natural gas

Summary:

  • UK, US, Japan and Canada all ban Russian gold imports.
  • NGAS domestic inventories are rising.
  • Favourable weather conditions are causing more hope of solid Cotton yields in top growing regions.

Read next: G7 Leaders Discussed A Price Cap On Russian Brent Crude Oil, China Eases Covid-19 Restrictions, Corn Prices Are Trading At 2 Week Lows 

Gold prices trading at 2 week lows

The price of gold is trading at almost 2 week lows on Tuesday, this comes in the wake of continuous elevated US treasury yields. The metal struggled to hold onto Monday’s gains that came in the wake of the UK, US, Japan and Canada all officially banning the imports of Russian gold, the move has been viewed by the markets as largely symbolic as Russia’s exports to the west have already dried up. Although gold is widely considered as a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion.

Gold Aug ‘22 Futures Pric

We Love When a Plan Comes Together — Natural Gas Position Review

We Love When a Plan Comes Together — Natural Gas Position Review

Sebastian Bischeri Sebastian Bischeri 18.10.2021 12:25
In our previous edition published last week, we projected that if the market (Henry Hub Natural Gas (NGX21) Futures) broke below $5.480-5.568 support, we would then readjust our long position to lower levels above $5.073-5.147 support. So, this is exactly what the market did (after rebounding a few times on the same level), and thus an opportunity arose on Tuesday to enter just above this new projected support (just look how prices got rejected back up after almost touching it…). We suggested that an appropriate stop would be placed just below $4.766 in order for a target to be $5.663-5.790, and the market hit that target yesterday by topping at the $ 5.964 level on the futures contract! – See Fig. 1 Trading Chart Figure 1 – Henry Hub Natural Gas (NGX21) Futures (November contract, daily chart) Our trading approach has led us to suggest some long trades around key supports, as natural gas recently offered a few opportunities to take advantage of dips onto those projected levels. If you don’t want to miss any future position calls, be sure to look at our premium Oil Trading Alerts. Have a nice weekend! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien Bischeri Oil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
November Monthly

November Monthly

Marc Chandler Marc Chandler 03.11.2021 15:17
Three main forces are shaping the business and investment climate:  Surging energy prices, a dramatic backing up of short-term interest rates in Anglo-American countries, and the persistence of supply chain disruptions.  The US and Europe have likely passed peak growth.  Fiscal policy will be less accommodative, and financial conditions have tightened. Japan appears to be getting a handle on Covid and after a slow start.  Its vaccination rate has surpassed the US.  The lifting of the formal state of emergency and a hefty dose of fiscal stimulus is expected to be delivered in the coming months. Many developing economies have already lifted rates, some like Brazil and Russia, aggressively so.  They will likely finish earlier too.      US light sweet crude oil rose nearly 12% last month, even though US inventories rose last month for the first time since April.   The price of WTI rose almost 10% in September.  Statistically, the rise in oil prices is strongly correlated with the increase in inflation expectations.  OPEC+ will boost supplies by another 400k barrels a day at the start of November and is committed to the same monthly increase well into 2022.   At the same time, new Covid infections in several Asia-Pacific countries, including China, Singapore, and Australia, warn of the risk of continued supply-chain disruptions.  In Europe, Germany and the UK recently reported the most cases since the spring. Belgium is tightening curbs.  Bulgaria is seeing a rise in infections, and Romania was at full capacity in its intensive care facilities.  The fact that Latvia lags the EU in vaccination at about 50% leaves it vulnerable.  The US may be lagging behind Europe, and the next four-six weeks will be critical.  Roughly 40% of Americans are not fully vaccinated.   The rise in price pressures and the gradual acknowledgment by many central bankers that inflation may be more persistent have helped spur a significant backing up of short-term rates in the Anglo-American economies. The ultimately deflationary implications of the surge in energy prices through demand destruction and the implications for less monetary and fiscal support still seem under-appreciated. Yet, the market has priced in aggressive tightening of monetary policy over the next 12 months.   The focus of the foreign exchange market seems squarely on monetary policy.  From a high level, the central banks perceived to be ahead in the monetary cycle have seen stronger currencies. The likely laggards, like the Bank of Japan, the Swiss National Bank, and the ECB, have currencies that underperformed.  Norway and New Zealand have already raised rates and are expected to do so again in November.    Of course, as you drill down, discrepancies appear.  In October, the Australian dollar was the top performer among the major currencies with a 4% gain.  It edged out the New Zealand dollar and the Norwegian krone, whose central banks are ahead of the Reserve Bank of Australia.  The RBA has pushed against market speculation that has 90 bp of tightening priced into 12-month swaps.  The Australian dollar outperformed sterling by about 2.5% in October even though the Bank of England has been so hawkish with its comments that the market had little choice but to price in a high probability of a hike as early as the November meeting.  In fact, the market has the UK's base rate above 50 bp by the end of Q1 22.  This is important because in its forward guidance that BOE has identified that as the threshold for it to begin unwinding QE by stopping reinvesting maturing issues.  Interestingly enough, when the BOE meets on March 17 next year, it will have a sizeable GBP28 bln maturity in its portfolio.   In an unusual quirk of the calendar, the Federal Reserve meets before the release of the October jobs report.  All indications point to the start of the tapering process.  It is currently buying $120 bln a month of Treasuries ($80 bln) and Agency Mortgage-Backed Securities.  The pace of the reduction of purchases is a function of the duration, and the Fed has clearly indicated the tapering will be complete around mid-year. That suggests reducing the purchases by about $15 bln a month.  Chair Powell indicated that unlike the Bank of England, the Fed will stop its bond purchases before raising rates. A faster pace of tapering would be a hawkish signal as it would allow for an earlier rate hike.  The gap between when the tapering ends and the first rate hike does not appear predetermined. Powell has talked about the economic prerequisites, which emphasize a full and inclusive labor market in the current context. The Fed funds futures entirely discount a 25 hike in July, with the risk of a move in June.  Comments by several officials hint that the Fed may drop its characterization of inflation as transitory, which would also be understood as a hawkish development.   Partly owing to the extended emergency in Japan, it is marching to the beat of a different drummer than the other high-income countries. Inflation is not a problem.  In September, the headline rate rose to 0.2% year-over-year, the highest since August 2020.  However, this is a function of fresh food and energy prices, without which the consumer inflation stuck below zero (-0.5%).  In December 2019, it stood at 0.9%.  In addition, while fiscal policy will be less accommodative in Europe and the US, a sizeable supplemental budget (~JPY30 trillion) is expected to be unveiled later this year.   After expanding by 1.3% quarter-over-quarter in Q2, the Chinese economy slowed to a crawl of 0.2% in Q3, which was half the pace expected by economists. Some of the decline in economic activity resulted from the virus and natural disasters (floods). Still, some of it stemmed from an effort to cut emissions in steel and other sectors.  The problems in China's property development space, accounting for a large part of its high-yield bond market,  unsettled global markets briefly.  Talk of a Lehman-like event seems a gross exaggeration. Still, given the sector's importance to China's economy (30% broadly measured) and the use of real estate as an investment vehicle, it may precipitate a structural shift in the economy.   The Communist Party and the state are reasserting control over the economy's private sector and the internet and social network.  It has also weighed in on family decisions, like the number of children one has, how long a minor should play video games, the length of men's hair, what kind of attributes entertainers should have, and appropriate songs to be played with karaoke.   It seems to be reminiscent of part of the Cultural Revolution and a broader economic reform agenda like Deng Xiaoping did in the late 1970s and Zhu Rongji in the 1990s.  At the same time, Beijing is wrestling with reducing emissions and soaring energy prices, which also dampen growth. Even though consumer inflation is not a problem in China (0.7% year-over-year in September), Chinese officials still seem reluctant to launch new stimulative fiscal or monetary initiatives. Moreover, new outbreaks of the virus could exacerbate the supply chain disruptions and delays fuel inflation in many countries.  The aggressiveness in which investors are pricing G10 tightening weighed on emerging market currencies in October.  The JP Morgan Emerging Market Currency Index fell by almost 0.8% last month after falling 2.9% in September, the largest decline since March 2020.  The continued politicization of Turkey's monetary policy and the aggressive easing saw the lira tumble nearly 7.5% last month, which brings the year-to-date depreciation to 22.5%.   On the other hand, Brazil's central bank has aggressively hiked rates, and the 150 bp increase in late October brought this year's tightening to 575 bp and lifting the Selic to 7.75%.  Yet, it is still below the inflation rate (10.34% October), and the government has lost the confidence of domestic and international business.  The Brazilian real fell nearly 3.5% last month to bring the year-to-date loss to almost 7.8%.   Our GDP-weighted currency basket, the Bannockburn World Currency Index, snapped a two-month decline and rose by 0.35%.  The rise in the index reflects the outperformance of the currencies against the dollar.  The currencies from the G10 countries, including the dollar, account for about two-thirds of the index, and emerging markets, including China, the other third.  The yen was the weakest of the majors, falling 2.3%.  It has a weighting of 7.5% in the BWCI.   Among the emerging market currencies in our GDP-weighted currency index, the Brazilian real's 3.4% decline was the largest, but its 2.1% weighting minimizes the drag.  It was nearly offset by the Russian rouble's 2.5% advance.  It has a 2.2% weighting in our basket.  The Chinese yuan, which has a 21.8% share, rose by 0.6%.      Dollar:   The market is pricing in very aggressive tightening by the Federal Reserve.  As recently as late September, only half of the Fed officials anticipated a hike in 2022.  The December 2022 Fed funds futures are pricing in a little more than two hikes next year. More than that, the market is discounting the first hike in June next year, implying a transition from completing the bond-buying to raising rates with no time gap.  The disappointing 2% Q3 GDP exaggerated the slowing of the world's largest economy.  We note that the supply-side challenges in vehicle production halved the growth rate.  Growth is likely to re-accelerate in Q4, but we continue to believe that the peak has passed.  While inflation is elevated, the pace of increase slowed in Q3.  Consider that the PCE deflator that the Fed targets rose at an annualized rate of 4.0% in Q3 after a 5.6% pace in Q2.  The core rate slowed to an annualized pace of 3.3% last quarter, half of the speed in the previous three months.  The infrastructure spending plans have been reduced, and some of the proposed tax hikes, including on corporations, appear to be dropped as part of the compromise among the Democratic Party.   Euro:  For most of Q3, the euro has been in a $1.17-$1.19 trading range.  It broke down in late September, and was unable to recapture it in October.  Instead, it recorded a new low for the year near $1.1525.  A convincing break of the $1.1500 area could signal a move toward $1.1300. The single currency drew little support because growth differentials swung in its favor in Q3:  the Eurozone expanded by 2.2% quarter-over-quarter while the US grew 2% at an annualized pace.  The ECB is sticking to its analysis that the rise in inflation is due to transitory factors while recognizing that energy prices may prove more sticky.  That said, news that Gazprom may boost gas sales to Europe after it finishes replenishing Russian inventories after the first week in November, natural gas prices fall at the end of October.  After the Pandemic Emergency Purchase Program ends next March, decisions about the asset purchases next year will be announced at the December ECB meeting along with updated forecasts.   (October indicative closing prices, previous in parentheses)   Spot: $1.1560 ($1.1580) Median Bloomberg One-month Forecast $1.1579 ($1.1660)  One-month forward  $1.1568 ($1.1585)    One-month implied vol  5.1%  (5.1%)         Japanese Yen:  The dollar rose 2.3% against the yen in October to bring the year-to-date gain to nearly 9.5%.  The Bank of Japan will lag behind most high-income countries in the tightening cycle, and the higher US yields are a crucial driver of the greenback's gains against the yen.  Japan's headline inflation and core measure, which only excludes fresh food, may be rising, but they are barely above zero and, in any event, are due to the surge in energy prices. In response to the weakening yen, Japanese investors appear to have boosted their investment in foreign bonds, while foreign investors increased their holdings of Japanese stocks.  The LDP and Komeito maintained a majority in the lower chamber of the Diet. A sizeable stimulus supplemental budget is expected to help strengthen the economic recovery now that the formal emergencies have been lifted.  In Q3, the dollar traded mainly between JPY109 and JPY111.  It traded higher in the second half of September rising to nearly JPY112.00.  The dollar-yen exchange rate often seems to be rangebound, and when it looks like it is trending, it is frequently moving to a new range.  We have suggested the upper end of the new range may initially be the JPY114.50-JPY115.00.  The four-year high set last month was about JPY114.70.  A move above JPY115.60 could target the JPY118.50 area.     Spot: JPY113.95 (JPY111.30)       Median Bloomberg One-month Forecast JPY112.98 (JPY111.00)      One-month forward JPY113.90 (JPY111.25)    One-month implied vol  6.4% (5.6%)   British Pound:  Sterling rallied around 4 1/3 cents from the late September low near $1.34.  The momentum stalled in front of the 200-day moving average (~$1.3850).  After several attempts, the market appeared to give up.  We anticipate a move into the $1.3575-$1.3625 initially, and possibly a return toward the September low. The implied yield of the December 2021 short-sterling interest rate futures rose from 22 bp at the end of September to 47 bp at the end of October as the market.  It was encouraged by Bank of England officials to prepare for a hike at the meeting on November 4, ostensibly while it is still providing support via Gilt purchases.  If there is a surprise here, it could be that, given the unexpected softening of September CPI and the fifth consecutive monthly decline in retail sales, rising Covid cases, that the BOE chooses to take the more orthodox route.  This would entail ending its bond purchases, as two MPC members argued (dissented) at the previous meeting and holding off lifting rates a little longer.        Spot: $1.3682 ($1.3475)    Median Bloomberg One-month Forecast $1.3691 ($1.3630)  One-month forward $1.3680 ($1.3480)   One-month implied vol 6.8% (7.1%)      Canadian Dollar:  The three drivers for the exchange rate moved in the Canadian dollar's favor in October and helped it snap a four-month slide against the US dollar.  First, the general appetite for risk was strong, as illustrated by the strength of global stocks and the record highs in the US.  Second, the premium Canada pays on two-year money more than doubled last month to almost 60 bp from 25 bp at the end of September.  Third, commodity prices in general and oil, in particular, extended their recent gains.  The CRB Index rose 3.8% last month, the 11th monthly increase in the past 12, to reach seven-year highs.  The Bank of Canada unexpectedly stopped its new bond purchases and appeared to signal it would likely raise rates earlier than it had previously indicated.  The swaps market is pricing 125 bp of rate hikes over the next 12 months, with the first move next March or April.  Still, the US dollar's downside momentum stalled near CAD1.2300.  There is scope for a corrective phase that could carry the greenback into the CAD1.2475-CAD1.2500 area.     Spot: CAD1.2388 (CAD 1.2680)  Median Bloomberg One-month Forecast CAD1.2395 (CAD1.2580) One-month forward CAD1.2389 (CAD1.2685)    One-month implied vol 6.2% (6.9%)      Australian Dollar:  The Aussie's 4% gain last month snapped a four-month, roughly 6.5% downdraft.  Despite RBA Governor Lowe's guidance that the central bank does not anticipate that the condition to hike rates will exist before 2024 is being challenged by the market.  Underlying inflation rose above 2% in Q3. The central bank's failure to continue defending the 10 bp target of the April 2024 bond spurred speculation that it would be formally abandoned at the November 2 policy meeting.  The RBA's inaction unsettled the debt market.  The two-year yield soared almost 70 bp last month, and the 10-year yield rose nearly 60 bp.  Although the RBA could have handled the situation better, New Zealand rates jumped even more.  Its two-year yield jumped 80 bp while the 10-year yield surged by 58 bp.  Last month, the Australian dollar's rally took it from around $0.7200 to slightly more than $0.7550, where it seemed to stall, just in front of the 200-day moving average.  We suspect the October rally has run its course and see the Aussie vulnerable to a corrective phase that could push it back toward $0.7370-$0.7400.  The New Zealand dollar has also stalled ($0.7220), and we see potential toward $0.7050.       Spot:  $0.7518 ($0.7230)        Median Bloomberg One-Month Forecast $0.7409 ($0.7290)      One-month forward  $0.7525 ($0.7235)     One-month implied vol 9.1  (9.0%)        Mexican Peso:  The peso eked out a minor gain against the dollar last month.  However, the nearly 0.4% gain understated the swings in the exchange rate last month.  The dollar's recovery seen in the second half of September from almost MXN19.85 to nearly MXN20.40 at the end of the month was extended to a seven-month high around MXN20.90 on October 12.  It then proceeded to fall to almost MXN20.12 before the greenback was bought again.  A move above the MXN20.60 area now would likely signal a test on last month's high and possibly higher. Recall that the dollar peaked this year's peak set in March was near MXN21.6350. The economy unexpectedly contracted in Q3  by 0.2% (quarter-over-quarter).  Nevertheless, with the year-over-year CPI at 6% in September, Banxico will see little choice but to hike rates at the November 11 meeting. The market expects a 25 bp increase.  A 50 bp hike is more likely than standing pat.       Spot: MXN20.56 (MXN20.64)   Median Bloomberg One-Month Forecast  MXN20.42 (MXN20.41)   One-month forward  MXN20.65 (MXN20.74)     One-month implied vol 9.6% (11.0%)      Chinese Yuan: Our starting point is the yuan's exchange rate is closely managed.  The fact that the yuan rose to four-month highs against the dollar and a five-year high against the currency basket (CFETS) that the PBOC tracks imply a tacit acceptance.  While it is tempting for observers to link the appreciation to securing an advantage as it secures energy supplies and other commodities, we note that the yuan's gains are too small (0.6% last month and less than 2% year-to-date) to be impactful.  We suspect that the dollar's recent weakness against the yuan will be unwound shortly.  The US government continues to press its concerns about the risk for investors in Chinese companies listed in the US and American companies operating in China. At the same time, the FTSE Russell flagship benchmark began including mainland bonds for the first time.  China's 10-year government bond is the only one among the large bond markets where the yield has declined so far this year (~16 bp).  On the other hand, Chinese stocks have underperformed.  That said, some investors see this underperformance as a new buying opportunity.  The NASDAQ Golden Dragon Index that tracks Chinese companies listed in the US fell by 30% in Q3 and gained 5% in October, its best month since February.  Lastly, the Central Committee of the Chinese Communist Party meets November 8-11 this year, a prelude to the important National Party Congress in 2022 that is expected to formally signal the third term for President Xi.     Spot: CNY6.4055 (CNY6.4450) Median Bloomberg One-month Forecast  CNY6.4430 (CNY6.4470)  One-month forward CNY6.4230 (CNY6.4725)    One-month implied vol  3.5% (3.4%)    Disclaimer
Target Hit! Another Successful Call on Natural Gas

