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February 2017 Archives

February 1, 2017

Precious Metals Rally as Dollar Strength Fades

Wednesday, February 1, 2017

Today's Spotlight Market

Both large and small speculators are holding overall net-long positions in the precious metals sector, with the large specs being more aggressive in adding to the long positions of late. According to the most recent Commitment of Traders report for the reporting period ending January 24, non-commercial traders added 1,140 new net-long positions to their Silver holdings, bringing the overall net-long position to nearly 70,000 contracts. In Gold, 443 new-net long positions were added, which took the net-long position to over 107,000 contracts. Small speculators were more involved in Gold the past week, adding 825 new-net long positions, while in Silver there was actually a small reduction in the long position, shedding 19 contracts during the reporting period.

Fundamentals

Precious metals bulls have had something to smile about the past several trading sessions, as recent U.S. Dollar weakening and an apparent move by some investors out of "risk" assets have benefited both Gold and Silver prices. February Gold was up over $20 per ounce at its highest levels on Tuesday, trading once again above the $1200 price level on concerns regarding how quickly the Trump administration will be able to implement economic friendly policies given the divisions seen from political leaders regarding the administration's executive actions so far. In addition, we have seen the value of the U.S. Dollar index decline since multi-year highs were made at the start of the month, with further declines seen on Tuesday following the release of the Chicago Purchasing Managers Index which fell to a reading of 50.3 in January, vs. 53.9 in December. Silver appears to be the stronger of the two major precious metals, currently trading at a 2 ½ month high, which may be a signal that the buying interest is coming from speculative traders rather than those looking for "flight to safety" assets. Gold prices remain below recent highs, but Tuesday's strong gains took prices above the 20-day moving average, which could trigger additional buying interest by short-term momentum traders hoping to see Gold prices make a run to test the recent highs just above the 1220.00 price level.

Technical Notes

Looking at the daily chart for March Silver futures, we notice prices breaking out to the upside following a brief correction and a successful test of the 20-day moving average. While prices are now at multi-week highs, we note some upside headwinds in the form of the 200-day moving average, which is currently hovering just above the 18.000 price level. Momentum for Silver prices is strong, with the 14-day RSI moving above 60, with a current reading of 62.46. 18.000 appears to be the next major resistance level for the March contract, with support seen at the recent low of 16.635 made back on January 27.

Mike Zarembski, Senior Commodity Analyst

February 2, 2017

Dollar Out of Favor

Thursday, February 2, 2017

Today's Spotlight Market

The cash US Dollar Index fell after yesterday's FOMC statement in which the central bank decided to keep monetary policy on hold. The Committee cited inflation as one of the reasons for keeping rates steady. While inflation has been on the rise recently, partially boosted by the increase in energy prices, it remains below the Fed's 2% target rate. With a new administration coming in, the decision to keep interest rates steady was not a surprise for many market observers. The prudent move would be to see more details from the Trump administration's proposed fiscal policies before making any changes to interest rate policy.

Fundamentals

The US Dollar Index had a weak month of January and hit two and a half month lows to start February, as currency traders' love affair with the Dollar appears to have waned since the election hangover. Initially, many market observers believed that Trump's tough talk about the Fed would lead to a stronger greenback. However, it has been more apparent that the administration might not support a stronger Dollar. Recent comments from the head of Trump's recently formed National Trade Council Peter Navarro seem to indicate the administration views the US Dollar as overvalued. Navarro compared the Euro currency with an "implicit Deutsche mark," which gives Germany an advantage with its trade partners. The comments sent the Dollar lower.

Technical Notes

Turning to the chart, we see the cash US Dollar Index (DXY) falling below the 100.00 level and closed below the level over the past 2 trading sessions and is trading below the level in early trading. The next support levels may be found near 98.90 and 97.50. The DXY is below the 100-day moving average, which can be seen as negative. It is interesting to note that the RSI remains oversold, but has flattened out while prices have continued to fall, creating positive divergence.

Rob Kurzatkowski, Senior Commodity Analyst


February 6, 2017

All About The Numbers

Monday, February 6, 2017

Today's Spotlight Market

Friday saw the release of the first non-farm payroll numbers for 2017. In January, 227,000 jobs were created, which is above the consensus 175,000 jobs expected. The unemployment rate ticked up from 4.7% to 4.8%, which is still below the 5% natural rate of unemployment. The labor force participation rate ticked up to 62.9%. However, hourly earnings increased by just 3 cents, which reduced the annual wage growth rate to 2.5%.

