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October 2015 Archives

October 1, 2015

Can Gold Build Off of Stability?

Thursday, October 01, 2015

Gold prices seemed to have stabilized in recent weeks, trading range-bound for the most part. Prices have had fairly large session ranges, but neither the bull nor bear camp has been able to win out, resulting in consolidation on the daily chart. Equity prices seemed to have stabilized for the time being, and the US Dollar has been fairly range-bound, giving the precious metals market little to work with from an outside influence standpoint.

Fundamentals

Traders, in general, have a case of Fed fatigue, waiting for the eventual tightening of interest rates from the central bank. While the FOMC's decision to not raise rates in its September meeting could be viewed as positive for metal prices, the reason for not doing so could be viewed as equally bearish. Board members do not feel confident enough in the economy to raise rates at this time. This suggests that inflation could be tame for the foreseeable future, however, the long-term inflation outlook starts to come into play the longer the Fed keeps kicking the can down the road. The ADP jobs report showed the private sector adding 200,000 jobs for the month of September. Many traders will be keeping a close eye on the Non-Farm Payrolls report on Friday to see if it follows suit. China's stock market woes could boost physical demand for Gold as a safe-haven investment at a time where some miners are trimming production. Exports of the metal from Hong Kong to the mainland have reached 1,891.90 tons so far in 2015. Through the same period last year, this is an increase of 560.9 tons.

Technical Notes

Turning to the chart, we see the December Gold contract trading in a tightening range between the low 1100s and the 1150s. A breakout out of this range may signal a near-term direction for prices. Currently, the oscillators are sitting at neutral levels.

Rob Kurzatkowski, Senior Commodity Analyst


October 2, 2015

Fed "Talks the Talk" but will it "Walk the Walk" for a Rate Hike by Year End?

Friday, October 2, 2015

Following the ADP Research Institute's estimate of 200,000 private sector jobs added in September, here are economists' estimates for key data points for this morning's release of September Non-farm Payrolls data from the U.S. Bureau of Labor Statistics.

Non-farm Payrolls: September +205,000 vs. August +173,000

Unemployment Rate: September 5.1% vs. August 5.1%

Hourly Earnings: September +0.2% vs. August +0.3%

Average Workweek: September 34.6 hours vs. August 34.6 hours


Fundamentals

Ever since the Federal Reserve "punted" on a decision to raise interest rates at the September Federal Open Market Committee Meeting (FOMC), we have seen several Fed officials state that there is likelihood that interest rates will be raised before the end of the year. Those speaking in favor of a rate hike note increased consumer spending, an improving housing and labor market, as well concerns of "falling behind the curve" as far as the potential for rising inflation in the coming months. However, it appears that market participants see the Fed as "all talk and no action" as far is an interest rate hike in 2015, with Fed Fund futures currently pricing in only a 14% chance of a rate hike at the October FOMC meeting, and a 44% chance at the December meeting. While we have all heard that the Fed is "data dependent" some very recent data does cast some doubts to on the strength of U.S. economic activity. Just yesterday for instance, the ISM manufacturing index fell to its lowest level in nearly 2 ½ years, as the index fell to a reading of 50.2 in September from 51.1 in August. While a reading in the index above 50 does represent expansion in the manufacturing sector index, the overall trend in expansion has slipped the past 3 months. In addition, Jobless claims last week rose more than forecast, jumping by 10,000 to a seasonally adjusted 277,000. While the unemployment rate continues to fall, the so called U6 employment rate, which includes, marginally attached and those working part-time for economic reasons, is over double the "official" and well publicized U3 employment rate of 5.1%. Given that only one voting member of the FOMC voted against keeping rates unchanged at the September meeting, I can see where traders might remain skeptical that we will see enough "positive" data in the 4th quarter to convince the Fed that the U.S. economy is on solid enough footing for even a 0.25% hike in December.

Technical Notes

Today let's take a look at the shorter end of the yield curve with the daily continuation chart for 5-year Note futures. We notice the market has been in a general uptrend since June, having peaked with the severe stock market selloff on August 24. Current price levels are above both the 20 and 200-day moving averages and the 14-day RSI is relatively strong with a current reading of 60.67. 120-24 is seen as the next resistance level for the December futures, with support found at 119-24.25.

Mike Zarembski, Senior Commodity Analyst

October 5, 2015

Calling a Top in Bonds?

Monday, October 05, 2015

October is a month full of horror movies which seem to spawn endless sequels. "This is the top in Bonds," has been the call of numerous analysts in the financial media for several years now. It seems like any slightly negative economic news has been a reason for Bonds to rally over the past few years, and the contract spiked sharply after the release of the non-farm payroll numbers on Friday.

Fundamentals

Ever since the 2008 financial crisis, the US 30-Year Bond futures contract has tended to rally with any significant negative economic news. Whether it is a political debate over raising the debt ceiling in the United States, worries over Greece in the Euro zone, the possibility of a slowdown in the Chinese economy, or US Federal reserve uncertainty, the Bond contract usually rallies. The September non-farm payrolls disappointed many traders, with 142,000 jobs created and the unemployment rate steady at 5.1%. Bonds immediately rallied as the equity market futures sank with the news. The slower than expected rate of job creation will likely cause Fed watchers to heavily discount the possibility of an October rate increase, and may even call a December rate hike into question. Unless there is more positive economic news forthcoming during the upcoming earnings season, the Bond rally may continue.

