest rate decision. If the Fed truly intends to raise rates at some point in 2015, it may behoove them to act sooner than later and remove the uncertainty from the market, which may ultimately help to curtail some of the price volatility we are seeing in the markets today.

Technical Notes

Given the seemingly random intra-day market volatility we have seen the past few weeks, I thought it was time to step back and take a longer-term view on how markets are performing and filtering out some of the "noise" we have been experiencing in this era of high frequency and algorithmic trading. So today we are looking at the monthly continuation chart for 10-year Note futures. Here we notice that despite all the analysts' calls for interest rates to move higher, the market continued its overall bullish trend that began back in the 1980's, which is before many of these "prognosticators" were even born. For the front-month futures, we would need to see prices fall below 112-00, from its current 128 handle to "unofficially" call the end of this historic bull market move. While the "near-term" trend that began back in 2008 is showing a market that is in a consolidation phase, we do note that prices still remain above the 100-month moving average, and we are seeing prices making a series of higher lows since September 2013. Momentum, as measured by the 14-month RSI, is neutral with a current reading of 51.55. Support is seen at the September 2013 low at 122-07, with resistance found at the January 2015 high of 131-05.5.

Mike Zarembski, Senior Commodity Analyst


September 24, 2015

Aussie Dollar Feeling Chinese Woes

Thursday, September 24, 2015

The Australian Dollar has struggled to regain its footing due to outside pressure from China and interest rate questions. Australia's trade relationship with China has been a fruitful one for many years, but the Chinese downturn has taken its toll on the economy. The core problem for Australia is much deeper, as there is is a global glut of raw materials, and Australia's economy is based on exporting materials. Weakness is the Canadian Dollar, New Zealand Dollar and South African Rand has added to the pressure on the Aussie, as those currencies are traded in the same basket as the Aussie Dollar due to their economic similarities.
Fundamentals

Chinese demand for raw materials may not necessarily rebound as quickly as overall economic activity, which could be a problem for Australia. The recent devaluation of the Yuan has reduced the purchasing power of Chinese businesses and investors. The Caixin manufacturing Purchasing Managers Index fell to 47.0, lower than the forecast 47.5 reading. This is the worst showing for the index since the 2007-2008 financial crisis. Depending on the trade balance, this poor showing for the PMI could open the door for further devaluations of the Yuan by China and further weakening of demand for Australian natural resources. While the Federal Reserve maintained current interest rate levels, it is widely believed that it is a matter of time before the central bank begins to raise rates. The Reserve Bank of Australia, on the other hand, is forecast to lower the cash rate to 1.5% next year. The unemployment rate is expected to creep up to 6.5% by November, which could further pressure the Australian Dollar.

Technical Notes

Turning to the chart, we see the December Australian Dollar heading toward the 0.6923 low from earlier this month. This could be seen as an important level in the near-term, as a lower close would continue the pattern of lower highs and lower lows. A rebound off this level could be viewed as positive near-term. On the upside, closing above the 0.7250 mark may be interpreted a reversal.

Rob Kurzatkowski, Senior Commodity Analyst

September 25, 2015

Short-covering Flares in Natural Gas

Friday, September 25, 2015

Continued strong Natural Gas production has more than offset any increased Gas demand from power generators the past week, as U.S. Gas storage totals were above expectations. The Weekly Energy Information Administration's (EIA) Gas Storage report showed 106 billion cubic feet (bcf) of Gas was placed in storage during the week ending September 18. This was 10 bcf above analysts' estimates. Total Gas in storage has risen to 3440 bcf, which is 4.5% above the 5-year average for this time period.

Fundamentals

After falling to lows not seen since late April, the lead month October Natural Gas futures staged a price recovery on short-covering buying following the release of the weekly Gas storage report. The report, which showed a larger than expected Gas storage build of 106 billion cubic feet, was initially greeted by traders with a flurry of sell orders, which saw the October contract fall nearly 3 cents in the seconds following the storage report. However, the selling pressure stopped quickly, and prices reversed direction to finish the session higher, following a rally seen in other commodities such as Gold, Oil and Copper. Weakness in the U.S. Dollar has been cited by some traders as a catalyst for the rally, which appears to be mostly short-covering buying, as commodity markets in general were becoming oversold. This is especially true for the Natural Gas market, where large speculators are holding a large net-short position totaling over 200,000 contracts. While a near-term technical bounce may occur, fundamentally Gas bears still appear in control, as Gas usage historically has declined as the calendar moves towards early fall.

Technical Notes

Looking at the daily continuation chart for Natural Gas futures, we note that prices have been generally range-bound since the start of the year with only brief episodes above 3.000 and below 2.500 for the lead month contract. Currently prices are below both the 20- and 200-day moving averages, and the 14-day RSI is weak, with a current reading of 41.10. 2.481 is seen as the next support level, with resistance found at 2.794.

Mike Zarembski, Senior Commodity Analyst

September 28, 2015

Olympic Sized Bears Eating the Real

Monday, September 28, 2015

Political turmoil is just one issue dragging down the Brazilian economy. There is a threat of impeachment against Brazilian President Dilma Rousseff. There are two possible impeachment charges pending. The first one is from a Petrobras kickback case. This gigantic corruption case has spread to many Brazilian political leaders, but not yet up to the Presidential level. There are also court findings that allege Rousseff forged government accounts and overspent on public projects before her reelection campaign.