Fundamentals

Fed Funds futures for March are indicating only a 9% chance of a rate hike. The Fed may take a wait and see approach for a 2017 rate increase as they examine the Trump administration's spending plans and fiscal policy. The lack of wage push inflation reduces the need for an immediate rate increase, although the Fed will probably be keeping an eye on commodity and energy prices which have been on the increase. As of this writing, the most likely rate increase will occur at the June 14 meeting. The Fed will also be watching the second and final estimates of 2016 4th quarter GDP and the first estimate of 1st quarter 2017 GDP to see if the pace of growth has finally picked up after a long period of slow growth.

Technical Notes

Turning to the 3-month continuation chart for the March E-mini S&P, we see a moderately bullish pattern without many periods of volatility as demonstrated by the small candlesticks. The 20-day SMA is providing support, which has frequently tested and held. The 20-day SMA crossed above the 50-day SMA back in November, and both SMAs have gentle upslope. 14-day RSI is a moderately bullish 62.11.

Dale Jennings, Commodity Analyst


February 7, 2017

Dollar Slump, Uncertainty Fuel Gold

Tuesday, February 7, 2017

Today's Spotlight Market

Gold futures have rallied to their highest level in almost three months, as the US Dollar flounders and traders remain uncertain over the state of the US economy. Traders have lost faith in the US Dollar due to recent comments from President Trump and administration members regarding the currency being overvalued. The Federal Reserve's policy statement suggests the bank may stick to its wait and see approach and not raise rates in the near-term. This has obviously bolstered Gold's value as a Dollar and inflation hedge.

Fundamentals

In addition to currency movement, traders have been flocking to Gold as a flight to quality asset. Economic uncertainty is a main driving force behind traders choosing the precious metals market as an investment. The new presidential administration has not been as forthcoming about policy as many would like to see and there appears to be disagreement between the White House and Congressional Republicans over fundamental issues. Traders do not like uncertainty, so the lack of concrete policy details has put them on edge a bit. Gold has also benefited from geopolitical friction between the US and Iran, with both nations heating up their rhetoric. There are also jitters that one of the nations could step away from the current nuclear accord. Marine Le Pen, one of the two main presidential front-runners in France, has escalated her anti-globalization talk. Ms. Le Pen has called for a "frexit," or French exit from the European Union. If elected, she vowed to enter into a "radical" 6 month negotiations with EU leaders. Physical Gold demand from industry remains a weak point for the metal. However, 2016 was the second strongest demand year on record, according to the World Gold Council. The SPDR Gold Trust ETF, the world's largest Gold ETF, has seen inventories rise to their highest level of 2017 after holdings fell a bit in late January.

Technical Notes

Turning to the chart, we see the April Gold futures contract breaking through near-term resistance around the 1215.00 level. The next area of resistance may be found near the 1252.00 level. The positive crossover of the 20- and 50-day moving average may be seen as bullish in the near-term, as could the closes above the 100-day moving average. The RSI indicator remains neutral, suggesting prices could move with little resistance.

Rob Kurzatkowski, Senior Commodity Analyst


February 8, 2017

Will Weak Wage Growth Keep the Fed from Raising Rates in March?

Wednesday, February 8, 2017

Today's Spotlight Market

Those traders who follow the Fed Funds futures market for a gauge of market sentiment regarding the Federal Reserve potential interest rate moves will note that the probably of a rate hike at the March Federal Open Market Committee (FOMC) meeting are slim. The March Fed Funds futures are pricing in only an 8.9% probability of a 25 basis point rate hike at the March 15 meeting. In fact it is not until the June 2017 futures where the market is pricing in an over 50% probability of a rate hike. If accurate, the Fed would have to have a hike at 3 of the last 5 FOMC meeting of the year to match the 3 rate hikes expected by Fed officials at the end of 2016.