Technical Notes

Turning to the 3-month continuation chart, we see signs of a bullish reversal. Bonds are now trading above both the 20-day and 50-day Simple Moving Averages (SMA). The 20-day SMA has turned positive and is rapidly approaching a cross above the 50-day SMA. Resistance at 160-0 was tested on Friday but failed. The 14-day RSI is a moderately bullish 60.20.

Dale Jennings, Commodity Analyst


October 6, 2015

Holding Pattern

Tuesday, October 06, 2015

Crude Oil futures have traded in an extremely tight range over the past several weeks due to the murky outlook on supply and demand and the global economy. The lackluster PMI data from China indicates that manufacturing there is continuing to contract, which would mean factories are not consuming raw materials at previous levels. In the US, the non-farm payroll data did not support the more rosy numbers that ADP and several other private research firms were reporting. While this does handcuff somewhat the Federal Reserve in terms of a rate hike, it also dampens the demand outlook for Crude Oil.

Fundamentals

Economic forces seem to be working against the Crude Oil market, dragging down demand. However, there are some signs that the price slump is finally leading to a slowdown in production. Both the US and OPEC have seen weekly production trending lower. US production has dropped off from the over 9.5 million barrels a day mark to the low 9 millions in recent weeks. Rig counts looked like they were poised to turn things around, bouncing back slightly. This now looks as though it was temporary, as rig counts are dropping once again. Last week, the number of US Oil rigs fell by 26 to 614, which is a decline of 977 rigs from last year. Oil companies have been lobbying hard to get the 40-year export ban on Crude Oil repealed, and it looks as though the idea is picking up some momentum in both houses of Congress. Regardless, it looks as though the slump in commodity prices could last years, according to Goldman Sachs and Citigroup, which may act as headwinds for a possible comeback in Oil prices.

Technical Notes

Turning to the chart, we see the November Crude Oil contract continuing to trade in a narrow range. Prices have tested minor resistance near the 47.65 level. Prices may find additional resistance near the 49.25 mark. The RSI indicator is currently in neutral territory, but edging toward overbought levels.

Rob Kurzatkowski, Senior Commodity Analyst

October 7, 2015

Will Fed Inaction Doom Dollar Rally?

Wednesday, October 7, 2015

The economic calendar is relatively light for the remainder of the week, but we will see significant market interest in the release of the September FOMC minutes on Thursday afternoon. In addition, on Thursday we will get the latest data on initial jobless claims for the week ending October 3, along with the 4-week average for continuing jobless claims.

Fundamentals

Last week's "disappointing" U.S. Non-Farm Payrolls report added additional credence to the belief being held by many traders that the Federal Reserve will not move to raise interest rates in 2015. This view exerted pressure on the value of the U.S. Dollar during the past week, as traders exited long positions that were established on the basis of higher U.S. interest rates in the coming weeks. While we have seen many Fed officials continue to talk of the likelihood of a rate hike at the December Federal Open Market Committee (FOMC) meeting scheduled for mid-December, mixed economic data on top of the weak jobs number may be enough to convince the Fed to maintain the current accommodative rate policy into 2016. Fed Funds futures traders have all but nixed the possibility of a rate hike at the October 27-28 FOMC meeting, with the October Fed Funds futures pricing-in only a 6% chance of a rate hike. For December, the odds of a rate hike increase, but futures are only looking at a 31% probability at the December meeting. It is not until the March 2016 meeting where the Fed Funds futures are looking at an over 50% chance of a rate hike. As we all know alot can happen in the global economy in the next 6 months, so traders should be prepared for continued market volatility going into the New Year.

Technical Notes

Looking at the weekly continuation chart for Dollar Index futures, we notice the market making a series of lower highs since the market made 12-year highs back in March. Prices are currently holding near the 20-week moving average, as we appear to be in the midst of a consolidation phase. The 14-week RSI has turned neutral, with a current reading of 52.70. We do see chart support near 92.35 for the front-month futures with resistance found near 98.45.


Mike Zarembski, Senior Commodity Analyst

October 8, 2015

Is VIX Pointing Toward Investor Confidence?

Thursday, October 8, 2015

Front month VIX futures closed below the 20.00 mark in two of the past three trading sessions, indicating investors may have a bit more confidence in stocks. The underlying factors fueling the stock market sell-off in late August have not shown improvement, but the sense of panic among stock traders seems to have dissipated . Corporate earnings are not expected to be strong for the remainder of the year and the job market may not be as robust as previously thought.

