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November 2016 Archives

November 1, 2016

Data Overload as Election Looms

Tuesday, November 1, 2016

As we begin the last two months of the year, this week features a plethora of economic data. Consumer spending in September rose by 0.5%, higher than the 0.4% which was forecasted. Inflation also picked up, with the Fed's preferred inflation measure, the Personal Consumption Index, rising by 0.2% for September and up 1.25% for the year. The Core PCE index, which strips out the volatile energy and food sectors, was up 0.11% for September and is up 1.7% for the year. The Fed's target is a core PCE inflation rate of 2.0%.

Fundamentals

The Federal Open Market Committee meets on November 1st and 2nd this week. The November meeting does not have a press conference by Fed chair Janet Yellen, so no rate increase is expected for November. However, Fed Funds futures are currently pointing to a 72% chance of a rate increase at the December meeting held December 13-14. This week will also feature unemployment data. First, on November 2 is the ADP employment report which is followed on November 4 by the non-farm payrolls. These will be closely watched numbers as the United States general election enters its final week. In addition, 3rd quarter productivity and labor costs are released on November 3 along with the ISM non-manufacturing index and the Markit Services PMI.

Technical Notes

Turning to the 3-month continuation chart for the E-mini S&P 500, we see a bearish trend after the down month of October. The 20-day simple moving average is serving as a resistance point and the faster moving 20-day average is below the 50-day simple moving average. The 50-day simple moving average was a previous resistance level and, if the trend were to reverse, we might expect the 20-day SMA to serve as support and the 50-day SMA to again provide resistance. 14-day relative strength index is a slightly bearish 43.41..

Dale Jennings, Commodity Analyst


November 2, 2016

Dollar Rally Topping Out?

Wednesday, November 2, 2016

Large speculators were busy adding new net-long positions in the Dollar just prior to the recent sell-off. The most recent Commitment of Traders report shows non-commercial traders added just over 8,500 new net-long Dollar positions during the reporting period that ended October 25. Ironically, this was the same day that the market put in its 2016 high. Small speculators or non-reportable traders are also overall net-long the Dollar but were moderate sellers during the last reporting period having shed nearly 1,000 net-long positions to bring their overall position to a net-long 5,352 contracts.

Fundamentals

The recent rally in the value of the U.S. Dollar vs. a basket of major currencies, which arguably started in early May, is beginning to wane as traders begin to close out Dollar positions as the U.S. Presidential Election nears. As recent polls suggest a close race between Democratic nominee Hillary Clinton and Republican nominee Donald Trump with less than a week to until the election, the uncertainty as to who the next U.S. President will be has skittish traders exiting long Dollar positions, with is giving support to both the Euro and to a lesser extent the Japanese Yen the past few trading sessions. In addition, some better economic news out of Asia including strong Chinese Factory data was also cited as a factor in the recent weakness for the 'greenback". One market that is seeing support from both the recent Dollar weakness and uncertainty in the U.S. elections is Gold, where prices have rallied nearly $50 per ounce the last 4 weeks. Gold prices tend to benefit from a lower U.S. Dollar and given the tendencies of some traders to move into Gold as a "safe haven" trade during times of uncertainty, it appears that the Gold market is starting to see some asset inflows the past several days. As we look out towards the end of the year, the Dollar could get a boost ahead of the December Federal Open Market Committee meeting scheduled for December 13 and 14 where traders of Fed Fund futures are currently pricing in a 73% probability of a Fed rate hike. An increase in U.S. short-term rates could benefit the U.S. Dollar as higher yields would make it more attractive for investors to hold Dollars vs. currencies of counties with lower yields such as the Yen or the Euro.

Technical Notes

Looking at the daily chart for the December Dollar Index futures, we notice the index briefly trading above the 99.000 level before aggressive selling emerged which send the December futures down 1.300 points from the recent highs. Prices are now testing the 20-day moving average for the first time since the start of October as the 14-day RSI has moved from overbought readings above 70 to a more neutral 53.11 as of this writing. There appears to be some minor chart support near the 97.475 price level, with major support not seen until closer to the 96.000 price level. Chart resistance is seen at the recent high of 99.090 made back on October 25.