Fundamentals

Traders and analysts were correct in revising upward their outlook for Job growth last month, following a larger than expected increase private sector jobs (+246,000 vs. +160,000 expected) according to ADP. Last Friday's release of the Non-farm payrolls report for January showed that 227,000 jobs were added last month vs. a revised 157,000 jobs originally reported in December. While we did see a very modest uptick in the unemployment rate to 4.8% vs. 4.7% in December, an increase in the labor participant rate to 62.9% from 62.7% most likely accounted for the increase as more workers re-entered the labor market. The one glaring negative from the data was the very slow growth in workers' paychecks as average hourly earnings rose by a lower than expected 0.1%. The slowing growth in wages could add to the concerns of Federal Reserve officials who appear to have already toned down some of the "hawkish" talk we saw at the end of the year when the Fed said they expected 3 interest rate hikes in 2017. Last week we had the first Federal Open Market Committee meeting of 2017 and as expected the Fed kept interest rates unchanged. However, market participants were expecting the Fed to signal that a rate increase would be "in the cards" for March, but no such "hints" were forthcoming from the Fed statement. It appears that market participants took this as a signal that the Fed would be in a "want and see" mode as to how the new Presidential Administration fiscal agenda would be implemented. This in turn could keep the Fed on the sidelines and potentially keep the first of the anticipated 3 interest rate hikes the Fed expected to enact in 2017 from being implemented until sometime in the second quarter at the earliest.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures we notice prices appearing to consolidate trading in a narrow 2 point range so far in 2017. The market is currently trading near the upper boundary of the recent price range and currently holding above the 20-day moving average. The 14-day RSI is neutral to positive with a current reading of 55.28. Near-term chart support is seen at the January 26 low of 123-18, with near-term resistance seen at the recent high of 125-13.5 made back on January 17.

Mike Zarembski, Senior Commodity Analyst


February 10, 2017

Corn Prices Near 7-Month Highs Following Supply/Demand Report

Friday, February 10, 2017

Today's Spotlight Market

On Thursday, the USDA released its monthly supply and demand report for grains and oilseeds. Corn prices traded on both sides of unchanged following a smaller than expected U.S. stockpiles estimate of 2.32 billion bushels. This was over 20 million bushels below the average trade estimate. World Corn stocks were seen at 217.6 million metric tons (mmt) which was 3 mmt below estimates. The USDA left unchanged its estimate for Brazilian Corn production at 86.5 mmt and moderately raised its estimate for Argentina's Corn production by 0.8 mmt to 36.5 mmt.

Fundamentals

Corn futures have been on a steady climb since September 2016 with prices currently trading near 7-month highs as of this writing. It appears that market participants are focusing on current strong U.S. Corn exports and solid demand from ethanol producers as fundamental factors for being long the market. However, we are quite aware that we are in a global market for grains and attention will need to be paid to South America, where it appears that a bumper Corn crop will be harvested out of Brazil with official estimates calling for production to total a record 87.4 million metric tons this season. Relatively weak Brazilian Real vs. the U.S. Dollar and looming large supplies of Corn from the harvest could see end users turn to both Brazil and Argentina for their Corn imports in the coming weeks at the expense of U.S. exporters. In addition, Corn's recent price performance vs. Soybeans may influence marginal producers to plant more Corn this spring than originally thought although we should still see U.S. Corn plantings lower than last season's totals. The coming weeks will provide traders with plenty of fundamental data with the USDA outlook for U.S. agricultural trade and food price outlook due out on February 23 and the widely anticipated prospective planting report to be released on March 31 which is the "unofficial" start of the spring plantings season in the U.S.

Technical Notes

Looking at the daily chart for March Corn futures, we notice prices have recently moved above both the 20 and 200-day moving average (MA) for the first time since June of last year. We are also starting to see the 20-day MA preparing to potentially cross above the longer-term 200-day MA which is generally seen as a bullish technical indicator. The 14-day RSI has strengthened with a current reading of 61.14. The next major resistance level is seen at the July 14 high of 387.50, with major chart found at the August 31 low of 325.00.

Mike Zarembski, Senior Commodity Analyst


February 13, 2017

Fears of a Frexit?

Monday, February 13, 2017

Today's Spotlight Market

After the two 2016 electoral shocks with the UK voting to leave the European Union and the USA election of Donald Trump as president, investors are cautiously approaching the upcoming French presidential election. The premium for French government bonds over German government bonds has widened to its highest level in four years. In addition, the European Commission has projected that France's budget deficit will be 3.1% for 2018, which is above the 3.0% allowed by the Stability and Growth Pact of the European Economic and Monetary Union.

Fundamentals

The first round of the 2017 French Presidential election will take place on April 23. With numerous candidates competing in the first round, it is highly likely that no one candidate will get a majority and the election will be decided in a run-off election between the top two vote getters. The three candidates that are polling the highest are: Francois Fillon of the Republican (France) Party, Emmanuel Marcon who is Independent, and Marine Le Pen of the National Front. As of now, it is expected that Le Pen may win the most votes in the first round, but either Marcon or Fillon would defeat Le Pen in the second round. A surprise Le Pen win could threaten the Euro, as Le Pen has promised to withdraw France from the monetary union and reintroduce the Franc. In addition, Le Pen also wants to limit the free movement of people, which is a core policy of the European Union. Thus, a Le Pen win could threaten not only the survival of the Euro but also the European Union.