Fundamentals

It seems that some of the negativity in the equity markets in August, when stock prices tumbled, stemmed from a seemingly immanent Fed rate hike. The central bank's pumping of cheap money into the economy was a key driving force behind the multi-year rally in stock prices. Additionally, there are many investors who believe raising rates would be premature at this point. Corporate earnings for S&P 500 companies are expected to fall by 6.9% the last quarter of the year. The VIX, as a gauge of sentiment, shows investors are expecting the volatility in equities to die down in the near future. November is trading under the October contract, indicating investors are slightly bullish in the near-term. However, the market goes into contango after the November contract.

Technical Notes

Turning to the chart, we see the October VIX futures contract nearing support at the 18.98 level. Failure to hold here could be seen as a double top and suggests prices could fall to the middle or even low teens. The RSI is currently giving neutral readings, while momentum remains below the zero line.

Rob Kurzatkowski, Senior Commodity Analyst

October 9, 2015

King Corn!

Friday, October 9, 2015

Here are the pre-report estimates for average yields for the USDA October Crop Production Report

Corn: Average Yield 167.1 bu/acre, down 0.4 bu/acre from September
Soybeans: Average Yield 47.2 bu/acre, up 0.1 bu/acre from September


Fundamentals

There is little doubt that 2015 is turning out to be a difficult year for grain bulls, as a general slump in commodity prices worldwide combined with ample global grain inventories has sent prices back towards more "historic" price ranges following several years of record highs. However, the Corn market may be attempting to forge a near-term bottom, as market fundamentals appear to be shifting back to the bull camp. First, it appears the South American Corn production will trail earlier estimates, as producers are expected to shift more production towards Soybeans for the 2015-16 crop year, as current price levels make Soybeans a more profitable crop to produce than Corn. In addition, the trend towards increased livestock production globally should lead to continued growth in Corn demand for feed usage, which could provide a long-term price "floor," as both livestock and ethanol producers compete for Corn supplies. Traders will get a better assessment for the potential size of this season's grain harvest when the USDA October Crop report is released today at 11:00 a.m. Chicago time. While many traders are looking for the USDA to lower its estimates for both Corn and Soybean production in the U.S., some early harvest reports have average Soybeans yields running above expectations, as crop conditions have improved. 73% of the U.S. Soybean crop was rated good to excellent, which was up from 62% the week prior. The Soybean harvest is also running ahead of schedule, with 42% of the crop already harvested, vs. the 5-year average of 32%. For Corn, early yield reports have been mixed and the harvest progress is behind schedule, with 27% of the crop having been harvested, vs. the 5-year average of 32%.

Technical Notes

Looking at the daily chart for December Corn futures, we notice solid chart resistance at 402.00, which is the exact high that closed the chart "gap" made back in July. One could argue that prices have formed a "V" bottom, which would be confirmed should the December futures close above the 402.00 resistance level. Prices are currently trading in between the 20- and 200-day moving averages (MA), with the long and short-term MA's appearing poised to converge in the near-term. The 14-day RSI has weakened a bit of late and now reads a more neutral 55.86 as of this writing. While resistance remains at 402.00, we find chart support at the September 21 low at 375.00.

Mike Zarembski, Senior Commodity Analyst


October 12, 2015

Time for a Kiwi TPP Party?

Monday, October 12, 2015

The New Zealand Dollar has remained relatively strong throughout the years after the 2008 financial crisis. Unlike the Federal Reserve in the United States, the Reserve Bank of New Zealand has been actively raising and lowering rates over the past few years in response to economic conditions in New Zealand. Prior to the 2008 financial crisis, rates had peaked at 8.25%. During 2015, rates have dropped from 3.5% down to the current 2.75%, mostly due to declining commodity prices as well as fears of a slowdown in China.

Fundamentals

It seems that some of the negativity in the equity markets in August, when stock prices tumbled, stemmed from a seemingly immanent Fed rate hike. The central bank's pumping of cheap money into the economy was a key driving force behind the multi-year rally in stock prices. Additionally, there are many investors who believe raising rates would be premature at this point. Corporate earnings for S&P 500 companies are expected to fall by 6.9% the last quarter of the year. The VIX, as a gauge of sentiment, shows investors are expecting the volatility in equities to die down in the near future. November is trading under the October contract, indicating investors are slightly bullish in the near-term. However, the market goes into contango after the November contract.

Technical Notes

Turning to the 3 month continuation chart, we see an impressive recent rally by the New Zealand Dollar. The recent rally is preparing to test resistance at .6697. If the New Zealand Dollar breaks through this resistance level, then the previous resistance often becomes a new support level. Another bullish sign is that the New Zealand Dollar is trading well above the 20 and 50 day Simple Moving Averages (SMA). The 20 day SMA has turned up and is preparing to cross the 50 day SMA. If this occurs, it would another bullish confirmation. Finally, 14 day RSI is extremely bullish at an overbought 92.72.

Dale Jennings, Commodity Analyst


October 13, 2015

Oil Export Ban Repeal Faces Headwinds

Tuesday, October 13, 2015

Crude Oil futures got a brief boost last week, after the House of Representatives passed a bill that repealed the ban on Crude Oil exports originally, imposed by the Energy Policy and Conservation Act of 1975. The movement to allow Oil exports has gained momentum thanks to industry lobbying, but the effort still faces hurdles. Senate approval is not a given, as legislators may cite the country's dependence on petroleum and possible national security implications as a reason not to pass the legislation. President Obama also has threatened to veto the legislation, even if it is pushed through Congress.