Mike Zarembski, Senior Commodity Analyst


November 4, 2016

Traders Focused on (Cubs Win World Series!) October Non-farm Payrolls Report

Friday, November 4, 2016

The private sector continues to add new jobs, but it appears that the rate is beginning to slow. This is according to data provided from payroll service provider ADP in its monthly employment report. According to ADP, private sector payrolls increased by 147,000 jobs in October, vs. 154,000 jobs in September. The services sector continues to account for the bulk of new jobs created, adding 151,000 according to ADP. In addition, construction jobs increased by 11,000 jobs last month, however the widely watched manufacturing sector continues to struggle, having shed 6,000 jobs in October.

Fundamentals

While traders here in Chicago are currently focused on the Cubs winning the World Series, elsewhere all eyes are on the monthly employment data, which will be the last major economic report prior to the U.S. Presidential election on Tuesday. Economists are expecting in the neighborhood of between 170,000 and 180,000 jobs being created in October, which if accurate would be a modest improvement over the 156,000 jobs created in September. In addition to the "headline" figures, many traders will be keenly analyzing the data for average hourly earnings (+0.3% expected vs. +0.2% in September) and average workweek (34.4 hours expected vs. 34.4 hours in September) to help gauge any signs of "wage inflation", which would be a particular concern for Federal Reserve officials. While the "jobs" number is usually a highlight during the month for traders, it appears that this morning's figures may be overshadowed by the U.S. elections on Tuesday, which has already affected financial markets, as participants with memories of the relatively recent "Brexit" vote appear to be reducing their market exposure ahead of the U.S. vote.

Technical Notes

Looking at the weekly continuation chart for 10-year Note futures, we notice prices are in the middle of a downward correction from the 2016 highs and now are holding between the 20- and 200-day moving averages. The 14-day RSI has also turned lower, but is still reading a relatively neutral 45.69. There appears to be chart support near the 128-00 price level, which is currently just above the 200-day moving average. Chart resistance is found near the 131-24 price level.

Mike Zarembski, Senior Commodity Analyst


November 7, 2016

The Final Countdown

Monday, November 7, 2016

After a week filled with United States economic data, this week is quite light on economic data. However, the 800 pound gorilla in the room is the upcoming general election in the United States. While the lion's share of attention has been focused on the race for the presidency, there are also elections which will determine which party will control the US House of Representatives and the US Senate. In addition, there are many local races and ballot referendums.

Fundamentals

Friday saw the release of a strong non-farm payroll report for October. Payrolls rose by 161,000 for October while September was raised to 191,000 jobs created. The unemployment rate dropped from 5.0% to 4.9%. In addition, average hourly earnings increased by 0.4% and now show an increase of 2.8% year over year. Last week also featured a strong GDP report, with an expansion of 2.9% annualized. This data is likely to add to the speculation of a December rate increase. As of this writing, Fed Funds futures are pointing to a 76% chance of a December rate hike.

Technical Notes

Turning to the 3 month continuation chart, we see the E-mini S&P 500 attempting to reverse the recent bearish pattern. The past few trading sessions have seen a chart pattern of lower highs and lower low. The 20 day Simple Moving Average (SMA) has seemed to be a point of resistance. In addition, the 20 day SMA has under the 50 day SMA after it had a bearish cross back in September. 14 day Relative Strength Index is a neutral 45.34.

Dale Jennings, Commodity Analyst

November 8, 2016

Gold Risk Premium Falls Going Into Election

Tuesday, November 8, 2016

Gold futures sold off sharply yesterday after the FBI stated that no charges were warranted in the case of Democratic nominee Hillary Clinton's private email server. The Gold market had priced in risk premium due to the concern that any pending investigation could impact the outcome of the election. Some market observers view Clinton as the lower volatility candidate because she represents fewer unknowns. Trading is expected to be rather choppy today, as the focus shifts toward the election and exit polls.