Technical Notes

Turning to the 3-month continuation chart, we see a reversal of the recent Euro currency bull run. Previously, support was offered by the 20-day SMA, that support was broken and the 20-day SMA is now providing resistance with the slower moving 50-day SMA providing support. If that support is broken, look for the next support level at the previous lows 1.04250 lows. 14-day RSI is a mildly bearish 41.83

Dale Jennings, Commodity Analyst


February 15, 2017

Traders Still Doubt Fed Will Raise Rates at March FOMC Meeting

Wednesday, February 15, 2017

Today's Spotlight Market

While U.S. equity markets continue to make new highs, we saw large speculators reduce their overall net-long position in the 2 leading stock index futures contracts. According to the most recent Commitment of Traders report, non-commercial traders reduced their net-long position in E-mini S&P 500 futures by 25,344 contracts during the reporting period ending February 7. The reduction in the net-long position in the E-mini Nasdaq 100 futures was a more modest 8,429 contracts. Small speculators remain net-short in both the E-mini S&P 500 and Nasdaq 100 but saw some decent short-covering, especially in the E-mini S&P 500 during the reporting period.

Fundamentals

U.S. equities markets rose to new all-time highs on Tuesday, despite comments from Fed Chair Janet Yellen that the Fed would not rule out an interest rate hike as early as the March Federal Open Market Committee (FOMC) meeting. During Congressional testimony in front of the Senate Banking committee on monetary policy, Ms. Yellen stated that if both jobs growth and inflation acceleration increased as expected, it would be appropriate for the Fed to increase the Fed Funds rate. While not specifically targeting the 2-day March FOMC meeting scheduled for March 14 and 15, recent economic data such as the Producer Price index for January (+0.6% vs. +0.3% expected) showed that inflationary pressures have started to accelerate. This combined with solid jobs data last month, may be enough to convince the "data dependent" Fed that the economy can sustain an interest rate hike as soon as March. However, market participants in the Fed Funds futures market are still expecting the Fed to remain on hold for a rate hike next month, as the March Fed Funds futures are only pricing in a 17.7.% probability of a rate hike at the March FOMC meeting. This probability jumps to over 40% for the May meeting, which makes sense if the Fed remains on track for 3 rate hikes in 2017. While an increase in interest rates would appear on the surface to be a "bearish" factor for equities, it appears that traders still believe that President Trump's fiscal policies, such as lowering tax rates for corporations and reducing the burden of regulations, will overcome any headwinds from higher interest rates and ultimately be the fuel needed to keep the nearly 8-year-old bull market in equities steadily rolling along.

Technical Notes

Looming at the daily continuation chart for the E-mini Nasdaq 100 futures, we note prices have been in a steady up-move since the Election Day "spike" low in early November. Of particular note was how prices successfully tested the 200-day Moving Average on Election night that set the stage for the over 700-point rally that has occurred since. The 14-day RSI remains at overbought levels, with a current reading of 78.22. However, this momentum indicator has made a new high along with the index. Since we are at all-time highs, finding chart resistance is difficult. We do note potential psychological resistance at the next "round number" at 5500.00. Chart support is seen at the most recent "minor" low of 5083.25 which was made back on January 31.

Mike Zarembski, Senior Commodity Analyst

February 17, 2017

Oil Prices Hold Steady Despite Large Storage Build

Friday, February 17, 2017

Today's Spotlight Market

Here are the highlights from Wednesday's Energy Information Administration's Energy Stocks report:

Crude Oil Inventories: + 9.527 million barrels Current Totals: 518.119 million barrels

Gasoline Inventories: + 2.846 million barrels Current Totals: 259.063 million barrels

Distillates Inventories: -0.689 million barrels Current Totals: 170.057 million barrels


Fundamentals

How market prices react to what on the surface appears to be either bullish or bearish news can be a clue to the ultimate price strength of a market. Utilizing this theory in the Crude Oil market, one could reasonably be impressed in how well prices held up considering the rather large storage build seen last week. In its weekly energy stocks report, the Energy Information Administration (EIA) reported that U.S. Crude Oil inventories rose by over 9.5 million barrels during the week ending February 10. This brings total U.S. Crude inventories to just over 518 million barrels. To put this total into some perspective, the 5-year average is 371.6 million barrels. The increase in Oil inventories was mostly tied to lower refining rates which fell to 85.4% vs. the 5-year average for this time of year of just over 88%. While U.S. Oil inventories continue to increase, it appears that traders are more focused on what OPEC is doing regarding production cuts with some talk that an agreement among the cartel members to cut production could be extended further if global Oil inventories remain elevated. The lead month April Crude Oil futures show prices remain range bound with in a $2.50 price band but not far from recent highs as traders appear reluctant to move prices lower while OPEC appears to be holding to announced production cuts. However, should market participants start to see reports of "cheating" by OPEC members or global economic growth begins to level off, Oil prices could become vulnerable to long liquidation selling pressures as speculators have been accumulating a rather large net-long position the past several months.