Fundamentals

Crude Oil inventories rose by 4 million barrels last week, despite declining production. The increase in inventory levels is not all that surprising, given the fact that, seasonally, we are entering a slow driving season. Also, it is a period of the year when refineries undergo maintenance to switch to winter blend. Refinery input fell by 241,000 barrels per day to 16 million barrels a day in the week ended September 25th. What was a bit surprising was the increase in Gasoline inventories of 3.3 million barrels last week. If higher Gasoline inventories continue, Crude Oil prices could find themselves under pressure. The EIA is expected to show a modest build in inventory levels this week. Most estimates range between 100,000-300,000. The IEA expects the glut of Crude Oil supplies to persist through 2016, due to soft economic conditions and influx of Iranian Oil on the market.

Technical Notes

Turning to the chart, we see the November Crude Oil contract briefly rallying above the $50 mark on Friday before falling back. The price action for the day formed a gravestone doji, typically signaling a price reversal. Yesterday's sharp down session may have confirmed a near-term price reversal. The reversal comes after it looked as though prices may be on the verge of rallying, after breaking out of a triangle formation on the daily chart. Prices had been a bit overbought on the RSI ,which may have contributed to the recent selling pressure.

Rob Kurzatkowski, Senior Commodity Analyst


October 14, 2015

Bullish Fundamentals Brewing for Coffee?

Wednesday, October 14, 2015

Coffee bears have had their way for the past 4 years, as a global commodity bear market combined with weakening emerging market currencies took their toll on Coffee prices. However as 2015 enters the final quarter of the year, we are starting to see some bullish movement for Coffee prices. Dry conditions are being cited by analysts for the recent rebound in Coffee prices, as several key Coffee growing regions, most notability Brazil, are experiencing less than ideal weather conditions. In addition, low Coffee prices the past few years have cut into producer's profits and, in turn, have forced many Coffee growers to forgo or reduce investment in fertilizers and maintenance, which could have a meaningful effect on production in the coming seasons. Coffee traders also have become keen watchers of the currency markets, and especially the performance of the Brazilian Real. Weakness in the value of the Real has created the incentive for producers to sell Coffee into the global market despite current depressed prices. While it is still too early to definitely call an end to the Coffee bear market that began back in 2011, signs are beginning to emerge that traders are starting to warm-up to the possibility of higher Coffee prices going into 2016.

Fundamentals

Crude Oil inventories rose by 4 million barrels last week, despite declining production. The increase in inventory levels is not all that surprising, given the fact that, seasonally, we are entering a slow driving season. Also, it is a period of the year when refineries undergo maintenance to switch to winter blend. Refinery input fell by 241,000 barrels per day to 16 million barrels a day in the week ended September 25th. What was a bit surprising was the increase in Gasoline inventories of 3.3 million barrels last week. If higher Gasoline inventories continue, Crude Oil prices could find themselves under pressure. The EIA is expected to show a modest build in inventory levels this week. Most estimates range between 100,000-300,000. The IEA expects the glut of Crude Oil supplies to persist through 2016, due to soft economic conditions and influx of Iranian Oil on the market.

Technical Notes

Looking at the weekly continuation chart for Coffee futures going back to 2011, we note what might be a double-bottom formation, as the lows made back in September of this year could be a failed test of the major lows made back in November 2013. Prices are currently above the 20-week moving average (MA) but remain below the 200-day MA which is currently near the 155.00 price area. The 14-week RSI has turned neutral with a current reading of 53.30. 113.35 is seen as support for the front-month future, with resistance seen at 147.35.

Mike Zarembski, Senior Commodity Analyst

October 16, 2015

Well Oiled

Friday, October 16, 2015

U.S. Crude inventories rose sharply last week according to both government and private sector reports. The Energy Information Administration (EIA) reported in its weekly energy stocks report that U.S. Crude Oil inventories rose by 7.6 million barrels last week. This was well above analysts forecast of a 2.5 million barrel increase, but in line with the 9.3 million barrel increase reported by the American Petroleum Institute. While Crude inventories rose last week, Oil product inventories fell, with U.S. Gasoline inventories declining by 2.6 million barrels and Distillates inventories falling by just over 1.5 million barrels.