Fundamentals

Market sentiment and outside markets have eclipsed fundamentals in the Gold market leading up to today's election, but some investors may finally exhale in the following weeks and there could be a stronger focus on market economics. The US Dollar Index has bounced back after weakening last week, which added some pressure to the Gold market yesterday. China's gold reserves rose to 59.24 million troy ounces at the end of October, up from 59.11 million last month. This bucks the global trend, which has seen central banks and jewelry buyers shying away from the Gold market. The third quarter has seen especially weak consumer demand in Asia, with Chinese consumers buying 22% less Gold jewelry and Indian buying falling by 28% over the same period. This quarter's jewelry demand of 493.1 tonnes was the third weakest in terms of jewelry demand over the past five years. The World Gold Council and other industry groups are hopeful that the fourth quarter will see better results, as lower prices could attract buyers.

Technical Notes

Turning to the chart, we see the December Gold contract breaking through the 1306 level over the course of 3 sessions last week. However, the breakout was not in convincing fashion, and prices fell back well below 1306 yesterday. Therefore, 1306 could still be seen as near-term resistance for the Gold market. The RSI indicator was showing overbought levels prior to yesterday's session, and the oscillator is now in neutral territory.

Rob Kurzatkowski, Senior Commodity Analyst

November 9, 2016

Soybeans Rally Ahead of USDA Data

Wednesday, November 9, 2016

The following are the pre-report estimates for this morning's USDA report:

Corn Production: 15.01 billion bushels vs. 15.057 billion bushels (October)

Corn Ave. Yields: 173.0 bu. per acre vs. 173.4 bu. per acre (October)

Soybean Production: 4.32 billion bushels vs. 4.269 billion bushels (October)

Soybean Ave. Yields: 52.0 bu. per acre vs. 51.4 bu. per acre (October)

Fundamentals

With the U.S. Presidential election finally over, traders can now take a deep breath and move forward by turning some their focus to the non-financial related markets. This morning will provide a perfect opportunity as the USDA is prepared to release their data for the November crop production and supply/demand report. The report scheduled to be released at 11 am Chicago time is expected to show U.S. Soybean production continuing to increase as analysts appear poised to revise their average yield estimates higher. If the USDA only adjusts average Soybean yields higher by 1 bushel per acre, we would expect to see production totals increased by around 80 million bushels. Even if U.S. Soybean exports remain strong, we can still expect to see the ending stocks to usage ratio more than double that from the 2015/16 season. Speaking of exports, Soybean sales last week totaled nearly 2.6 million metric tons, which was well above analyst's expectations. While the U.S. Soybean harvest is wrapping up, traders will begin to turn their attention to the Southern Hemisphere where Soybean plantings in Brazil and Argentina are beginning. Already weather concerns are starting to materialize as heavy rainfall in key growing regions of Argentina have put plantings behind the historic pace for this time of year. However, it is still early in the season for plantings so as long as the weather cooperates as we move towards the end of November; producers will still have time to catch-up with plantings before market participants raise concerns.

Technical Notes

Looking at the daily chart for January Soybeans, we notice prices moving sharply higher prior to this morning's USDA report as the 20-day moving average has crossed back above the longer-term 200-day average. This is generally viewed as a bullish technical signal but trend following traders may want to see confirmation of change in trend by having prices close above the recent highs of 1031.00 preferably on a weekly basis. In addition, momentum as measured by the 14-day RSI has also strengthened with a current reading of 61.32. The recent high of 1031.00 made back on October 27 looks to be the next major resistance level for the January futures, with chart support seen at the November 2 low of 983.00.

Mike Zarembski, Senior Commodity Analyst

November 10, 2016

Election Results Add Volatility to the Oil Market

Thursday, November 10, 2016

Crude Oil futures have been volatile intra-day over the past several sessions, as the election added some extra volatility to the market. The Oil market followed equity futures sharply lower after the market nosedived after it became apparent that Donald Trump would win the presidential election. This was largely driven by overseas influence and the market bounced back strongly once US trading began, ultimately finishing little changed for the session yesterday. Energy policy was not a hot button issue in the election, so little is known about Mr. Trump's expected energy policy or what impact improved Russian relations would have on the petroleum market. In the coming weeks and months, traders will likely get more insight on the president-elect's economic and energy policies, but things are a bit murky at the moment. As a result, we may see higher volatility than usual.