Target Hit! Another Successful Call on Natural Gas

Sebastian Bischeri Sebastian Bischeri 05.11.2021 15:10
  Have you ever tracked your progress during your oil and gas trading journey and seen such trades? Read on… and come aboard! In the previous edition published last week and updated on Monday, I projected the likelihood of a sturdy support level on the gas market – Henry Hub Natural Gas (NGZ21) Futures – for going long around the $5.268-5.361 zone (yellow band), with a relatively tight stop just below $5.070 and targets at $5.750 and $5.890. So, the market indeed sank just below that band to trigger an entry on Monday, and then it was suddenly pushed back up by the bulls waiting to take over the price to the upward direction. This long trade was also supported by the fundamentals, as the heating needs for the month of November were gradually increasing. The weather forecasts appeared to orientate the demand upwards backed by an uninterrupted demand for Liquefied Natural gas (LNG) US exports. Then, Nat-Gas hit the first target at $5.750 on Wednesday, and stopped at the $5.876 mark – located just $0.014 below the second projected target at $5.890 – on Thursday! Regarding Crude Oil, a new entry, provided to our premium subscribers on Wednesday has just being triggered. The black gold is now attempting to rebound onto that support, which acts as a new floor. Trading Charts Chart – Henry Hub Natural Gas (NGZ21) Futures (December contract, daily chart) Now, let’s zoom into the 4H chart to observe the recent price action all around the abovementioned levels of our trade plan: Chart – Henry Hub Natural Gas (NGZ21) Futures (December contract, 4H chart) In conclusion, my trading approach has led me to suggest some long trades around potential key supports - natural gas recently offered multiple opportunities to take advantage of dips onto those projected levels. If you don’t want to miss any future trading alerts, make sure to look at our Premium Section. Have a nice weekend! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Natural Gas Trading: Yet Another Profitable Call!

Natural Gas Trading: Yet Another Profitable Call!

Sebastian Bischeri Sebastian Bischeri 25.10.2021 00:31
We entered a natural gas trade on Tuesday, which turned out to be profitable… just like the previous ones! Let’s have a look at how we can continue. If you are one of Sunshine Profits’ subscribers, you should have come across our recent gas trade plan recommendation, published in our Tuesday’s “Oil & Gas Trading Alerts” edition. Trade Plan Our initial trade plan was to go long on Natural Gas [NGX21] (November 2021 contract) around $4.766-4.920 support (yellow rectangle) – with stop below $4.615 (red dotted line) and targets at $5.311 and $5.604 (green dotted lines) – See Fig. 1. The entry got triggered in the early hours of Tuesday; as you can see, the market made a rebound where the bulls took over. Our first target at $5.311 has just been hit — for those who exit partially, we suggest lifting the second target to the $5.663 level, while your stop should be lifted just below the new/recent swing low ($4.825) or at breakeven. Figure 1 – Henry Hub Natural Gas (NGX21) Futures (November contract, daily chart, logarithmic scale) That’s pretty much it. If you want to take the next trade with us, remember to sign up for our premium Oil Trading Alerts! Happy trading… …and have a great weekend! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien Bischeri Oil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
The Greenback Slips at the Start the New Week