Fundamentals

It appeared that Crude Oil prices were poised to form a near-term low back in August, as a brief move below $40 per barrel triggered fresh buying interest that help to send the lead month November futures above $50 last week. However, the bullish enthusiasm appears short lived as a larger than anticipated inventory build last week combined with lackluster global demand is keeping the market well below last week's highs. U.S. Crude production has not fallen as much as many analysts expected given cash prices are down by more than 50% the past year. The Energy Information Administration pegged U.S. Oil production at 9.1 million barrels per day, down a scant 0.1% the past week. Globally, traders see the potential return of Iranian crude to the world market as a barrier to a significant rally in Oil prices, especially in a market that is currently well supplied with Crude and economic headwinds, especially in China, weighing on demand. Market Technicians note that the recent rally in Crude Oil tended to correspond to weakness in the U.S. Dollar. While the Greenback is still trading near multi-year highs, we have seen some price retracement the past several weeks, which is generally viewed as supportive for commodity prices. If we look at weekly continuation charts for Oil, it does appear that we may ultimately be in a "range bound" market with strong support seen near $40 and solid resistance near $60. This price boundary may indeed hold as we move into the New Year, barring any unforeseen supply disruptions or a significant weakening in the U.S. Dollar.

Technical Notes

Looking at the daily continuation for Crude Oil futures we notice that despite the price swings, the market has generally stayed within a $20 price band for most of 2015. Prices are now trading within the 20 and 200-day moving averages and the 14-day RSI has become neutral with a current reading of 50.36. Near-term support is seen at the September 2 low of 43.21, with resistance found at the October 9 high of 50.92.

Mike Zarembski, Senior Commodity Analyst

October 19, 2015

Election Day, Eh?

Monday, October 19, 2015

Today, October 19, is Election Day in Canada. Although US readers may be surprised, this is the longest election campaign in modern Canadian history, lasting 78 days. Although the polls indicate a close race, the Canadian Dollar has rallied over recent days.

Fundamentals

This election has been a close one in the polls, with all 3 major Canadian political parties jostling for the lead. Heading into Election Day, the Liberal Party led by Justin Trudeau has a slight lead. It remains uncertain if any party will capture a majority of the 308 seats in the Canadian House of Commons. Coalition governments, although common in parliamentary systems, are rare in Canada with the last one occurring during World War I. The Canadian economy is still struggling after entering recession this year with the first two quarters of the year showing negative GDP growth. The most recent jobs report showed a rise in unemployment to 7.1%. The recent rise in Crude Oil prices could help spur growth in the Canadian economy if the rise is sustained.

Technical Notes

Turning to the 3 month continuation chart, we see a very sharp bullish reversal. The Canadian Dollar had been making a series of lower highs and lower lows until recently bottoming out at .7446. The Canadian Dollar broke through the 20 day Simple Moving Average (SMA), which was a resistance level and then quickly also broke through the 50 day SMA. The 20 day SMA crossed above 50 day SMA for yet another bullish sign. 14 day Relative Strength is a very bullish overbought level at 79.76.

Dale Jennings, Commodity Analyst


October 20, 2015

Gold Jumps to 4-Month High on Dollar Slump

Tuesday, October 20, 2015

Gold futures have gotten a boost from a weaker US Dollar and such a poor showing in US economic data. Weaker US retail sales numbers follow weak non-farm payrolls data earlier this month, suggesting the Federal Reserve may have their hands tied when dealing with interest rates. Just weeks ago, the idea that the Fed would raise rates by year's end was seen as a done deal by many traders. Now, many traders are doubting the Fed will have the justification for the rate hike by year's end, even if data vastly improves over the next two and a half months.

Fundamentals

A major driving force behind the recent rally in metals prices has been a short-covering by small speculators betting on a strong greenback. The US Dollar will be extremely sensitive to economic data, given the currency's relative strength is built on the foundation that rates will rise. It will be interesting to see if Gold can maintain the momentum from the short-covering and Dollar sell-off. The US Dollar Index is currently at a technically vulnerable level, hovering just above support. Failure to hold this support level could result in further technical selling, which could support further Gold advances. However, inflation remains a non-factor for the precious metals market. Chinese producer prices fell by 5.9% in September, which is the 43rd straight monthly decline. It also marks the worst reading in 6 years. With energy prices potentially succumbing to weak demand and further increases in supplies, Gold may face resistance from outside markets

Technical Notes

Turning to the chart, we see the December Gold contract breaking through resistance at the 1175.00 level yesterday. The breakout, however, does not appear to be a convincing one at this time. Wednesday's candlestick has a fairly sizable upper and lower wick and a slightly compact body, which could be a sign of some indecision. The next few sessions could be seen as pretty significant in the near-term. Traders may want to keep an eye out for confirmation of the breakout or a reversal pattern. The RSI indicator is currently at overbought levels, which could put a little pressure on prices.

Rob Kurzatkowski, Senior Commodity Analyst


October 21, 2015

Are Equity Bears in Early Hibernation?

Wednesday, October 21, 2015

The U.S. Housing market continues to shine as U.S. housing starts rose to their highest levels in nearly 8 years in September. The Commerce Department reported that new home construction rose by 6.5% to a seasonally adjusted rate of 1.21 million units. Single-family homes construction rose by 0.3% while multi-family construction rose by 17%. While we should note that monthly data for housing can be quite volatile, we have seen housing starts remain above a 1 million unit pace since April of this year.