Fundamentals

Global Crude Oil production rose by 800,000 barrels per day (bpd) to reach 97.8 million bpd in October. This was driven, in part, by record production from OPEC. OPEC members increased their production by 230,000 bpd over the month to 33.83 million bpd. The Oil cartel is having a regular meeting in Vienna on November 30, which will be closely watched by traders. The group had an informal meeting in Algeria on September 28 and it is believed that a deal was reached in principle to limit the cartel's total output to between 32.5-33 million bpd. Traders are expecting OPEC to come out of the formal meeting with a finalized version of the agreement.

Technical Notes

Turning to the chart, we see the December Crude Oil trading above near-term support around the 44.00 level. This consolidation looks as though it could be forming a flag on the daily chart, given the preceding downward move. If the market sees a breakout, prices could test the 40.00 level or possibly even lower. The RSI indicator is near oversold territory, which could provide some support in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst

November 11, 2016

Natural Gas Prices in Retreat

Friday, November 11, 2016

Traders saw few surprises in Thursday morning's release of the Energy Information Administration's (EIA) weekly Gas storage report. Last week U.S. Gas stockpiles rose by 54 billion cubic feet (bcf) to 4.017 trillion cubic feet. The increase was in line with average analyst's estimates for a 53 bcf increase. Current Gas inventories are high by historic standards, currently running almost 5% above the 5-year average for this time of year.

Fundamentals

The start of the traditional heating season in the U.S. on November 1 is usually a catalyst for trader's to turn their focus to the Natural Gas futures market. This is usually the time period when demand for Natural Gas increases for use in power generation tied to heating of homes and businesses. However, it appears that Mother Nature is not yet prepared to bring in the Arctic chill just yet as temperatures have been running above normal for most of the U.S. In fact, the National Weather Service in its 6 to 10 and 8 to 14 day outlook has nearly the entire lower 48 state region at normal or above normal temperatures all the way out to the Thanksgiving Holiday. If accurate, we may see additional movement of Natural Gas into storage as we head into December. Should the "warm" spell continue into December, there are concerns that Gas supplies will be heavy as we move into the spring which could add further pressure on prices once storage builds resume. It appears that traders are already anticipating a Gas storage glut in 2017 with the January 2017 vs. April 2017 Natural Gas spread moving from a 0.350 January Premium vs. April to a modest January discount as of this writing, as market participants have removed any "weather premium" from the January futures during the start of winter.

Technical Notes

Looking at the daily chart for January 2017 Natural Gas futures we notice prices falling sharply since mid-October after a price run to yearly highs was met with aggressive selling pressure. Prices are now trading well below both the 20 and 200-day moving averages and the 14-day RSI has moved into oversold territory with a current reading of 26.28. It does appear that some "bargain hunting" buyers emerged once prices moved below the 2.750 price level as the market has rebounded once prices breached this price barrier the past two trading sessions. Wednesday's low of 2.722 appears to be the next support level for the January contract, with resistance seen at the November 7 high of 3.027.
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Mike Zarembski, Senior Commodity Analyst


November 15, 2016

Dollar Rallies as Traders Look to New Administration

Tuesday, November 15, 2016

The US Dollar Index extended its gain, rallying to 11-month highs on the expectation that demand for the greenback would pick up under the Trump administration. Traders are optimistic that the incoming administration will increase fiscal spending and reduce the tax rate, which could spark both growth and inflation. Additionally, the momentum seems to favor the hawkish camp in terms a Fed rate increase in the upcoming December meeting.

Fundamentals

As the incoming administration begins to fill key positions, traders are getting a better idea where policy direction may be headed. However, the president-elect has offered very few specifics on policy. Mr. Trump has clashed with Fed Chairwoman Janet Yellen in the past and is critical of the central bank's low interest rate policy. Whether or not the Fed would yield to the incoming administration's pressure remains to be seen, but it is very likely the FOMC would remain neutral and not let politics influence policy. The US Bond futures market has plummeted around 9 handles since the election, suggesting interest rate traders are expecting rates to rise aggressively going in 2017. In Japan, data overnight showed that the economy grew at a faster than expected pace in the third quarter, with GDP expanding by 2.2% on a year-over-year basis. This sets a negative tone for the greenback this morning, as the Yen and Euro have the most weighing in the Dollar Index. A deeper read into the numbers suggests the GDP could be a bit more optimistic on the surface, as domestic demand remains weak.