The Greenback Slips at the Start the New Week

Marc Chandler Marc Chandler 15.11.2021 12:19
Overview:  While the Belarus-Poland border remains an intense standoff, there have been a couple other diplomatic developments that may be exciting risk appetites today.  First, Biden and Xi will talk by phone later today.  Second, reports suggest the UK has toned down its rhetoric making progress on talks on the implementation of the Northern Ireland Protocol.  Equities in the Asia Pacific region were mostly firmer, with China a notable exception among the large markets, even though the October data was generally stronger than expected.  Europe's Stoxx 600, which has fallen only once this month, is edging higher to new records, while US futures are enjoying a firmer bias.  Benchmark 10-year yields are 1-2 bp lower, which puts the Treasury yield near 1.55%.  The European periphery is outperforming the core.  The dollar is soft.  The Scandis and Antipodeans lead the move, while the euro, yen, and British pound are little changed.  Emerging market currencies are also mostly stronger.  Here the Philippine peso is notable as it falls the most in seven weeks as corporates bought dollars.  After falling by 0.65% last week, the JP Morgan Emerging Market Currency Index is edging higher today.  Gold is snapping a seven-day rally, stalling near $1868.  Support is seen in the $1842-$1845 area.  January WTI  was sold again as it poked above $80.  It is pinned near last week's lows (~$78.65) as the US response is awaited.  European natural gas futures are firm as the capacity auction results are awaited, and Europe faces its first cold snap of the season.  Iron ore and copper prices are posting small losses.   Asia Pacific Japan's Q3 GDP disappointed, but it is old news and will likely spur Prime Minister Kishida to support a large supplemental budget, which could be unveiled by the end of the week.  Economic growth in the world's third-largest economy contracted for the fifth quarter in the past eight.  The 0.8% loss of output in Q3 was more than the 0.2% expected by the median forecast in Bloomberg's survey.  Consumption (-1.1%), business spending (-3.8%), and public investment (-1.5%) did the most damage.  The GDP deflator was unchanged from Q2 at -1.1%.  The Japanese economy is recovering here in Q4.  Talk of the size of the supplemental budget has increased to around JPY40 trillion (~$350 bln) from JPY30 trillion.  It is expected to include a cash payment for 18-year olds and younger, a tax break for companies that boost wages, a new subsidy for domestic travel, snd pay hikes for caregivers. China's October data was stronger than expected but does not shake off concern that the world's second-largest economy is struggling.  The year-over-year pace of retail sales rose for the second consecutive month in the face of expectations for a decline.  The 4.9% increase follows the 4.4% gain in September and 2.5% in August. In October 2020, it rose 4.3% year-over-year.  Industrial output rose 3.5% from a year ago. It was the first increase since March. Last October, it had increased by 6.9%. The surveyed joblessness was steady at 4.9%.  Fixed asset investment and property investment slowed.  Chinese officials have not addressed the economic slowdown with large-scale fiscal or monetary initiatives.   We have suggested that the dollar-yen exchange rate has entered a new range after trending higher from mid-September through mid-October.  That new range is likely JPY113-JPY115, and to find the floor, the dollar briefly traded below JPY112.80 last week. After spiking back to JPY114.00 on the US CPI surprise, the greenback continues to hover around there, the middle of the range.  Tomorrow's expiring options ($830 mln at JPY113.40 and $1.6 bln at JPY114.30) may mark the near-term range.  The Australian dollar is building on its pre-weekend recovery.  It saw a low slightly above $0.7275 on Friday and settled on its highs (a little above $0.7330).  It has risen to $0.7365, and the intraday momentum is getting stretched.  Look for resistance near $0.7375.  The greenback edged slightly lower against the Chinese yuan to record a new six-month low (~CNY6.3785) before recovering within a narrow range.  It is trading slightly above CNY6.3830 in late dealings. The PBOC set the dollar's reference rate at CNY6.3896, a little below the median forecast of CNY6.3896 (Bloomberg survey).  The PBOC rolled over in full the policy loans (CNY1 trillion) coming due this month, and the overnight repo rate fell by seven basis points to 1.78%, the lowest in three weeks.   Europe Tensions between the UK and EU appear to have taken a step away from the brink.  A deal on medicine supplies from other parts of Great Britain to Northern Ireland may have been the critical catalyst.  Reports suggest a de-escalation of UK rhetoric threatening to invoke Article 16, which allows for unilateral over-riding of the Northern Ireland Protocol under certain circumstances of serious economic, environmental, or societal risks.  Separately, two polls have begun showing Labour is edging ahead of the Tories. The Opinium poll (published in the Guardian) gave Labour a one percentage point lead, the first since January.  The Savanta Com Res poll (for the Daily Mail) put Labour ahead by six percentage points at 40%.  The main issue appears to be Prime Minister Johnson's handling of several ethics issues.  His personal support has also waned.    The US was warning at the end of last week that Russian may be preparing to invade Ukraine. Moscow seems to be acting out of fear, fear of the US and Europe creeping presence in Ukraine.  If Ukraine is going to remain independent, Russia insists it can only be a (weak) buffer state.  US rhetoric seemed aggressive in Moscow.  Last month US Defense Secretary Austin argued that no third country [i.e., Russia] has a veto over NATO membership decision[i.e., Ukraine].    Poland, Lithuania, and Latvia are considering formally requesting NATO consultations, while the EU is expected to announce new sanctions on Belarus later today.  Separately, we note reports that India has begun taking delivery of the S-400 air defense missile system from Russia (part of a $5.5 bln deal), which is the same that earned Turkey American sanctions.   The euro edged above the pre-weekend high, but the tone remains fragile, and for the third consecutive session has been unable to resurface above old support at $1.1500.  Since the US CPI report in the middle of last week, it has fallen, and the sideways movement could alleviate the overextended technical condition.  Sterling extended its pre-weekend recovery to reach $1.3440 before sellers reemerged to knock it to the session low of almost $1.3400.  We suspect it can move higher in North America today and target the $1.3480 area.   America The US seems more eager for the Biden-Xi call than Beijing  Expectations should be low, and with no actionable outcome likely (not even a statement), there appears to be little reason to spin it as a virtual summit. The top officials and the senior staff of the two largest economies should talk.  Previously, there were high-level meetings regularly.  Since their last call, a new US-UK-Australian alliance was announced that will result in Australia acquiring nuclear-powered submarines, and it was confirmed that the US has had military personnel in Taiwan since last November.  China continues with its intimidation campaign of repeatedly entering Taiwan's air-identification zone. China's assessment of the US is unlikely to have changed.  Beijing sees the same thing many others do.  Biden's approval rating has fallen to near 41%, and less than that has a favorable view of his handling of the economy.  At the end of last week, the Univerity of Michigan's consumer sentiment measure (preliminary November) fell to its lowest in a decade.  Surveys continue to point to the likelihood that the Democratic Party will lose both houses of Congress in next year's mid-term.  And to underscore the pressure on Biden, the US Court of Appeals (5th Circuit) sustained a block on OSHA's ordered vaccine mandate (or weekly test).  With the sixth plenum over,  Xi has, by all accounts, confirmed his ascendancy and domination of Chinese politics for years to come.   The week's economic calendar for the US begins off slowly.  The November Empire State manufacturing survey is on tap.  It has been in a sawtooth pattern, alternating between gains and losses for the past five months.  It fell sharply (19.8 from 34.3) in October and is expected to have turned up in November.  The US reports October retail sales and industrial production figures tomorrow. Fed officials begin taking to the public stage starting tomorrow.  Over the course of the week, around 11 officials are scheduled to speak.  In addition to US bills, the Treasury Dept sells 20-year bonds, whose auctions have been among the most challenging for coupons, and 10-year TIPS at the end of the week.   Canada reports September manufacturing and wholesale sales today, but the October existing home sales may be more important.  Tomorrow Canada reports housing starts, but the highlight of the week is Wednesday's October CPI.  Price pressures are accelerating in Canada, and the headline CPI is likely to move toward 5% (4.4% in September).  The swaps market is pricing in about 65 bp of tightening in six months.  This week, Mexico has a light economic diary after last week's higher than expected CPI (6.24%) and Banxcio's 25 bp rate hike (to 5%).  Brazil also has a light economic calendar this week.  Last week featured a further rise in (IPCA) CPI (10.67% vs. 10.25%) and weak September retail sales (-1.3% vs. -0.6% median forecast in Bloomberg's survey after a revised -4.3% fall in August). Last week's US CPI shocker saw the greenback jump from around CAD1.24 to slightly above CAD1.26, roughly the 50% retracement of the slump from CAD1.2900 on September 20.  It settled last week on a soft note, and some follow-through selling has seen the US dollar eased to about CAD1.2525.  A break here sees CAD1.2500 and then possibly CAD1.2470.  Since last September, the greenback has moved into a new and higher range against the Mexican peso.  It has not traded much below MN20.12.  Nor has it spent much time above MXN20.90.  It is in the pre-weekend range (~MXN20.45-MXN20.72).  Look for the consolidative day to continue through the local session.  The Brazil real was the strongest emerging market currency last week, rising almost 1.6% against the US dollar.  The US dollar found support around BRK5.40. Trendline support (from June, August, and September lows) and the 200-day moving average are near BRL5.36.   Disclaimer
Biden-Xi "Summit" Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