Fundamentals

All the doom and gloom seen in the equity markets in August and September are becoming but a memory for short-term traders as the E-mini S&P 500 futures are trading near 2 month highs. It appears that market participants are starting to believe that the Federal Reserve will not make a move towards raising interest rates until late 1st quarter 2016, with Fed Fund futures prices currently showing a 30% probability of a rate hike at the December Federal Open Market Committee meeting. With the Fed apparently on hold for the time being, analysts are turning their focus towards corporate profits as we enter the beginning of the 3rd quarter earnings season. Analysts are already factoring lackluster earnings this quarter with the average estimate calling for a 4.5% decrease in earnings growth when compared to the 3rd quarter of last year. While we are still in the early stages of the earnings season we have seen the vast majority of companies that have already reported their earnings beat the street estimates for earnings per share. However, sales growth has trailed the 5-year average so far this quarter and this may be a more important factor to watch if it shows a "truer" picture for how corporations are faring as opposed to earnings per share, which can be affected by spending cuts and share buybacks. While some traders are attributing the recent equity market rally to "short covering", the analysis appears to contradict this as short interest has not materially changed since August when the sell-off occurred. So in reality, current short-interest levels could end up being a bullish factor for equities should weak equity bears start to cover their short positions in the coming weeks and could ultimately be the catalyst for the so called "Santa Claus" rally as we move into December.

Technical Notes

Looking at the weekly continuation chart for the E-mini S&P 500 futures we notice prices forming a base nestled between the up-trend line drawn from the major low made back in 2009 and the uptrend line drawn from the intermediate low made back in October 2011. This week's trading activity is setting-up a test of the 20-week moving average which is hovering near the 2030.00 price level. The 14-week RSI has moved up from recent low readings near 30 to a more neutral 49.62. The July 2015 low of 2034.25 is seen as the next chart resistance level with support found at last week's low of 1982.50.

Mike Zarembski, Senior Commodity Analyst


October 22, 2015

Earnings Take Stock Traders' Minds Off of Rates

Thursday, October 22, 2015

With earnings season upon us, traders can finally put the Fed focus on the back burner and focus on corporate earnings instead. Given the oversaturation of Fed coverage over the past several months, this was a welcome change of pace for traders. Pre-market, McDonald's, EBay and Texas Instruments all beat the street, setting a positive tone for early trading. Caterpillar reported worse than expected results. Post close, traders will look forward to earnings reports from tech giants Microsoft and Amazon.

Fundamentals

Trading has been somewhat quiet of late, as the market volatility traders were expecting in October came early in August and September. The VIX index is now trading in the mid-teens after spiking as high as 50 in late August. Much of this decline in volatility is due to corporate profits not dropping off sharply, as many had forecast. Of the companies to report earnings to this point, 46% have beaten sales estimates and 73% have topped earnings estimates. The concern that the Fed will raise rates too early, coupled with the better than expected earnings, has taken the panic out of the markets. However, recent retail sales and employment data has been less than stellar, which may make it difficult for earnings to remain strong going forward.

Technical Notes

Turning to the chart, we see the December e-mini S&P contract trading up near resistance at the 2039.25 level. This was previously the support level that was violated during the August sell-off. Breaking through this level could be seen as a technical boost for the equity markets . The chart itself shows a double bottom formation, which suggests prices could test the 2100 region if the market makes the measured move. The RSI indicator is currently at overbought levels, which may inhibit prices.

Rob Kurzatkowski, Senior Commodity Analyst


October 23, 2015

Sweet!

Friday, October 23, 2015

Both large and small speculators are turning bullish on Sugar futures according to the most recent Commitment of Traders report. During the reporting period ending October 13th, non-commercial traders added nearly 32,000 new net-long positions, while non-reportable traders added just over 12,750 contracts. This brings the cumulative speculative net-long position to over 211,500 contracts. Commercial participants are on the other side of the trade, adding over 44,600 new net-short positions last week.

Fundamentals

Today's Xpresso title is probably conveying the sentiment of bullish Sugar futures traders of late, as prices have recovered sharply from 7-year lows. Among the catalysts cited by analysts for the rise in prices was a reduction in the estimate for Brazilian Sugar exports, increased demand from China, and concerns of lower global cane production due to the El Nino weather event. The USDA lowered its estimate for Brazilian Sugar exports to 23.75 million metric tons, while also reducing its estimate for Sugar output by 1 million metric tons. This will be the third successive season of lower production for the world's largest Sugar producing nation. In addition, there are some quality concerns appearing in the newly harvested crop, as wetter than normal weather conditions during the harvest have taken a toll on crop conditions. While the news is filled with stories regarding China's slowing economic growth, the world's most populous nation still has a growing sweet tooth, as Sugar imports rose to 656,000 tons in September, which is the highest amount in nearly 2 years. The current El Nino weather event has already made in impact in India, where weather forecasters attribute this weather event as the cause for lower than normal rainfall during the all-important monsoon season. We have seen some private forecasters calling for Indian Sugar production to be lower this coming season due to insufficient rainfall. While the supply and demand fundamentals for Sugar are starting to favor the bull camp, the wild card may come from the economic realm in the guise of the currency markets and, in particular, the value of the Brazilian currency, where any signs of a rebound in the beleaguered Real could encourage producers to hold back on sales, which could lead to tightening supplies in the New Year.