Technical Notes

Turning to the chart, we see the cash Dollar Index (DXY) breaking through resistance around the 99.00 level. Price may test the high from December of last year of 100.51. The DXY has fairly stout resistance around the 100.25 level. If the index is able to break through this resistance and move above 100.51, it may signal a breakout for the Dollar.

Rob Kurzatkowski, Senior Commodity Analyst

November 16, 2016

Inflation Questions Pressure the Pound

Wednesday, November 16, 2016

On Tuesday, the UK Office of National Statics released the eagerly anticipated inflation report for October. In September, the Consumer Prices Index rose by 1%, which was the quickest rise in inflation since November of 2014. Although economists had predicted a rise in inflation to 1.1%, the October number came in at 0.9%, lower than September.

Fundamentals

Bank of England Governor Mark Carney testified before the Parliamentary Treasury Committee on Tuesday as well. The Governor suggested that the lower October numbers should not be taken as a sign of decreasing inflationary pressure. He noted that prices paid by factories for raw materials increased substantially in October. Mr. Carney has also recently announced that he was willing to stay on as Governor until June of 2019. If the UK triggers Article 50 to indicate they wish to leave the European Union by March of 2017, then Mr. Carney will preside over the Bank of England during the entire two-year negotiating process. UK interest rates are now at a record low 0.25%. Balancing the anticipation for lower growth with higher inflation will be a tricky path for the Bank of England in the next two years ahead as the UK dives into the uncharted waters of leaving the European Union.

Technical Notes

Turning to the three-month continuation chart for the British Pound, we see a recent bullish pattern emerging for November. The slope of the 20-day Simple Moving Average (SMA) has recently turned upward, and the divergence between the 20- and 50-day SMAs is narrowing. The 50-day SMA seems to be serving as a short-term resistance point, with the 20-day SMA providing support. 14-day Relative Strength Index is a neutral 50.84.

Dale Jennings, Commodity Analyst


November 17, 2016

Russian Comments Offset Increased Crude Supplies

Thursday, November 17, 2016

Traders saw a larger than expected build for Crude inventories last week at the same time higher refining utilization led to unexpected builds for both Gasoline and Distillates. The weekly Energy Information Administration (EIA) energy stocks report showed U.S. Crude Oil inventories rose by 5.275 million barrels last week. Traders were expecting a build of just over 1 million barrels. Refinery utilization rose to a stronger than expected 89.2% last week as additional refiners came back online following maintenance. This production increase led to increased inventories in both Gasoline, up 746,000 barrels and Distillates, up 310,000 barrels last week.

Fundamentals

Volatility has returned to the Crude Oil futures market as prices have turned choppy following the U.S. elections. Fundamentally, Oil bears seem to have the upper-hand as a large global Oil surplus, particularly in the U.S., as well as uncertainty whether OPEC members can come to some sort of an agreement on curbing production to help absorb the current Oil glut. The market received some positive news from comments made by Russian Energy Minister Alexander Novak that Russia was prepared to support any decision on production from OPEC, which is scheduled to meet on November 30. The comments were reported following the weekly release of the EIA energy stock report which showed a larger than anticipated storage build for both Crude Oil and its products. Spread trading should be prominent as we head into the end of the week as Wednesday was the option expiration date for the December Crude Oil futures options so position holders in the December futures will begin to roll forward their position into the January futures ahead of the last trading day for the December contract on November 21.

Technical Notes

Looking at the daily chart for January Crude Oil, we notice prices attempting an upside test of the 200-day moving average on Wednesday. Prices failed to close above this long-term technical indicator as a larger than expected storage build drew selling pressure into the market on any rally attempts. The 14-day RSI has moved from near oversold levels to a more neutral reading of 45.40. Monday's low of 42.95 looks to be the next significant support level for the January contract, with resistance seen at the November 2 high of 47.05.

Mike Zarembski, Senior Commodity Analyst


November 18, 2016

Was the U.S. Presidential Election the Catalyst to End the Bond Bull Market?