Fundamentals

Brazil's economy has fallen into a deep recession with an expected contraction of 2.7% for 2015 and the Brazilian Real has been in free fall. Brazil is highly dependent on commodities and the recent plunge in commodity prices have hurt. Plus, Brazil is a major exporter to China and the slowing Chinese economy has hurt Brazilian exports. Another problem hitting Brazil is the rising US Dollar combined with the dropping Real will make it more expensive to pay back US Dollar denominated loans.

Technical Notes

Turning to the 3 month continuation chart, we see several very bearish signs. Over the past 3 months, the Real has been making a series of lower highs and lower lows. The 20 day Simple Moving Average (SMA) is below the 50 day SMA and the gap between them is widening. The 20 day SMA was providing resistance and each attempt to test this level has failed. RSI is a neutral 44.18.


Dale Jennings, Commodity Analyst


September 29, 2015

Copper Sinks with PMI on the Horizon

Tuesday, September 29, 2015

Copper prices hit their lowest levels since July 2009 amid concerns over the release of Chinese PMI data later this week. Traders are far from bullish with regard to their expectations for the Manufacturing Purchasing Managers Index, slated for release on Thursday. There is also lingering fallout after Glencore Plc's stock got crushed in London Trading. Investment firms have questioned the stability of the company's balance sheet if metal prices continue to plummet. Glencore is the world's third largest Copper miner.

Fundamentals

On the surface, Glencore's instability could be viewed as being bullish for the Copper market. The company had suspended mining activity in the Democratic Republic of Congo and Zambia, which would take roughly 400,000 tonnes of the metal out of the market. However, weakening demand is the reason the company is suspending the mines in the first place. Both outsiders and company executives seem to have a rather bleak demand outlook for Copper in the foreseeable future. Goldman Sachs had predicted the slump in Copper prices could exceed last year's due to the slowdown in Chinese economic activity. Chinese industrial companies earnings fell by $24.6 billion, or 9%, from last year. The hardest hit companies were raw material producers of Oil, coal and base metals. The 7% target growth rate for China would be the slowest pace of growth for the world's second largest economy in 25 years. This does not bode well for Copper demand, as China accounts for somewhere between 40-45% of the world's demand for the red metal. The Caixin flash Manufacturing Purchasing Managers Index, an independent report, showed the lowest reading in 6 ½ years, suggesting the government's figure will not fare well when it is released on Thursday.

Technical Notes

Turning to the chart, we see the December Copper contract trading down near support near the 2.2500 level. Failure to hold support here could lead to a test of the 2.1000 and possibly the 2.0000 level. The 2.4615 level on the upside may be a level to watch, as this could be seen as a reversal. The RSI is currently oversold, which can be supportive in the near- term.

Rob Kurzatkowski, Senior Commodity Analyst


September 30, 2015

World Awash in Wheat

Wednesday, September 30, 2015

Estimates for USDA Grains Stocks Report (As of September 1)

Corn: 1.735 billion bushels (2015) vs. 1.232 billion bushels (2014)
Soybeans: 204 million bushels (2015) vs. 92 million bushels (2014)
Wheat: 2.165 billion bushels (2015) vs. 1.907 billion bushels (2014)

Fundamentals

While U.S. Wheat prices are trying their best to form a near-tem price bottom, those traders looking to become bullish have to remain wary of the impact of huge global wheat supplies expected for the 2015-16 crop year. The International Grain Council (IGC) recently increased their estimates for 2015-16 global Wheat inventories by 7 million metric tons to 211 million metric tons. Higher Wheat production more than offset increased global Wheat consumption, which is allowing global inventories to reach record levels. As we move towards Winter Wheat plantings in the northern hemisphere, we are starting to notice some concerns being expressed by analysts that dry conditions in the black region could spur delays in plantings. However, weather forecasters are starting to see increased chances of precipitation in both Ukraine and Russia, which could help to dampen the bullish momentum for prices based on the potential for production issues from this major grain exporting region. In the U.S., Winter Wheat plantings are running behind historic averages, with 31% of the crop planted vs. the 10-year average of 37%. Grain traders will turn their focus towards the release of the USDA quarterly grain stocks report which is scheduled for 11am central time today. U.S. Wheat inventories are expected to total 2.165 billion bushels as of September 1, vs. 1.907 billion bushels last year. Traders also expect the USDA to raise their estimates for U.S. Wheat production, which could be matched by our neighbors to the north, as Statistics Canada reports its crop estimates On October 2.

Technical Notes

Looking at the weekly continuation chart for Chicago Wheat futures, we notice the market in a well-defined downward trend since mid-2012, with a series of lower highs being made along the way. However since the end of the 3rd quarter of 2014, prices have started to form a bottoming pattern, with 460.00 for the lead month futures acting as strong support. Prices are currently testing the 20-week moving average (MA) but remain well below the 200-week MA which is near the 640.00 area as of this writing. We have seen the 14-week RSI turn neutral, with a current reading of 49.21. 463.00 is seen as the next major chart support leve,l with resistance found at 530.00.

Mike Zarembski, Senior Commodity Analyst