Biden-Xi "Summit" Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

Marc Chandler Marc Chandler 16.11.2021 14:03
Overview: The much-heralded Biden-Xi meeting left little impression on the capital markets.  Equities in the region were mixed, and China's main markets fell, alongside Australia, South Korea, and India.  European equities continue their upward market, with the Stoxx 600 gaining for a fifth consecutive session. US futures are softer.  The bond market is quiet, with the US 10-year yield softer slightly below 1.60%.  European benchmark yields are 1-2 bp lower and the periphery is outperforming the core.  Encouraged by a strong employment report, sterling is the strongest of the majors, gaining about a third of one percent.  Most major currencies are trading with a heavier bias, and the euro is pinned near 19-month lows.  The dollar is gaining against most emerging market currencies.  The Turkish lira is off more than 1.5% as the market prices in a 100 bp cut on Thursday.   Hungary's disappointing Q3 GDP (0.7% vs. 1.0% forecasts) may limit the aggressiveness of the central bank today.  A 30 bp hike after two 15 bp moves was expected.  Gold is extending its rally and has taken out the downtrend drawn off the January and June highs (found ~$1872 today).  The next target is around $1900.  Oil is firm, and the January WTI contract is straddling the $80-level.  European natural gas is rising as new supplies are low, and there is a further delay in the certification process of the Nord Stream 2 pipeline.   Yesterday's 9% advance has been extended by another 8% today.  Iron ore has steadied, while copper is struggling after falling 1% yesterday.   Asia Pacific There is not much to say about the Xi-Biden "virtual summit."  The call reportedly lasted three hours.  The one concrete thing to emerge is that US business executives will have an easier/quicker time entering China.  Separately, Hong Kong's Chief Executive used her regular briefing to justify the decision to allow JP Morgan's CEO to skip the city's 21-day hotel quarantine because of the size of the bank's operations.  This speaks to the difference between the rule of law and the rule by law that some observers make.  Returning to regular meetings between the senior officials from both countries seems to be the logical way forward, but both sides appear to draw domestic benefits from demonizing the other.  In the US, the Biden administration uses the threat of China to justify building a 21st-century infrastructure. At the same time, Beijing plays the nationalistic chords to strengthen the loyalty to the Communist Party even as its delivery of improved living standards slows or stalls.   The minutes from the recent Reserve Bank of Australia meeting contained no surprises.  The exit from the yield curve control policy seems clumsy, but the RBA seems adamant that a rate hike next year is unwarranted.  The market remains convinced officials are wrong.  The swaps market has about 75 bp discounted over the next 12 months, with the hikes and risks increasing beginning in late H1 22. In a speech after the minutes were released, Governor Lowe referred to a hike in 2024 as "still plausible," but this seemed like a slight climb down from it being the "central case."  On the other hand, elevated price pressures and border controls have driven the unemployment rate to 3.4%, its lowest level since 2008, and lifted the participating rate to match record highs. The Reserve Bank of New Zealand will likely hike rates again next week.  The swaps market is pricing in nearly 50 bp of tightening by the RBNZ over the next three months and almost 140 bp in the following nine months.  It is difficult to see a more hawkish outlook.  The five basis point jump in the US 10-year yield helped lift the greenback to JPY114.30, matching its best level since November 1 (JPY114.45).  There is an option for $1.6 bln at JPY114.30 that expires today.   The four-year high was set on October 20 near JPY114.70.  The Japanese economy is recovering after a larger than expected contraction in Q3.  A large supplemental budget is expected as early as the end of the week but before month-end in any event.  As if confirming the lack of new insight from the RBA minutes, the Australian dollar is trading within yesterday's range (~$0.7320-$0.7370).  A break of the $0.7300 area would weaken the technical tone, while a move above $0.7380 signals a stronger recovery after finishing last month near $0.7550.  The Chinese yuan rose to new five-month highs today before pulling back.  The dollar fell to CNY6.3670 and rebounded to a new session high slightly above yesterday's high near CNY6.3850.  The PBOC set the dollar's reference rate at CNY6.3924, a little above the (Bloomberg survey) median projection of CNY6.3920. Ironically, the yuan's high was recorded as the Biden-Xi call got underway.  It trended lower through the rest of the session.   Separately, the PBOC boosted its liquidity injection via seven-day repos to CNY50 bln from CNY10 bln on Monday and rolled off its full medium-term lending yesterday, easing technical pressure in the money market.   Europe The UK's employment data is especially important in light of the BOE concerns about the labor market now that the furlough program has ended.  Around one million workers were on the program when it ended. The BOE surprised the market by not raising rates at the meeting earlier this month. Governor Bailey continues to blame the market for misconstruing his remarks and expressing his unease with the "inflation situation."  He said he wanted to see what happens now that the furlough program ended before hiking, but it is not clear that today's data is sufficient.  However, the preliminary indications suggest the UK labor market is normalizing quickly.  October payrolls rose by 160k. Jobless claims fell by nearly 15k after a revised decline of almost 86k in September (initially estimated at -51.1k).  In the three months through September, the UK employment rose by 247k, and the ILO measure of unemployment fell to 4.3% from 4.5%.  Of note, the next employment report will be issued two days before the next MPC meeting (December 16).     Governor Bailey acknowledged that his decision not to hike rates earlier this month was close.  The swaps market has a little more than a 55% chance of a hike in December and has it fully priced it in for the first meeting next year (February 3). The central bank's chief economist, Pill, said there was no evidence yet that higher inflation was seeping into general pay levels.  Starting salaries appear to be increasing, but it may not be lifting the pay for existing workers.  Separately, a technical glitch with an internet-based order system caused the BOE to postpone a bond purchases operation until Thursday.  The QE operations take place three times a week at a pace of slightly more than GBP3 bln a week, with an eye toward finishing them by year-end.   There is another twist to the saga of the controversial Nord Stream 2 pipeline.  Hopes that the completed pipeline could become operational soon were dealt a fresh blow by the German regulator, who suspended the certification process.  The technical issue was a change in the legal form of the operating company.  Nord Stream 2 AG established a subsidiary that would own and operator the German section of the pipeline.  There is some thought that after this delay, the corporate reorganization could expedite the eventual approval.   Coronavirus deaths spiked in Germany to the six-month highs, and the government is debating how to control the fourth pandemic wave. Ironically, Japan now has the highest inoculation rates among the G7. It reported the lowest number of new infections in 18 months. The euro was sold below $1.1400 yesterday and has been unable to resurface above there.  Since the $1.15 level broke, we have suggested the next target is near $1.1290-$1.1300. The ECB's dovish rhetoric contrasts with the prospect of a more hawkish posture by the Federal Reserve.   We continue to see an acceleration of the Fed's tapering as the most likely outcome of the December FOMC meeting, while next month's ECB meeting is more about extending the bond-buying after the Pandemic Emergency Purchases Program ends next March.  The prospects of a rate hike next month lifted sterling to four-day highs near $1.3475, but there does not look like there is the interest to test the $1.35 area, which holds a GBP407 mln option that expires today.  Initial support is now seen in the $1.3400-$1.3420 area. The euro is sliding for the third consecutive session against steering and looks poised to test the year's low near GBP0.8400 in the coming days. The UK reports October CPI figures tomorrow, and they are expected to have accelerated.    America The US economic growth is improving this quarter after the disappointing 2% annualized pace in Q3.  It will be reflected in the consumption and production data.  Today sees October retail sales, a little more than 40% of overall consumption, and industrial production, including factories and utilities, mining, and drilling.  Headline retail sales will likely be lifted by the first increase in auto sales in six months.  The core components, which exclude autos, gasoline, building materials, and food services, are forecast (Bloomberg, median) to rise a solid 0.9%.  It would be the third consecutive monthly gain, the first since Q3 20.  Consumer spending rose 2% at an annualized rate in Q3 and is expected to grow closer to 5% this year, having peaked in Q2 at 6.7%.  Industrial production fell in August and September but is expected to have snapped back in October as the recovery from Hurricane Ida took hold.  The median forecast (Bloomberg survey) is for a 0.8% gain.  The rig count rose by 23, matching the most since January.  According to the recent jobs report, manufacturing employment rose by 60k in October.  Few have noted it, but if confirmed, it would be the largest monthly increase since August 1998.  That said, the Markit manufacturing PMI and ISM manufacturing index fell.   The Biden administration's $1.75 trillion "Build Back Better" bill is in the balance.  Some argue that the surge in inflation has been spurred by the government's spending and transfer payments and are opposed to new large-scale spending.  However, the bill's defenders argue that it has been scaled back, and much of the expenditures will be covered by new revenue.  The non-partisan Congressional Budget Office, the arbiter of such scoring, will publish its full cost estimate on Friday.  Meanwhile, expectations that an announcement will be made shortly on the Fed's leadership were fanned by comments from the Senate Banking Chairman (Brown), who said he was told a decision was "imminent."  It was widely expected before the end of next week.  Reports suggest that Treasury Secretary Yellen has opined that Brainard would be a credible pick, but she is recommending Powell, emphasizing continuity and avoiding the politicization of the post.   Meanwhile, the Fed's Bullard, Barkin, and Daly speak today.  Note that Daly was interviewed for a Board of Governor slot but appears to have turned it down. Canada reports October housing starts today ahead of the October CPI figures tomorrow.  The headline rate is expected to approach 5% though the underlying measures are lower.  The market is positioned for a hike in the March-April period next year.  Recall that the jump in US CPI sent the greenback up from just below CAD1.2400 to slightly above CAD1.2600 at the end of last week.  It reversed lower before the weekend and slipped briefly below CAD1.2500 today, roughly the (50%) retracement of the CPI-inspired gains, before rebounding. Initial resistance is seen in the CAD1.2535-CAD1.2560 area.  Mexico's economic diary is light, and the movement of the peso may reflect broader forces.  For the past three sessions, the dollar has been consolidating in a broad range against the peso (~MXN20.45-MXN20.72). Within that range, initial support may be in the MXN20.55 area.   Disclaimer
Agriculture rally resumes led by coffee, wheat and sugar

Agriculture rally resumes led by coffee, wheat and sugar

Ole Hansen Ole Hansen 18.11.2021 16:35
Summary:  The cost of your breakfast and food in general continues to rise, and following a few months of sideways trading, the Bloomberg Agriculture index, which tracks a basket of major food commodity futures, reached a fresh five-year high this week. Apart from troubled weather reducing available supply there are several other reasons playing a their part and in this update we take a look at some of those, including the reasons why coffee and wheat are two of the hottest food commodities this year. The cost of your breakfast and food in general continues to rise, and following a few months of sideways trading, the Bloomberg Agriculture index, which tracks a basket of major food commodity futures, reached a fresh five-year high this week. The table below shows the commodities with the biggest impact this year has been led by coffee, edible oils, wheat and sugar. There are individual reasons behind the strong gains, but what they all have in common has been a troubled weather year, a post pandemic jump in demand leading to widespread supply chains disruptions and more recently rising production costs via surging fertilizer prices and rising cost of fuels, such as diesel. The La Ninã weather pattern which can lead to floods, drought and cooler temperatures around the world returned to haunt producers this year, and recent forecasts say it will prevail through the coming northern hemisphere winter. In large swathes of South America and parts of North America a La Ninã is normally accompanied by drought, whereas in Australia and parts of Southeast Asia it is often resulting in heavy rainfall. Fertilizer prices have skyrocketed during the past few months as a result of soaring natural gas prices which have forced some European production plants to halt or reduce production. Fertilizer indices tracking prices in North America and Western Europe both trades more than 200% above their five-year averages. The surge has raised concerns farmers may reduce their usage of fertilizers or shift more acres into crops that require less nutrients. A drop in yields could drive prices even higher, thereby worsening already strong food inflation. Supply chain problems/disruptions: We are all familiar with stories about port congestion, lack of containers and surging prices on all the major routes around the world, especially from the production hub in Asia to major ports in Europe and the U.S. These problems began as a result of the pandemic which initially drove a major amount of order cancellations before the world a few months later went on a massive spending spree for consumer goods as the service sector grinded to a halt. These developments together with port disruptions due to continued Covid outbreaks helped trigger disruptions that to this day continue to cause problems for shippers of goods, including many of the food commodities that are transported in special containers. Arabica coffee trades at a nine-year high at $2.38 per pound with the supply outlook looking increasingly tight following an annus horribilis in Brazil where frost and drought dealt a blow to the 2021 crop. In addition to weather, the market also had to deal with lack of shipments and high container rates, surging fertilizer prices and roasters in Europe struggling to source supplies from alternative producers in Columbia and Vietnam. If that wasn’t enough, there is now also a growing risk of civil war in Ethiopia, the world’s third biggest grower of the Arabica bean. What may prove to be even worse over the coming months is that the flowering, or lack of, for the 2022 on-season crop is pointing to another low production year. The break above $2.25, the 2014 high may signal a market running towards $3, a record level that was last seen in 2011. Wheat: From a global food security perspective, the ongoing rally in global wheat prices is an even bigger concern. This week we have seen Chicago wheat futures climb to their highest level in nine years, while here in Europe, the benchmark Paris Milling Wheat contract trades just below €300 per tons, its highest price ever. Just like coffee, weather worries are the main driver, following a poor harvest in North America together with a year-on-year decline in exports from Russia, the world’s largest shipper. These developments have triggered increased demand for European sourced wheat, and with the prospect of another potentially challenging crop year in 2022 caused by weather and high fertilizer costs, some of the major importers have recently been stepping up their pace of purchase in order to cool local food prices, and to secure supplies ahead of winter. With buyers increasingly competing for supplies the market will look for some relief from the upcoming and promise-looking harvests in Argentina and Australia, taking place from now until January. One of the most actively traded ETF tracking the agriculture sector, the Invesco DB Agriculture Fund, broke higher last week to reach a four-year high. The index tracks the performance of 11 major futures markets spread across grains, softs and livestock. Source: Saxo Group
Euro Bounces Back, but The Turkish Lira Remains Unloved