Friday, November 18, 2016

Despite Bond prices starting to turn lower, we have not seen much change in the yield curve since the beginning of the year, In fact, comparing the 2yr/30yr curve from January 4 to current we see the curve moving out by only 0.01 from 1.96 to 1.97 30yr premium. Even the individual rates have returned to levels we have seen in January. So ultimately, traders saw quite a bit of volatility in yields throughout the year only to end up where we started at.

Fundamentals

For those traders who have been looking to pick a top in the U.S. Bond market, I always believed that the 30-plus year Bond bull market would continue until a "catalyst" occurred that would be the trigger to end the historic run. Given the recent performance of Treasury Bond futures prices the past several weeks, one has to ponder if the results of the Brexit vote and now the U.S. Presidential election was indeed that catalyst and a major top for Bond prices may have already formed. Researching historic yields for 10-year U.S. Government bonds, we note the last major "low" for yields occurred just after World War II as yields fell below 2%. Following this "low" yields rose for about 35 years before reaching a "peak" above 15% in 1981. Ironically, the latest Bond market bull move has also been in place for approximately 35 years. With indications that the Fed may be finally ready to raise interest rates in December, and discussions that President-elect Donald Trump may propose a large infrastructure bill that could be paid for by additional borrowing and potentially spark some increased inflation pressures, we are starting to see some fundamental factors that would tend to point towards a movement where investors may start to demand higher yields for purchasing government debt. While not occurring directly in the U.S., the concept of the justification and acceptance of negative interest rates certainty has all the hallmarks of the mentality seen during market bubbles where investors and traders start to believe that "this time is different" and are able to find some justification for market price movements, that on the surface, appear to be "irrational" to an outsider. Of course it is only in the guise of historical hindsight that the formation of market bubbles becomes "clear" to all, but remains murky to traders and investors in the present.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice prices trading below a couple of key technical indicators such as the 20 and 200-day moving averages and the uptrend line drawn from the December 2013 low. In addition the 20-day moving average has crossed below the 200-day average for the first time in nearly a year. While Bond bears appear to be in control, we should note that the 14-day RSI fallen deep into oversold territory with a current reading of 20.18 and a bout of short-covering buying would not be out of the question. The next support level is seen at the November 14 low of 152-24, with resistance not seen until the November 9 high at 164-31.

Mike Zarembski, Senior Commodity Analyst


November 21, 2016

Now the 2017 Election Season Begins

Monday, November 21, 2016

As 2016 draws to a close, traders are still try to interpret what the surprise decision of the UK to leave the EU and the election of Donald Trump will mean for global economics and financial markets. There's still one crucial referendum in Italy on December 5th. The major European elections for 2017 are:


March 15. 2017 Netherlands General Election

April 23, 2017 French Presidential Election

May 7, 2017 French Presidential Election runoff (if necessary)

To Be Determined: German Bundestag Election


Fundamentals

The upcoming referendum in Italy is technically a reform of the Italian constitution. A yes vote would make it easier for the ruling party to pass legislation as well as reducing the power of the Italian Senate. However, if the referendum fails, Prime Minister Matteo Renzi has suggested he would resign. If Mr. Renzi were to resign, new elections would be called. Three opposition parties in Italy favor leaving the Eurozone, as they point out how Italy has failed economically since adopting the Euro -- especially when compared with Germany and France, the two largest economies in the Eurozone.

Technical Notes

Turning to the 3-month continuation chart, we see a bearish pattern for the Euro as it threatens to reach parity with the US Dollar. November trading has seen a pattern of lower highs and lower lows. The 20-day Simple Moving Average (SMA) is below the 50-day SMA and the divergence between the two continues to increase as the 20-day SMA is angled sharply downward. 14-day relative strength index is in oversold territory at 21.65.

Dale Jennings, Commodity Analyst


November 22, 2016

Fed Expectations Hit Gold?

Tuesday, November 22, 2016

Gold futures rebounded yesterday after hitting a 9-month low on Friday. The US Dollar Index has been on a tear since the election, which has hurt the metal's appeal as an investment vehicle. Businesses have been extremely optimistic that the incoming presidential administration will create an environment that favors growth. As a result, some traders have been in risk-on mode to the detriment of defensive instruments.