Technical Notes

Today we are going to take a look at the so called "big picture" and look at the performance of Sugar futures using the weekly continuation chart going back to the early 1960's. In the last 50 plus years, there have been 3 "historic" bull markets in Sugar, with the most recent one peaking back in 2011, with Sugar trading over 36 cents per pound. The downtrend line drawn from the 2011 high has been breached to the upside the past few weeks, which may be a signal that the 4+ year bear market has ended. 15.25 is seen as the next chart resistance level for the lead month futures, with support found at 13.60.

Mike Zarembski, Senior Commodity Analyst

October 26, 2015

Pounding Steel

Monday, October 26, 2015

The steel futures contracts aren't often on the radar of active traders. Steel futures are quite illiquid and are usually held to expiration. However, the price of steel and other base metals can provide insight into global macroeconomics.

Fundamentals

The accelerating pace of job losses in the UK steel industry is a hot political topic in Parliament these days. China has been flooding the steel market with low cost steel. The overall slowdown in the Chinese economy has reduced steel demand. The strong British Pound has also hurt the UK steel industry. These job cuts have put tremendous political pressure on Prime Minister David Cameron who met with Chinese President Xi Jinping during a state visit to the UK last week. The Prime Minister's Conservative Party holds a slim 12 seat majority in the UK House of Commons and he has faced fierce criticism from opposition parties for not doing enough to protect the British steel industry.

Technical Notes

Turning to the 6 month continuation chart for the British Pound, we see choppy range bound trading, but there are some indications that the Pound may be entering another bullish run. The 20 and 50 day Simple Moving Averages (SMA) are converging and the 20 day SMA has turned upward and appears ready to cross above the 50 day SMA. The 14 day Relative Strength Index is a moderately bullish 51.44. The case for the bears is made by the series of lower highs the Pound has made since mid-June. A true bull run might be expected if the Pound can break through resistance at 1.5900.

Dale Jennings, Commodity Analyst


October 27, 2015

Corn Traders Await Harvest, Argentine Runoff

Tuesday, October 27, 2015

Corn futures have been trading in a relatively tight range, as the US harvest ramps up. According to estimates, the US harvest is roughly ¾ complete at the present time, and prices could find themselves under pressure from strong yields in Corn and Soybeans. In Argentina, traders await the November runoff election between Mauricio Macri and Daniel Scioli, who was expected to win by a sizable margin. Macri is expected to push for the elimination of export taxes on grains, which could mean more supply available outside of the country. This would appear to be bearish for Corn prices, at least on the surface, however the center right politician could also loosen some of the country's currency controls, which could drive currency volatility.

Fundamentals

As of yesterday morning, Corn is 75-76% harvested, with Illinois, Kansas and Missouri nearing completion of their respective harvests. Weather conditions have been cooperative with farmers, and there is not expected to be any severe weather which would delay the harvest. Yields are expected to be a healthy 168 bushels per acre, which is behind last year's record yield of 171 bushels per acre, but still well above norms. Indiana and Ohio have both seen a 1% improvement in crops rated good-to-excellent. While the market may get a little post-harvest boost, the fundamentals for Corn appear to have a bearish tilt at the moment. Argentine farmers may feel as though they are winners, regardless of who wins the November presidential runoff election. President Cristina Fernandez de Kirchner has frequently clashed with farmers since being elected. Macri would be the ideal choice for farmers, as he would make a push to reduce or eliminate export taxes on grains. For traders, his election would be somewhat of a wildcard due to the possibility that currencies could experience extreme volatility.

Technical Notes

Turning to the chart, we see the December Corn contract bouncing off support near the 375.00 level. It appears that the Corn market could find itself in range-bound trading between 375.00 and 400.00. Prices may encounter some resistance at the 395.00 level prior to testing the 400.00 mark. The oscillators are currently giving neutral readings.

Rob Kurzatkowski, Senior Commodity Analyst


October 28, 2015

Natural Gas Goes Below $2 as Expiration Approaches

Wednesday, October 28, 2015

U.S. consumers should see some relief in their heating bills this winter season according to government forecasters. In its short-term energy and winter fuels outlook, the U.S. Energy Information Administration (EIA) is projecting that households using Natural Gas for heating will see their winter heating bills down about 10% on average compared to last year, due to lower cost of fuel and expected lower heating demand compared to the severe winter seen in the eastern half of the U.S. last year. For those households using Propane or Heating Oil the expected savings are more substantial with the EIA forecasting an average decrease in home heating bills by 18 and 25 % respectively.