Euro Bounces Back, but The Turkish Lira Remains Unloved

Marc Chandler Marc Chandler 18.11.2021 15:17
Overview:  The US dollar's sharp upside momentum stalled yesterday near JPY115 and after the euro met (and surpassed) a key retracement level slightly below $1.1300.  Led by the Antipodean currencies today, the greenback is mostly trading with a heavier bias.  Among the majors, helped by a steadying of US yields, the yen is soft.  In the emerging market space, the Turkish lira continues its headlong plunge while the yuan softened and the Mexican peso is off.  Hungary's central bank surprised with a 70 bp hike in the one-week deposit rate.  The JP Morgan Emerging Market Currency Index is posting a small gain through the European morning.  Disappointing tech results in China (Baidu and Bilibili) weighed on Chinese shares, but most markets in the region fell but Australia and Taiwan.  Europe's Stoxx 600 is struggling to extend the six-day advance.  US futures are also a little firmer.  After yesterday's four basis point pullback, the US 10-year yield is little changed near 1.58%.  European yields are 1-2 bp lower.  Gold remains within Tuesday's range (~$1850-$1877), but the moment seen earlier last week has faded, and the yellow metal is trading choppily in a consolidative phase.  The prospect of a coordinated sale of oil after China's announced it would tap its reserves for the second time saw the January WTI contract fall to $76.45, its lowest level since early October. Still, the price has stabilized in the European morning around $77 a barrel.  The benchmark European natural gas contract (Netherlands) has extended yesterday's pullback.  It settled a little below 75 euros last week, and after two days of declines, it is above 92 euros.  Iron ore is also falling for a second session and is now lower on the week.  Note that it settled October a little above $104 and is now around $86.40. Copper is lower for the fourth consecutive session.  It is trading around $424, off $20.5 this week.   Asia Pacific  Japan is expected to unveil the much-awaited supplemental budget tomorrow.  Prime Minister Kishida will get one bite of the proverbial apple, and he is expected to go big.  Talk of the size of the overall package has risen in recent days.  The Nikkei seemed to suggest a JPY79 trillion (~$690 bln) effort, while others report something on the magnitude of JPY56 trillion.  Still, it is recognized that part of the budget will include funds that were earmarked under previous budgets, which have not been spent.  The clear water is seen around JPY32 trillion.  Japan is one of the few countries that will provide new fiscal support.   New Zealand's central bank meets next week.  It is widely expected to hike rates for the second time in the cycle.   The swaps market has 200 bp of tightening priced in for the next 12 months.  The cash rate stands at 50 bp.  Earlier today, the central bank reported that the two-year inflation expectations (business survey)  rose to 2.96% in Q4 from 2.27% in Q3.  It is the highest in a decade.  The one-year expectation rose to 3.7% from 3.02%.  Still, with other countries slower to raise rates, a 50 bp move may not be necessary.  The Kiwi rose almost 4% last month and has given back nearly half so far in November.  Separately, the Philippines and Indonesia central banks met and left rates steady as expected.   The dollar posted a key reversal against the yen yesterday.  It made a new high for the move, a few pips below JPY115.00, and proceeded to sell-off and close (slightly) below Tuesday's low.  However, follow-through selling has been limited, and the greenback is trading firmly but may be absorbing sales related to the $1.34 bln in options in the JPY114.20-JPY114.25 area that expire today.  The Australian dollar initially extended its losses to almost $0.7250, where a A$575 mln option expires today. However, since early in the Asian session, it has posted corrective upticks and looks set to challenge yesterday's high and five-day moving average a little above $0.7300.   The Chinese yuan appears to have begun consolidating.  It remains in the range set on Tuesday that saw the dollar trade roughly between CNY6.3670 and CNY6.3965.  The small gain is the third this week.  The PBOC fix was at CNY6.3803, a bit firmer compared with expectations (CNY6.3786 in the Bloomberg survey) than seen recently.  Note that there is a $1 bln option at CNY6.3830 that expires today.   Europe The auto industry in Europe remained under pressure last month, though the US reported its first increase in sales in six months.  New car registration in Europe, including the UK, is a proxy for sales.  They tumbled by slightly more than 30% year-over-year in October.  This is considerably weaker than expected and is the poorest since May 2020.  The shortage of semiconductors is the likely culprit, and there are some signs of improvement.  The EC will propose modest tweaks in rules about how funds outside of its borders (UK) can be managed while avoiding more dramatic changes.   Draft proposals call for at least two full-time senior managers in the EU and for regulators to be notified when most of their assets are managed outside the EU.  These seem quite minor and unlikely to disrupt the UK fund business.  Earlier this month, the EU Commissioner for Financial Services indicated that temporary waivers would be granted to allow EU banks and money managers to clear trades in the UK. Meanwhile, the dispute over fishing appears to be worsening (Denmark complaining, not just France), and the UK continues to threaten to invoke Article 16.  Former Prime Minister Blair says he will propose a solution to the dispute over the Northern Ireland Protocol in the coming days.  Hungary delivered a 30 bp hike in the base rate earlier this week, which now stands at 2.10%.  It warned that it could make a separate decision on its one-week deposit rate.  It did so today, hiking it 70 bp to 2.50%.  It is a hawkish move that sent the forint higher.  Separately, as widely expected, the Central Bank of the Republic of Turkey cut the one-week repo rate 100 bps to 15%. As a result, the lira is weaker for the eighth consecutive session.  The lira's weakness not only fuels inflation but also will challenge companies and banks with foreign exchange exposure.  The dollar finished last month near TRY9.60 and after the rate hike, pushed above TRY10.97 before stabilizing.   The euro overshot the (61.8%) retracement target of the rally that took it from near $1.0640 in March 2020 to high on January 6, around $1.2350.  That retracement target was about $1.1290, and the euro fell to around $1.1265 yesterday. It recovered to new session highs early in North America yesterday (~$1.1330), leaving bullish hammer candlestick, and follow-through buying lifted it to $1.1345 today.  The combination of higher inflation and stronger retail sales this week have helped sterling to recover.  It had traded near $1.3350 at the end of last week and has barely traded below $1.34 this week.  Indeed, sterling is rising today for the fifth consecutive session, the longest advance in nearly seven months.  It poked above $1.35, where an option for about GBP345 mln will expire today.  A convincing move above $1.3515 could signal another cent advance.  The euro slipped to below GBP0.8385 today before recovering.  It is testing the GBP0.8400, which holds options for 1.1 bln euros that also expires today.   America Leave aside the gaffes by President Biden over Taiwan.  Bloomberg counts four such verbal blunders that have required official walk back or explanation or clarification.  Reports indicate that Biden probed Xi about oil sales.  China has intervened in the commodities (industrial metals) and crude oil market recently.  Today it indicated it will provide more oil from its strategic reserves.  The September is action 7.1 mln barrels, according to reports, and privately sold more.  It is unclear whether today's sales were planned or grew out of the "virtual summit."  Still, it puts the ball back into the US court.  If the US does not sell or lend oil from its strategic reserves, it will look bad after China's move.  On the other hand, its own agency (EIA) projects that it may not be needed as oil will be in oversupply shortly.  Moreover, the pain for consumers is coming from gasoline prices, not oil per se.  Drawing down strategic reserves may not help the gasoline market.  Apparently, Japan has been approached by the US about coordinating the release of oil, though Europe was not.  The US reports weekly initial jobless claims today.  They have fallen for six consecutive weeks, and at 267k, it is the lowest since the pandemic struck.   That said, at the end of 2019, there were below 220k.  The Philadelphia and Kansas City Feds publish their November survey results.  Both surprised last month, with the former on the downside and the latter on the upside.  This time it may be the other way around, with the Philly survey showing strength and the KC survey softer.  Canada reports its monthly portfolio flow data ahead of tomorrow's retail sales report.  Mexico and Brazil have light economic calendars.   Canada's Prime Minister Trudeau and Mexico's President AMLO visit Washington today for the North America's Leaders Summit.  There is tension among the "three amigos."  The Build Back Better US initiative contains several elements that favor American producers. A key one is that substantial tax break for Americans buying electric vehicles if they are made in the US.  This would seem to put Canada and Mexico at a disadvantage, given the integration of the auto sector on a continental basis. Mexico and Canada are also concerned that the Biden Administration's interpretation of the domestic content requirement in the USMCA treaty is also narrow and puts them at a disadvantage.   Canada is also concerned about the pipelines after Biden nixed the Keystone Pipeline in one of his first acts in office, and the Line 5 pipeline is being challenged by Michigan.  The US, and to a less extent, Canada, is worried about the efforts by AMLO to increase the power of the state sector energy companies (oil and electricity), deterring private sector efforts.  The US may try pressing against this on environmental grounds.  Climate and immigration are reportedly on the top of today's agenda.  The US dollar reversed higher against the Canadian dollar on Tuesday, posting an outside up day.  Follow-through buying yesterday lifted the greenback a little above CAD1.2620.  It ticked ever so slightly higher today but has come back offered.  Support is seen in the CAD1.2555-CAD1.2575 area.  The $1.04 bln option at CAD1.25 that expires today is too far away to be impactful. Meanwhile, the US dollar remains within Tuesday's range against the Mexican peso (~MXN20.56-MXN20.85).  This range looks set to hold today.   Disclaimer
Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Marc Chandler Marc Chandler 19.11.2021 13:58
Overview:  Concerns about the virus surge in Europe cut short the euro's bounce and sent it back below $1.1300 and are also weighing on central European currencies, including the Hungarian forint, despite yesterday's aggressive hike of the one-week deposit rate.  Austria has reintroduced a hard 20-day lockdown.  Germany's health minister warned that the situation deteriorated and vaccines were not enough to break the wave.  He was explicit that a lockdown cannot be ruled out.  The US dollar is trading broadly higher.  Only the yen is resilient on the day, but sterling is the only major currency that has edged higher this week.  The Scandis and euro are off more than 1%.  Speculation that Turkey may announce measures over the weekend to stabilize the lira may be helping to deter new sales today after yesterday's rout.  In the nine-day drop through today, it is depreciated by almost 15%.  The JP Morgan Emerging Market Currency Index is off for the fourth consecutive session to bring this week's loss to more than 2%, the most in five months.  Equities do not know of the consternation in the foreign exchange market.  Disappointing Alibaba results weighed on the Hang Seng (~-1%), while most other large regional bourses but Taiwan and India closed the week on an up note.   Europe's Stoxx 600 snapped a six-day advance yesterday. It was only the second loss since October.  It began firmer today but has reversed lower, putting at risk the six-week rally.   US futures are mixed, with the NASDAQ outperforming.  Bond markets are in rally mode as well.   The US 10-year yield is off three basis points to approach the week's low near 1.53%.  European bonds are off mostly 3-5 basis points, even in the UK, where retail sales surprised on the upside.  Gold is steady, finding support near $1850.  Oil initially extended yesterday's recovery but is reversing lower, leaving the January WTI contract set to test yesterday's low near $76.45.  This is the fourth consecutive weekly fall in crude oil.  European natural gas (Netherlands benchmark) is off 4.4% today, the third drop in a row, and pares the week's gain to almost 19%.  In Singapore, iron ore prices jumped 5.7% to break a five-week slide that saw prices tumble by about 28%.   Copper is firmer and paring this week's loss to around 2%.   Asia Pacific There were two developments in Japan to note.  First, October CPI was largely in line with expectations.  Surging gasoline prices (seven-year highs) helped keep the headline rate positive for the second month (0.1% year-over-year).  Excluding fresh food, the core rate was steady at 0.1%.  However, the deflationary forces are evident when fresh food and energy are removed.  The measure deteriorated to -0.7% from -0.5%, the most since June (-0.9%).    Second, Prime Minister Kishida unveiled an overall package of JPY78.9 trillion (~$690 bln). It is larger than the previous two pandemic packages. "Fiscal measures" refer to spending, investment, and loans, and this is seen worth about JPY55.7 trillion.  It is not clear yet, how much represents new spending as opposed to the reallocation of funds from earlier budgets that were not used. However, it appears to be about JPY32 trillion of new spending.   The Chinese yuan, up a modest 2.1% for the year, is the strongest currency.   Against a trade-weighted basket (CFETS), the yuan is pulling back from a six-year high set earlier this week as the euro recovers a cent.  Consider that the yuan has appreciated by more than 9% against the euro and 11.5% against the yen this year.  That means that investment in China has the same tailwind as the dollar and is compensated a bit for the relative lack of transparency and liquidity.  The Financial Times estimates that foreign holdings of Chinese bonds and stocks rose to around $1.1 trillion at the end of September, about a 13% increase this year.  China's stock market has underperformed this year, and the CSI 300 is off around 7% this year.  On the other hand, China's bonds have fared well.  It is the only 10-year bond that has not weakened this year.  China's figures show foreign direct investment has risen by almost 18% this year through October to nearly $142 bln.   The dollar is posting an outside down day against the Japanese yen by first rising above yesterday's high before reversing and taking out yesterday's low. It is approaching the week's low near JPY113.75 in the European morning.  Below there, support is seen around JPY113.60.  A break would warn of a return to JPY113.00.  The Australian dollar has been sold to its lowest level since October 6, when it recorded a low of almost $0.7225.   It has broken the trendline that connected the August and September lows (~$0.7250).  The September low was around $0.7170 and maybe the next important technical target.  The dollar is trading with a firmer bias against the Chinese yuan, but the greenback remains in the range set on Tuesday (~CNY6.3670-CNY6.3965).  The dollar gained on the yuan four sessions this week, the most since July, but the net gain of less than 0.2% still shows an extraordinarily steady exchange rate.   With the yuan near six-year highs against its trade-weighted basket (CFETS), the PBOC warned against one-way moves and encouraged financial institutions to bolster fx risk management.  It set the dollar's reference rate at CNY6.3825, slightly above expectations (Bloomberg survey) for CNY6.3822.   Europe The stronger than expected October retail sales capped the week's data that points to a rebounding economy and boosts the chances of a rate hike next month.  A strong jobs report was followed by a larger than expected rise in CPI and PPI.  Retail sales jumped 0.8% in October, and the September series was revised to flat from -0.2%. It was the first increase since April.  Pre-Xmas sales were reported.  Separately, the UK government reported that the cost of servicing the national debt has risen more than three-fold over the past year, leaving the budget deficit higher than anticipated.  It appears that the swaps market is pricing in a 15 bp hike at the December 16 BOE meeting, though some are talking about a bigger move.    Several ECB officials, including President Lagarde, have successfully pushed back against expectations of a 20 bp rate hike next year that had appeared discounted by the swaps market earlier this month. The market has pushed it into early 2023.  The implied yield of the December 2022 Euribor futures contract has fallen 20 bp this month.  The December 2022 Eurodollar futures contract is moving in the opposite direction.  The implied yield has risen by about 4.5 bp this month.  The net result is the US premium has increased to over 125 bp, the highest since last March.  In late 2019, the premium was around 180 bp.  This is recognized as a factor helping lift the dollar against the euro, and it appears to have become more salient recently.   The euro's bounce yesterday, its first gain in seven sessions (since the US CPI shocker), stalled near $1.1375, where a 780 mln euro option expires today.   The euro traded quietly in Asia before being sold aggressively as news of the virus hit the wires.  The euro traded through $1.1285 before catching a bid.  Resistance now will likely be encountered around $1.1320.  The euro is posting its first back-to-back weekly of more than 1% since March 2020.  Sterling is also sliding back toward the week's lows, just above $1.3400.  A break could signal a test on the $1.3350 area, but it appears stretched on an intraday basis.  While the euro-sterling cross is practically flat, the euro has punched below CHF1.05 for the first time in six years.  It would not be surprising to learn that the SNB has been intervening.  There appears to be little chart support until closer to CHF1.0250. America The nonpartisan Congressional Budget Office offered its evaluation of the Biden administration's Build Back Better initiative.  It sees $1.636 trillion in spending over the next decade and almost $1.27 trillion in revenue.  That leaves a deficit of $367 bln.  A notable difference between it and the administration is how much more revenue will be generated by increasing the number of IRS agents.  Even if it passes the House of Representatives, it will likely be marked up in the Senate.  The jockeying for position and spin around it will likely dominate the session, which sees no US economic reports outside of the rig count later today.  The Fed's Clarida and Waller speaker today.  It seems that most market participants still see the Fed behind the curve and disagree with our idea that to secure the ability to respond to a wide range of possible outcomes, the Federal Reserve may accelerate its tapering starting in January.   It is not clear exactly when the debt ceiling will be reached, but it is being played.  The Democrats do not want to lift it through the reconciliation process, though they have forced the Republicans to do so in the past.  The Republicans appear to have the discipline and will to oppose.  No one seems to think the US will really default, and getting even this close seems undignified.  Yet, the desire to avoid being caught out encouraged investors to demand a high yield on the four-week bill sold.  Yesterday's auction saw the yield more than double to 11 bp (annualized).  It is the highest yield since July 2020.  In contrast, the eight-week bill, which is thought to be beyond the shenanigans, yield slipped to 4.5 bp from six previously and a higher bid-cover ratio.   Canada reports September retail sales figures today.  After a 2.1% rise in August, some weakness is expected.  Ahead of it, the Canadian dollar is trading at new lows for the week, though it is faring better than the other dollar-bloc currencies.  The US dollar is approaching the (61.8%) retracement objective of the decline since the CAD1.29 level was tested on September 20.  The retracement level is near CAD1.2665, and a break would target CAD1.2700-CAD1.2750.  The upper  Bollinger Band is found near CAD1.2655 today.   The Mexican peso is also under pressure.  It, too, has fallen to a new low for the week today.  The greenback looks set to test the eight-month high set earlier this month near MXN20.98.  Note that the central bank's Deputy Governor warned that inflation was accelerating, and it could rise to 7% this month and 7.1%-7.3% next month.  In October, the CPI stood at 6.24% year-over-year.  Banxico meets next on December 16, the day after the FOMC meeting.  Lastly, we note that the Brazilian real is off for four consecutive sessions coming into today.  The dollar closed above its 20-day moving average against it yesterday and looks poised to probe above BRL5.60 today. The high for the month was closer to BRL5.70.   Disclaimer
COT: Solid gold buying raising short term concerns