Technical Notes

Looking at the daily chart for April Crude Oil futures, we notice price continue to consolidate between $52.50 and $55.00 following a brief move below $52.00 which appears to have been nothing more than a "bear trap" as the market quickly found renewed buying interest at the recent lows. Prices are now holding right around the 20-day moving average (MA) and remain over $2.00 above the long-term 200-day MA. The 14-day RSI appears to confirm the recent consolidation pattern as this momentum indicator is currently reading a very neutral 50.20. The recent low of 51.86, made back on February 8 looks to be the next significant support level for the April futures while the recent high of 56.92 made back on January 3 should act as significant resistance.

Mike Zarembski, Senior Commodity Analyst

February 22, 2017

Stronger 'Greenback" Fails to Suppress Copper Prices

Wednesday, February 22, 2017

Today's Spotlight Market

Large speculators were busy liquidating long positions in Copper futures last week which was apparent by the price action seen in the market. According to the most recent Commitment of Traders (COT) report, we saw non-commercial traders reduce the overall net-long position by over 6,600 contracts during the reporting period ending February 14. This reduced the net-long position by these large speculative accounts to 44,855 contracts. Commercial traders were on the other side of the large specs reducing their net- short position by almost 6,500 contracts. Small speculators, known as non-re-portable traders on the COT report, increased their overall net-long position slightly by adding a net 169 new net-long contracts during the reporting period.


Fundamentals

After a minor correction from 21-month highs, it appears that Copper prices are ready to resume the uptrend as potential supply issues are overshadowing stronger U.S. Dollar prospects. A labor strike at the Escondida mine in Chile, which produces about 5% of the world's Copper, has caught the attention of market participants. While the labor stoppage is only 2 weeks old, traders fear any supply disruptions from the strike combined with other potential issues in Chile and Indonesia have put some "risk premium" into prices in the near-term. Copper prices rose on Tuesday, following the long holiday weekend in the U.S. for the President's Day Holiday, despite a sharp up-move in the value of the U.S. Dollar. The U.S. Dollar Index was up over 0.40 as of this writing, moving the March futures back above 101.000. A rising Dollar is generally viewed as a bearish factor towards commodity prices, as it makes purchases of Dollar denominated commodities more expensive for non-Dollar users. Copper's strength in the face of the strong "greenback" could be a signal that the recent correction has run its course and a test of recent highs might be forthcoming.

Technical Notes

Looking at the daily chart for May Copper, we notice what may be a "bull flag" formation being created. This technical indicator usually favors a move back in the direction of the most recent major trend which is currently bullish. Prices remain above the 20-day moving average and trading volume has been increasing, although we should note that some of the volume increase is tied into rolling of positions from the front month March contract ahead of First Notice Day on February 28. The 14-day RSI has turned upward, with a current reading of 57.97. This past Friday's low of 2.6955 looks to be the next support level for the May contract, with chart resistance seen at the recent high of 2.8360 made back on February 13.

Mike Zarembski, Senior Commodity Analyst

February 27, 2017

Sunshine in Europe

Monday, February 27, 2017

Today's Spotlight Market

Markit Eurozone PMI rose to 56.0 in February, up from 54.4 in January. This included growth in both services and manufacturing. In the two largest Eurozone economies, German composite PMI was at 56.1 while France came in at 56.2. In addition, employment is picking up. The Eurozone unemployment rate is down to 9.6%, which is the lowest it has been in seven years.


Fundamentals

Economic confidence also rose in February to 108. Eurozone inflation figures are due out on Thursday, with a forecast of 1.9%, very close to the 2% inflations target set by the European Central Bank. The next meeting of the ECB is March 9. While the economic news has been generally good, there is still political uncertainty with the upcoming presidential election in France. In addition, Greece continues to be a pain point as well, with continued negotiations between Greece and the IMF on the terms of the bailout.

Technical Notes

Turning to the 3-month continuation chart, we see mainly bearish patterns for the Euro currency. The mid-January bull run has reversed, and support can be found around the 1.04250 area from the mid-December lows. The 20-day SMA is still above the 50-day SMA, but the slope has recently turned sharply downward. 14-day RSI is a neutral 48.24.

Dale Jennings, Commodity Analyst