Fundamentals

Natural Gas traders in the U.S. usually consider November 1 as the "official" start to the winter heating season where we normally start to see Gas draws from storage as cold weather approaches. However, the winter of 2015-16 could shape up as "disappointing" for those bullish on Natural Gas as ample inventories combined with the potential for a warmer than average winter for a large part of the U.S. has kept price levels near 3 year lows for the lead month futures. In fact, the soon to expire November contract briefly traded below 2.000 on Tuesday as long liquidation selling ahead of the contract expiration this afternoon triggered sell-stops resting just below psychological support at 2.000. Prices quickly rebounded from multi-year lows as buyers began to emerge once the $2 handle was breached. Natural Gas storage levels are running nearly 13% above last year's levels and are 4.5% above the 5-year average for this time of year. Weather forecasts are calling for normal to above normal temperatures for the most of the country with the Climate Prediction Center in its 8-14 day outlook expecting above normal temperatures from the Great Plains through the East Coast into the second week of November. If accurate, we could see Gas storage builds continue through at least the middle of November, which could help to pressure prices of the December futures which expire at the end of November.

Technical Notes

Looking at the daily chart for December Natural Gas, we notice prices trying to stage a recovery from contract lows on Tuesday, following the sharp declines seen in the soon to expire November futures. Prices are well below both the 20 and 200-day moving averages and prices have left a rare chart gap from Friday's close and Monday's opening this week. The 14-day RSI has moved well into oversold levels with a current reading of 22.15. Chart support is seen at 2.250 with resistance not seen until the recent high of October 15 at 2.780.

Mike Zarembski, Senior Commodity Analyst


October 29, 2015

Fed Brings Little Joy for Gold Traders

Thursday, October 29, 2015

Gold futures briefly traded at a one week high before doing an about fact after the release of the Federal Reserve policy statement. The central bank decided to keep interest rates unchanged, surprising no one. However, the FOMC's general tone was far more hawkish than many traders were expecting, stating the bank would focus on whether or not to raise rates in its mid-December meeting. This sent the Dollar Index to its highest level since early August and pressuring Gold prices.

Fundamentals

Yesterday's Federal Reserve policy statement came as somewhat of a shock for traders. Prior to the meeting, Fed Funds futures had only priced in roughly a 30% chance of a Fed rate in the December meeting. However, this shifted to roughly a 50/50 chance after the statement was released. This could set a much more bullish tone for the US Dollar going forward, which may put pressure on commodity prices, namely precious metals. The third quarter has been strong from a demand standpoint. India, China and Germany accounted for about 26 tonnes of additional retail Gold buying in the third quarter. The three countries buying increased by 30%, 26% and 19%, respectively and accounted for an additional 26 tonnes of retail buying. This does not even count Russia, who is expected to be the largest official buyer of Gold this year. Global Gold coin demand rose 110% quarter over quarter and 139% year over year. Coin sales were 48 tonnes in Q3, the highest level since Q2 2010.

Technical Notes

Turning to the chart, we see the December Gold contract trading steadily lower over the past several weeks. Prices had briefly traded above the 200 day moving average, but were unable to confirm a breakout above the average. The 1175-1225 range has a lot of congestion on the chart and could be an sticking point for Gold prices. Prices are trading below the 20-day moving average. A close below the average may suggest that a near-term high may be in place.

Rob Kurzatkowski, Senior Commodity Analyst


October 30, 2015

Winter Wheat Off to a Rough Start on Dryness Concerns

Friday, October 30, 2015

The U.S. is not alone in seeing its Winter Wheat crop get off to a rough start this season. Reports out of the Black Sea region, which includes the grain growing regions of Russia and Ukraine, are that cold and dry conditions are not only slowing the pace of seeding, but also delaying the emergence of the newly planted crops. Conditions are better in Western Europe, where Wheat plantings are on pace in both France and the U.K.

Fundamentals

With the U.S. Corn and Soybean harvests nearly complete, grain traders are starting to turn some focus to the Winter Wheat crop. which so far is off to a shaky start. The USDA reported that only 47% of the crop was rated good to excellent, which is 8% below analysts' estimates. Dryness is the culprit for the disappointing crop conditions for all three of the major Winter Wheat varieties grown in the U.S. White Winter Wheat, which accounts for 10-15% of U.S. Winter Wheat production and is primarily grown in the Pacific Northwest, is off to a very poor star,t as the entire region is mired in a moderate to severe drought. Expanding drought conditions in the key Hard Red Winter Wheat growing states of Kansas and Oklahoma are also affecting the newly emerging crop, with good to excellent ratings of only 41% and 31% respectively. Soft Red Winter Wheat is faring the best overall, but even some of the western parts of the growing region in Missouri and Arkansas were experiencing issues due to dry conditions. Before one becomes too bullish on the U.S. Wheat prices, we should note that it is still very early in the season to quantify what effects current dry conditions will have on yields this spring, as crop conditions can improve greatly if they receive ample moisture/snowfall during their winter dormancy.

Technical Notes

Looking at the daily chart for December Wheat futures, we notice what could be a head and shoulders bottom technical formation. This bullish technical pattern would need to see a close above the "neckline" near the 533.00 price level to help confirm the chart pattern. Prices are currently holding above the 20-day moving average (MA), but are hovering just below the 200-day MA. The 14-day RSI has turned positive, with a current reading of 57.95. We see chart support at the October 20th low of 483.25, with resistance found at 533.25.

Mike Zarembski, Senior Commodity Analyst