COT: Solid gold buying raising short term concerns

Ole Hansen Ole Hansen 22.11.2021 11:35
Summary:  This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 16. The report shows the reaction to the US inflation shock on November 11 which among others drove strong demand for gold and more surprisingly a reduction in the dollar long. Also another strong week for most agriculture commodities with positions in coffee and KCB wheat hitting fresh multi-year highs Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 16. A week where the market responded to the US inflation shock on November 11 by sending  the dollar up by 2% to fresh high for the cycle while 10-year breakeven yields jumped 20 basis point a decade high. While bond market volatility jumped, stocks held steady with the VIX showing a small decline. The commodity sector was mixed with gains in precious metals and not least grains and soft commodities helping offset weakness across the energy sector.  Commodities Hedge funds raised their total commodity exposure, measured in lots, across 24 major futures contracts by the most since July. Driven by continued strong price action across the agriculture sector and more recently also precious metals in response to surging inflation. These sectors saw all but one market being bought while the energy sector were mixed with continued selling of crude oil only being partly offset by demand for gasoline and natural gas. Energy: Crude oil’s four week slide resulted in the biggest weekly reduction since July, and this time, as opposed to recent weeks, it was WTI that led the reduction with a 10% cut to 307k apart from a deteriorating short-term technical outlook also being driven the prospect of a US stockpile release to dampen domestic gasoline prices. Brent meanwhile saw its net long slump to a one-year low at 221.5k lots, and during the past six weeks the net length has now slumped by one-third, a reduction which gathered momentum after the late October failure to break the 2018 high at $86.75, now a double top. Crude oil comment from our daily Market Quick Take: Crude oil (OILUKJAN22 & OILUSDEC21) opened softer in Asia after Friday’s big drop but has so far managed to find support at $77.85, the previous top from July. The market focus has during the past few weeks shifted from the current tight supply to the risk of a coordinated reserve release, fears about a renewed Covid-driven slowdown in demand and recent oil market reports from the EIA and IEA pointing to a balanced market in early 2022. Having dropped by around 10% from the recent peak, the market may have started to conclude that a SPR release has mostly been price in by now. Metals: Another week of strong gold buying has now raised the alarm bells given the risk of long liquidation should the yellow metal fail to hold onto its US CPI price boost above $1830. Last week the net long in gold reached a 14-month high at 164k lots and the speed of the accumulation, especially the 70% jump during the past two weeks alone carries, will be raising a red flag for tactical trading strategies looking for pay day on short positions should support give way.  Gold extended Friday’s drop below $1850 overnight, before bouncing ahead of key support in the mentioned $1830-35 area. The risk of a quicker withdrawal of Fed stimulus supporting real yields and the dollar has for now reduced gold's ability to build on the technical breakout. However, the price softness on Friday helped attract ETF buying with Bloomberg reporting a 10 tons increase, the biggest one-day jump since January 15. A second week of silver buying lifted the net to a four-week high at 35.9k lots, but still below the May peak at 47.8k lots. Copper’s rangebound trading behavior kept the price and the net long unchanged. The latter due to an even size addition of both new long and short positions. Agriculture: Broad gains across the grains market lifted the combined long across the six most traded contracts to a six-month high at 560k lots. Buyers returned to soybeans after the net long recently hit a 17-month low, the corn long was the biggest since May while the KCB wheat long at 60.6k lots was the highest since August 2018. Supported by an increasingly worrying supply outlook, coffee speculators lifted their net long by 16% to a five-year high at 55k lots. Cotton and sugar longs also rose while short-covering helped halve the cocoa net short. More on the reasons behind the current strength in wheat and coffee, and agriculture in general can be found in may recent update: Agriculture rally resumes led by coffee, wheat and sugar ForexIn a surprise response to the US inflation shock on November 11 speculators ended up making a small reduction in their overall dollar long against ten IMM futures and the Dollar index. Selling of euro in response to the 2.4% drop and a 161% increase in the sterling short to a 17 month high ended up being more than off-set by the buying of all other major currencies, most notably JPY and CHF. The result being a fifth weekly reduction in the dollar long to $21.3 billion, now down by 17% reduction from the near 30-month high reached during October. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming
Electrification and urbanisation will drive growth in copper