Fundamentals

One of the major driving forces behind the US Dollar's strong showing in recent weeks has been the expectation that the Federal Reserve will raise interest rates in December. Fed Fund futures have priced in a 100% chance of a rate hike of between 25 and 75 basis points in December. Many market observers are expecting the FOMC to step up the pace of rate increases in 2017, but some Fed Funds traders only see rates increasing between 75 and 150 basis points by September of next year. Global demand was down 10% in the third quarter and it was exchange traded products that kept demand from being downright abysmal, according the Wold Gold Council. According to the WGC, the ETP demand of 146 tons partially offset the large decreases in physical demand in jewelry (-21%), bars and coins (-36%) and purchases by central banks (-51%). Also, efficient Gold recycling has added more supply to the market, which will be difficult to account for in a weak demand environment. Gold recycling was up by 30% year over year in Q3.

Technical Notes

Turning to the chart, we see the December Gold contract trading below near-term support around the 1215 level over the past three trading sessions. However, this is not a convincing breakout of support, so traders may be looking for a more decisive breakout. If the market confirms a downside breakout, the next support area may be found around the 1175.00 mark.

Rob Kurzatkowski, Senior Commodity Analyst

November 30, 2016

Copper Prices Stumble after Brief Run to Yearly Highs

Wednesday, November 30, 2016

Large speculators have embraced the recent rally in Copper prices adding to existing net-long positions the past week. According to the most recent Commitment of Trader's report, non-commercial traders added an additional 1,499 new net-long positons during the reporting period ending November 22. This brings the net-long positon up to 46,269 contracts. Commercial traders make up the bulk of the other side of the large speculators trade adding an additional 54,962 net-short positions during the reporting period to bring their total net-position to short 47,952 contracts. The non-reportable traders, usually small speculative accounts has reversed their positions from net-short to net-long the past week by adding 3,462 new net-long positions.

Fundamentals

Bullish Commodity Traders have taken a likening to the Copper market of late as prices have run up nearly 60 cents in just over 1 months' time. Among the catalysts for the sharp increases in prices are declining Copper inventories held at London Metal Exchange (LME) warehouses, expectations of increased spending on infrastructure projects in both the U.S. and China, as well as short covering by speculators who were caught holding short Copper positions ahead of the recent rally. The increase in infrastructure spending should it materialize, could have the greatest influence on Copper prices in the near to intermediate term as increased demand for Copper as well as, industrial commodities in general, could be the catalyst that finally ends the bear market for commodities that has been in place since 2008. Global Copper supplies are expected to move to a deficit in 2017 as demand is expected to increase more quickly than production can ramp-up to meet the demand. We must remember that Copper prices have been depressed for several years as global growth prospects were dim. This led producers to curtail production at money losing mining operations that will only be brought back on-line should the market show signs that the demand recovery will be sustainable. That being said, one does have to ponder if prices have moved up too quickly on the "hope" of a demand recovery and the velocity of the price move could lead to a significant price correction as late comers to the rally start to close out positions if new highs are not made soon. The rising value of the U.S. Dollar may also start becoming a factor for commodity prices including Copper as it makes Dollar denominated assets more expensive for non-Dollar users. Copper traders will be keeping a close eye on what action the Federal Reserve takes in regards to interest rates at the December Federal Open Market Committee meeting. While participants in Fed Fund futures are pricing in a 98% probability of a rate hike at the December meeting, should the Fed decide to hold-off on a rate hike once again, it could send a message to traders that the Fed is still fearful on the prospects of economic growth which could be viewed as a negative factor for commodities in general but especially for Copper given its recent upward price move.

Technical Notes

Looking at the daily chart for March 2017 Copper futures, we notice price made a rather "parabolic" up move beginning in late October and have recently traded above the "spike" high of 2.7345 made back on November 11 before some profit-taking selling emerged during the past two trading sessions. The 14-day RSI had been holding above 70 for a significant amount of time but has just recently fallen below overbought levels with a current reading of 67.98. The November 28 high of 2.7530 is seen as the next major resistance level with chart support found at 2.4350.