Electrification and urbanisation will drive growth in copper

Peter Garnry Peter Garnry 22.11.2021 08:26
Summary:  Copper is an essential metal in our green transformation driven by electric vehicles and upgrades to our electric grid infrastructure. The ongoing urbanisation in the world is also driving construction which is one of the key demand drivers for copper. The demand outlook looks strong, but how can investors get exposure to copper. We explore the different options and highlights specifically six miners with high exposure to copper. The long-term growth drivers of copper The green transformation will electrify the global economy as cars go electric and more homes in colder areas will switch from natural gas as heating source to that of air to water heat pumps. In warmer parts of the world we will continue to see an acceleration in air conditioners to cool homes. The main usage of refined copper is for electrical applications, but it is also used in housing (pipes and fittings), cars, telecommunication and industrial machines. Copper has the second highest thermal conductivity at room temperature among pure metals and is thus the preferred metal used in electrical applications. As the world electrifies in the name of the green transformation and rapid urbanization continues in Asia, Africa, and South America, copper will continue to enjoy strong annual growth rates. How to get exposure to copper? Copper has been rebranded as a green metal because of its importance for the green transformation and investors are increasingly asking us how to invest in copper. The most direct way is of course to invest in high grade copper futures on COMEX (part of CME Group) with the current active contract being the Mar 2022 contract (Saxo ticker: HGH2), but the contract has a contract value of around $106,537 at current level making it inaccessible to most retail investors. One could also invest through CFD on futures (Saxo ticker on the Mar 2022 is COPPERUSMAR22) where the investor could buy 100 pounds of copper instead of 25,000 pounds in the futures reducing the contract size to $425. However, getting exposure through CFDs and futures the investor must regularly roll the contract to the next active contract, and the investor could also incur financing cost increasing the drag on performance. The chart below shows the continuous futures contract on high grade copper since 2002. Source: Saxo Group Few miners offer pure exposure to copper Another way to get exposure to copper that removes the difficulties of rolling futures or CFD contracts is to invest in mining companies that extract or refine copper. The table below shows 16 mining companies with exposure to copper with Codelco, the largest copper producer in the world, absent from the list as the Chilean miner is only listed in Chile and thus not investable for our clients. The copper mining industry has delivered a median total return in USD of 132.6% over the past five years beating the global equity up 105% in the same period. The rising copper prices the past year driven by investors positioning themselves in green metals (defined as metals that will play a key role in the green transformation) which in turn has pushed up revenue in the industry by almost 40%. Sell-side analysts are generally bullish on copper miners with a median upside of 16% from current levels. In our view investors should select one or two copper miners to get exposure and avoid the ETFs on the industry as they are too broad-based and lack the pure exposure profile needed to play the copper market. Name Market cap (USD mn) F12M EV/EBITDA Revenue growth (%) Price-to-target (%) 5Y return (USD) Revenue from copper (%) Antofagasta PLC 18,871 5.1 43.8 3.4 166.6 84.8 First Quantum Minerals Ltd 14,962 5.1 41.9 20.9 111.3 84.2 Southern Copper Corp 45,944 8.6 39.7 3.1 128.9 81.6 KGHM Polska Miedz SA 7,026 3.8 28.3 26.4 80.0 73.8 Jiangxi Copper Co Ltd 9,843 7.2 44.6 37.8 27.3 71.0 OZ Minerals Ltd 6,397 7.6 38.7 -6.1 288.4 60.0 Glencore PLC * 65,890 4.5 -7.5 13.9 78.2 39.0 Boliden AB 9,291 5.1 26.2 3.7 68.1 35.0 Freeport-McMoRan Inc 57,080 5.7 55.5 13.2 193.3 33.7 Teck Resources Ltd 14,468 3.9 28.7 19.9 22.0 27.0 BHP Group Ltd 131,046 4.0 41.7 18.6 136.4 26.0 Zijin Mining Group Co Ltd 39,925 8.8 27.4 52.1 396.4 22.7 Anglo American PLC 47,342 3.5 59.0 15.7 262.8 22.3 MMC Norilsk Nickel PJSC 47,479 5.1 27.1 13.5 191.1 20.6 Rio Tinto PLC 98,497 3.6 39.5 15.8 149.2 11.5 Vale SA 60,329 2.5 77.2 87.6 111.4 5.5 Aggregate / median 674,389 5.1 39.6 15.7 132.6 34.4 Source: Bloomberg and Saxo Group* EBITDA contribution as Glencore does not breakdown revenue split on metals As the table also show, there is no such thing as pure exposure to copper except for futures, options and CFDs on the underlying copper. The miner with the highest revenue exposure to copper is Antofagasta with 84.8% revenue share from copper extraction and refining. Most copper miners also extract gold and silver as part of their copper operations. Out of the 16 copper miners in our list, only 6 of these miners have more than 50% of revenue coming from copper extraction and refining. Outlook and risks High grade copper futures have been range trading for more than half a year as slowing demand out of China due to a slowdown in housing construction has weighed on the demand side. On the positive side inventories have been tight in copper which has helped support the copper price and the global pipeline of new copper mines, but also potential tax charges in Chile and Peru (roughly around 40% of global supply) could negative impact supply and keep copper prices high. The annualized growth rate in global refined copper demand has been around 3% in the period 2009-2020. China has for many years been the key driver of demand growth for copper, but going forward electrification (electric vehicles and air-to-water heat pumps and urbanization in India will begin to play a bigger marginal role on demand creating a more steady and diversified demand picture. In 2022, demand outside China will be driven by construction, grid infrastructure, and transport. Another risk to copper demand is significantly higher interest rates next year as that would curtail growth in construction which is interest rate sensitive.
FX Update: USD kneejerks higher as Powell gets nod for second term

FX Update: USD kneejerks higher as Powell gets nod for second term

John Hardy John Hardy 23.11.2021 17:08
Summary:  US President Biden will tap Jay Powell for a second term as Fed Chair and will nominate Lael Brainard to be promoted to Vice Chair of the Fed, a move that sent the USD modestly higher and US yields sharply higher, though some of the reaction may have been on pent-up reaction to prior developments. Elsewhere, the descent in the Turkish lira is turning dire, while the kiwi is weaker ahead of an RBNZ meeting tonight. FX Trading focus: USD follows US yields higher in the wake of Powell getting nod for 2nd term Surprising a sizable minority and perhaps myself to a degree, US President Biden will tap Jay Powell for a second term as Fed Chair, while seeking to promote Lael Brainard from her current position to Vice Chair. The most prominent reason given for not going with Brainard is that her confirmation process may have proven contentious, something Biden wanted to avoid, and given extensive Democratic party support for Powell, the progressive wing aside, it was always the “easy option”. Brainard will still have to go through a confirmation process with the Senate. More interesting is the Brainard was not nominated to Vice Chair in the banking supervision and regulation role that the soon-gone Quarles occupied, a role that many envisioned for her. Biden has more nominees to consider for Quarles’ replacement and other empty spots, but continuity appears assured, though a Vice Chair Brainard will carry more weight when she dissents on non-monetary policy issues in the future (she never dissented on FOMC votes but has dissented more than 20 times on board votes linked to loosening regulation on US financial institutions). Other positions at the Fed will need filling as well, including the replacement of Quarles as banking supervisor. The market reaction to the news was fairly straightforward and “as expected” algorithmically, i.e., Brainard was supposed to be the more dovish pick, so Biden going with Powell saw the USD stronger as the market priced in about 10 basis points more in the way of Fed hikes through the end of next year. It’s tough to tell whether some of the reaction was the market simply adjusting to have this important issue “out of the way” allowing traders to price in other recent developments, like hot US data and Fed Vice Chair Clarida’s comments on possibly speeding up the pace of the Fed’s taper of asset purchases at the December FOMC meeting. The next test for whether this USD move can extend will be with tomorrow’s October PCE Inflation print and the FOMC minutes. For USDJPY, as I argue below, an extension higher  likely needs more upside from longer US yields. US President Biden will speak today on the economy and “lowering prices for the American people” which many believe will include a release of crude oil from US strategic reserves. That’s a risky move if it fails. Chart: USDJPYUSDJPY spilled over the 115.00 barrier in the wake of Powell getting the nod for a second term, with  the move now trying to decide whether it can stick. Arguably, the rise in Fed policy expectations don’t mean much if the longer end of the US yield curve remains anchored as it has lately, which continues to suggest that the market sees inflation as transitory and/or that Fed potential on rates will max out around 2.0% and crush the growth and inflation outlook. While 10-year US yields were sharply higher yesterday, they’re still bogged down in the range since the pivot high of 1.70% in October and the cycle high near 1.75% all the way back at the end of March. The logjam needs to break there and send US long yields higher for better fundamental support for a significant break above the 115.00 level in USDJPY. European politics in the spotlight – with Germany dealing with a new Covid ave and the ongoing natural gas and power crunch, it is time for the government coalition to announce itself and begin ruling. An announcement of the “stoplight” coalition could be imminent and we’ll have to watch the awkward combination closely, particularly the LDP Lindner’s attitude toward spending as the traditionally liberal party’s supply side principles are at odds with its Social Democratic and Green coalition partners inclinations, although energy emergencies are not political, but must be dealt with.  Elsewhere, Italian president Mattarella announced he will be stepping down. If, as some believe, an effort is made to replace his mostly ceremonial role with Mario Draghi, elections would have to be held. And the French election season will only heat up from here, where we watch whether Macron can keep the populists Zemmour and Le Pen at bay.  The Euro is getting very cheap – bigger fiscal, an ECB reverse repo facility, and a non-Covid constrained outlook by spring could have EURUSD in a very different place by then. Antipodean action- the Aussie has risen sharply versus the kiwi (NZD) over the last couple of sessions as the news flow for the  Aussie has improved notably, with China’s central bank possibly signaling it is ready to bring stimulus, some of the news flow in the property sector improving, and especially as iron ore prices have jumped sharply, particularly overnight, on all of the above plus anticipation that China will have to increase steel output soon. The Reserve Bank of New Zealand was one of the quickest central banks to turn hawkish over the summer and abandon QE and was only delayed slightly in hiking rates by New Zealand’s first Covid outbreak in many months over the summer. The central bank chief Adrian Orr has made it clear that the bank is on the path or many more rate hikes to come and the market has priced in a policy rate of 1.50% by the April meeting of next year versus the current 0.50%. Most believe that the central bank will only hike 25 bps tonight but a significant minority believe that the bank will hike 50 bps. As important will be the market mood (if risk sentiment is weak on further US yield rises, for example, the impact of any RBNZ move may be muted) and whether guidance is able to meet lofty expectations for further tightening. The NZ 2-year yield has traded flat at elevated levels since late October, while NZDUSD has declined, arguably on the fresh momentum in Fed expectations, so moving the needle may require that the RBNZ deliver a 50 basis point hike and even more hawkish guidance. Turkish lira move getting downright disorderly – Turkish President was out yesterday complimenting the recent Turkish Central Bank chief’s decision to cut rates another 100 basis points and declaring that the Turkish government would concentrate on policies that encourage economic growth. In rather dire language, he drew parallels between the current situation and the struggle to form the modern Turkish state in 1923 in the wake of World War I. As of this writing, USDTRY traded near 12.50 after starting last week near 10.00, a breathtaking move. Much more of this kind of price action, and the risk of hyperinflation will swing into view. Table: FX Board of G10 and CNH trend evolution and strengthThe most important trend shift was yesterday’s huge dump in precious metals – look at the momentum scores for the last 2- and 5 days. Otherwise, most trends of late are extending with the exception of the badly fading NZD. Table: FX Board Trend Scoreboard for individual pairsThe precious metals in for a rough ride on the USD- and US yield move in the wake of the Fed Chair nomination move yesterday. Elsewhere, getting some hefty trend readings in USD/SEK and UDS/NOK, which remain high beta to Euro weakness. Upcoming Economic Calendar Highlights (all times GMT) 1445 – US Nov. Flash Markit Manufacturing and Services PMI 1500 – UK BoE Governor Bailey at House of Lords 1500 – US Nov. Richmond Fed Manufacturing 1730 – ECB's Makhlouf to speak 1800 – Canada Bank of Canada’s Beaudry to speak 2130 – API’s Weekly Petroleum Stock Report 0030 – Japan Nov. Flash Manufacturing and Services PMI 0100 – New Zealand RBNZ Official Cash Rate Announcement
Market Quick Take - November 22, 2021