Mike Zarembski, Senior Commodity Analyst


November 28, 2016

Brexit Budget Battles

Monday, November 28, 2016

Last Wednesday, UK Chancellor of the Exchequer Phillip Hammond delivered his first Autumn Statement. The Autumn Statement is one of two semiannual reports from the Treasure department to Parliament and this was the first such report since the UK voted to leave the EU in June.

Fundamentals

Although the Office for Budget Responsibility (OBR) 2016 growth forecast for 2016 was raised to 2.1%, the OBR growth forecast for subsequent years was slashed. 2017 was slashed from 2.2% to 1.7%. A second organization, the Organization for Economic Cooperation and Development also released their growth figures: an upward revision from 1.8% for 2016 and an upward revision from 1.0% to 1.2%. The Chancellor also abandoned plans for a budget surplus by the end of the decade which was targeted by the previous government and also announced additional borrowing. This increased borrowing will threaten to push the debt to GDP ratio close to 90% by March of 2018. Some economists believe that economic growth is threatened once the debt to GDP ratio reaches the 90% level. The lower projected growth, increased borrowing, expected inflationary pressure, and overall economic uncertainty will add even more stress on the upcoming negotiations on the UK's exit from the European Union.
The Sunday Times has reported that Bank of England Governor Mark Carney is considering a 'Brexit Buffer Zone' which would keep the UK inside the European Single Market until at least 2021. This could help ease the uncertainty surround the exit as well as allowing businesses additional time to adapt to a new relationship between the UK and EU. In addition, two previous Prime Ministers have suggested there is a case for a second referendum on the terms of the exit from the EU. In separate statements, Tony Blair (Labour Prime Minister 1997-2007) and John Major (Conservative Prime Minister 1990-1997) have indicated there may be a case for a second referendum.

Technical Notes

Turning to the three month continuation chart for the British Pound, we see that trading has been choppy and in a narrow trading range recently. The slope of the 20-day simple moving average (SMA) has turned upward and is quickly approaching the 50-day SMA. There is almost no divergence between the slower and faster moving averages now. The 20-day SMA is providing short term support while the 50 day SMA is providing resistance. 14 day RSI is a neutral 48.21.

Dale Jennings, Commodity Analyst

November 29, 2016

OPEC Deal Falling Apart?

Tuesday, November 29, 2016

Crude Oil futures are lower this morning, as traders are beginning to doubt that a deal will be reached to cut output. In September, OPEC ministers had an informal meeting in Algeria where a tentative handshake deal was reached to cut output. However, there are signs that the group may not reach that deal at the official meeting currently underway in Vienna. Saudi Arabia Oil Minister, Khalid Al-Falih, had stated that the deal may not be necessary on Sunday. Russia, which is not an OPEC member, is a key player in the agreement and member countries may not come to an agreement without Russian assurances. Russia has been reluctant to agree to a production cut and is, instead, offering to keep production at 11.2 million barrels a day, which they argue is the same as a production freeze, as they had planned to increase production in 2017. Some OPEC ministers flew to Russia while others began a new round of talks to try to salvage a deal.

Fundamentals

According to the International Energy Administration (IEA), global stockpiles of Crude Oil are set to grow in 2017. If the IEA is correct, it would mark the fourth consecutive annual production surplus. The 2017 global outlook is why some member states, such as Iraq and Iran, have been arguing so vehemently for OPEC to reach a deal to curb production. On the other hand, some have argued that limiting production will only hurt member countries, as production elsewhere is on the rise. North Sea and Gulf of Mexico production is expected to increase in 2017. Consumption is expected to remain weak next year, according to the IEA, especially in China and India. The Administration forecast global demand at 97.3 million barrels a day, which was 200,000 barrels a day lower than its prior forecast.

Technical Notes

Turning to the chart, we see the daily continuous Crude Oil contract remaining in a trading range. Near-term support may be found around the 43.05 level with additional support around the 41.60 level. On the upside, Crude Oil may be able to gain some traction if prices can manage to break through the 49.05 level. Both the RSI and momentum indicators are giving neutral readings.

Rob Kurzatkowski, Senior Commodity Analyst