Market Quick Take - November 22, 2021

Saxo Bank Saxo Bank 22.11.2021 10:04
Summary:  Equity markets closed last week somewhat mixed, but the Asian session was mostly strong on indications that the Chinese PBOC is shifting its attitude on monetary policy toward easing. Elsewhere, the difficult wait for the Fed Chair nomination news continues this week ahead of the US Thanksgiving holiday on Thursday. Crude oil bounced after finding support overnight, but the risk of SPR release and Covid demand worries still linger. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - a new week following a new all-time high in US equities on the close on Friday, which is starting with Nasdaq 100 futures opening up higher trading around the 16,610 level in early European trading. Last week showed that investors and traders are utilizing the Covid-19 lockdown playbook selling off physical companies while buying online companies that are better equipped to navigate new lockdowns in Europe. With the US 10-year yield remaining in a range around the 1.55% there is nothing from preventing equities from extending recent gains. EURUSD and EURGBP – new Covid restrictions across Europe, which has become the center of the latest Covid wave, have crimped sentiment for the euro, as has the still very elevated power and natural gas prices. EURUSD has traded back down toward the lows of the cycle near 1.1265 overnight, with the next psychological magnet lower likely the 1.1000 area as long as the big 1.1500 break level continues to provide resistance. In EURGBP, last week saw the break of the prior major pivot low near 0.8400, with the next objective the post-Brexit vote low near 0.8275. USDJPY – threatened support on Friday on a spike lower in long US treasury, but a reversal of much of that action by this morning in late Asian trading is likewise seeing USDJPY trying to recover back into the higher range, with a focus on the recent top just short of 115.00. We likely need for long US treasury yields to sustain a move higher to support a major foray above this huge 114.5-115.00 chart area, which has topped the market action since early 2017. Meanwhile, if risk sentiment worsens further in EM and darkens the outlook for JPY carry trades there, while US treasuries remains rangebound or head lower, the JPY could squeeze higher as the speculative interest is tilted heavily short. Gold (XAUUSD) extended Friday’s drop below $1850 overnight, before bouncing ahead of key support in the $1830-35 area. The risk of a quicker withdrawal of Fed stimulus supporting real yields and the dollar has for now reduced gold's ability to build on the technical breakout. However, the price softness on Friday helped attract ETF buying with Bloomberg reporting a 10 tons increase, the biggest one-day jump since January 15. Gold’s biggest short-term threat remains the tripling of futures long held by funds during the past seven weeks to a 14-month. Most of that buying being technical driven with the risk of long liquidation now looming on a break below the mentioned support level.   Crude oil (OILUKJAN22 & OILUSDEC21) opened softer in Asia after Friday’s big drop but has so far managed to find support at $77.85, the previous top from July. The market focus has during the past few weeks shifted from the current tight supply to the risk of a coordinated reserve release, a renewed Covid-driven slowdown in demand and recent oil market reports from the EIA and IEA pointing to a balanced market in early 2022. Speculators who for the last six weeks have been net sellers of crude oil futures cut their combined WTI and Brent long to a three-month low in the week to November 16. Focus on SPR and Covid risks this week US treasuries (SHY, IEF, TLT). Government bond yields worldwide dropped as new lockdown measures were imposed in Austria on Friday. Ten-year yields tumbled to 1.55%, and they are likely to continue to trade range-bound as the debt ceiling issue will continue to compress long-term yields as volatility peaks in money markets. Investors will focus on this week’s PCE index, FOMC minutes and any news regarding a change of leadership of the Federal Reserve. If Brainard is appointed as Fed chair, the market will expect low rates for longer, thus inflation expectations will advance putting upward pressure on yields. Thus, it is unavoidable to continue to see the 5s30s continue to flatten. German Bunds (IS0L). We expect European sovereigns, in general, to continue to benefit from news related to a surge of Covid cases and lack of collateral as the year ends. Yet, the perception of inflation is changing among ECB members with Isabel Schnabel last week saying that the central bank will need to be ready to act if inflation proves more durable. Therefore, as we enter in the new year, and collateral shortages will be eased, we anticipate spreads to resume their widening. What is going on? Fed Vice Chair Clarida suggests faster Fed taper - in comments on Friday, suggesting that the December FOMC meeting could speed the pace at which the Fed will reduce its asset purchases. “I’ll be looking closely at the data that we get between now and the December meeting...It may well be appropriate at that meeting to have a discussion about increasing the pace at which we are reducing our asset purchases.” China’s central bank signals that it may ease policy. In a monetary policy report from Friday, the PBOC dropped language from prior reports, including phrase suggesting that the bank will maintain “normal monetary policy” and a promise not to “flood the economy with stimulus”. This comes in the wake of considerable disruption in the property sector as the government cracks down on an overleveraged property sector. Asian equities were mostly higher on the news, especially in Korea, although the Hang Seng index was slightly in the red as of this writing. Ericsson to acquire cloud provider Vonage in $6.2bn deal. This pushes the Swedish telecommunication company into the cloud communication industry seeking to add more growth to the overall business. Vonage has delivered 11% revenue growth in the past 12 months hitting $1.4bn with an operating margin of 10.4%. Global proceeds from IPOs hit $600bn in record year. This is the biggest amount since 2007 and almost 200% above the level in 2019 highlighting the excessive risk sentiment in equities. More confusing signals from Bank of England. Governor Bailey said in an interview for the Sunday Times that risks to the country are “two-sided” at the moment as growth slows and inflation rises, and that the cause of inflation problems is supply side constraints and that “monetary policy isn’t going to solve those directly.” Similarly, BoE Chief Economist Huw Pill said on Friday that the Bank of England said that the weight of evidence was shifting in favour of rate hikes but that he has not yet made a decision, encouraging observers to focus on the longer term rather than meeting-to-meeting decision. US shared intelligence with allies suggesting potential for Russia to invade Ukraine - according to Bloomberg sources. The intelligence noted up to 100,000 soldiers could be deployed in such a scenario, and that some half of that number are already in position.  Russian president Vladimir Putin denied Russia intends to invade, but seemed to pat himself on the back for “having gotten the attention of the US and is allies, which he accused of failing to take Russia’s ‘red lines’ over Ukraine seriously”, as the article puts it. What are we watching next? Who will US President Biden nominate to head the Fed next February? Powell is still seen as more likely to get the nod that Brainard by roughly two to one, and this Fed Chair nomination issue is hanging over the markets, as the current Fed chair term ends in early February and from comments made last week by President Biden, an announcement could come any day. One uncertainty that would come with a Brainard nomination is the potential difficulty of having her nomination approved by the Senate. The nomination news could generate significant short-term volatility on the choice of the nominally more dovish Lael Brainard over current Fed Chair Powell, though we see little difference in the medium-longer term implications for monetary policy, and the Fed is likely to get a prominent new regulatory role either way (under Brainard or someone else if she is nominated to replace Powell). Will Germany announce a Covid lockdown? - Friday saw some volatility on Austria’s announcement of a full Covid lockdown, with Germany’s health minister saying that a similar move in Germany could not be ruled out. Later that day, that was contradicted by comments from another minister. Meanwhile, resistance against Covid restrictions has turned violent in Netherlands. Earnings Watch – the number of important earnings is falling rapidly, but this week Tuesday is the most important day with key earnings from Xiaomi, XPeng and Kuaishou, both important Chinese technology companies. Also on Tuesday, US companies such as Medtronic, Autodesk and Dell Technologies are worth watching. Monday: Sino Pharmaceutical, Prosus, Zoom Video, Agilent Technologies Tuesday: Xiaomi, Kuaishou Technology, Compass Group, Medtronic, Analog Devices, Autodesk, VMWare, Dell Technologies, XPeng, HP, Best Buy, Dollar Tree Wednesday: Deere, Thursday: Adevinta Friday: Meituan, Pinduoduo Economic calendar highlights for today (times GMT) 0900 - Switzerland SNB weekly sight deposit data1330 – US Chicago Fed Oct. National Activity Index1500 – US Oct. Existing Home Sales1730 – ECB's Guindos to speak2145 – New Zealand Q3 Retail Sales2200 – Australia Nov. Flash Services & Manufacturing PMI0105 – Australia RBA’s Kohler to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Cleaning Up with Carbon Credits

Cleaning Up with Carbon Credits

Callum Thomas Callum Thomas 25.11.2021 08:59
The price of EU carbon credits hit a fresh record high last week following COP26. Global carbon prices are up 4x off the March 2020 low and 9x above the 2017 nadir. Retail traders and advisors can access the space through a growing ETF While appearing a bit faddish and overheated, the bull market in carbon could still be in the early phases   Winter is coming. Households in China, Europe, and the States will be faced with higher than average heating bills due to this year’s spike in commodity prices—namely in natural gas and coal. In a similar vein, credits of carbon offsets have also surged.   Carbon: The New Asset Class?   Carbon as an asset class has grown in popularity. Trading (and holding) carbon credits is a market born out of regulation. Investors might be familiar with the “cap and trade” concept. The idea is that regulators cap the amount of carbon emissions and then allow emitters to trade the credits. A cleaner environment is the goal while allowing the market to discover a fair price.   Scarcity Meets AUM   High government regulation and surging fund flows culminated in an interesting and volatile situation this year. Carbon credits are scarce, but investor allocations continue to pour in. The buyers of these credits are, of course, energy and utility firms, but demand grows from other corporate entities looking to put their green foot forward. Even golfer Rory McIlroy is paying up to reduce his carbon footprint. Retail investors have interest, too. Naturally, as prices rally and volatility increases, speculative traders enter the scene.   Prices Rally Following Regulation Talks   Last week, the European Union Emissions Trading System (ETS) Carbon Price notched a new record high above €66 following the COP26 conference which happened to coincide with a cold snap in the region. Carbon credits often become more valuable during a summer heatwave or winter cold blast due to higher power burns and electricity generation to meet demand.   Getting In on the Game   Retail investors and advisors don’t need a futures trading seat or a source of institutional credit to get in on the carbon trading action. The KraneShares Global Carbon ETF (KRBN) tracks the EU ETC carbon price fairly well. KRBN traded with very low volume up until energy commodity prices began to surge in 2Q21.   Our Weekly Macro Themes report details the growing interest in this unique asset. This week’s featured chart illustrates how much money is pouring into the carbon credit space. We aggregated all the carbon credit ETFs that trade globally. AUM in these exchange-traded products was just a trace a year ago ($35 million) but now approaches $2.5 billion.   Featured Chart: Carbon Credit ETF Assets Under Management   The growth in ESG flows is no joke, and it seems like nothing is stopping that freight train. But is the parabolic move in carbon credit ETFs just another mini-bubble we have come to expect as pandemic stimulus ignites a wave of speculation? It has the hallmarks of just that. Investor interest is driving up prices, but the nuance here is that the speculators might be less demonized given the arguably positive benefits to climate change (in contrast to speculators in other energy and agricultural commodities).   Search Trends and Price Correlation   Our weekly report investigates the similarities between ESG’s growth and interest in trading carbon credits. There is an obvious link. Google Search Trends of “carbon” matches the price chart of the EU ETS Carbon index. From an impact investing standpoint, putting upward pressure on carbon prices is a very direct way of influencing climate outcomes (by raising the cost of emitting and incentivizing investment in clean tech).   Bottom Line: Is this the new hot trading craze? Speculating in carbon credits? We are not there yet, but growth in the niche is surging along with prices. The rise in speculative manias over the last 18 months collides with the powerhouse that is growth in ESG. The bullish combination has led to substantial flows into the asset class and new all-time highs in price.   Follow us on: Substack https://topdowncharts.substack.com/ LinkedIn https://www.linkedin.com/company/topdown-charts Twitter http://www.twitter.com/topdowncharts
Crude Oil Didn’t Like Thanksgiving Turkey This Year

Crude Oil Didn’t Like Thanksgiving Turkey This Year

Sebastian Bischeri Sebastian Bischeri 26.11.2021 15:46
  It appears that the US markets didn’t find the Thanksgiving turkey very tasty this year. CBOE Volatility S&P 500 Index (VIX) Futures (daily chart) With the “indicator of fear” (also known as the VIX or Volatility Index) spiking over 13.5 % in the European session, propelling some precious metals (gold and platinum) and natural gas to the roof, while sending the crude and petroleum products to the lower ground, the volatility has just clearly reached a higher level. (Source: FINVIZ) Most of our premium subscribers enjoyed a last ride on the long side for WTI crude oil this month while following our trade projections. For more details of the last oil trading position provided last week, I have just released that trade as it got very close to reach its projected target on Wednesday (Nov. 24). WTI Crude Oil (CLF22) Futures (January contract, daily chart) The main fears on the oil market come from the possibility of a demand slowdown starting from Q1 2022. Additionally, that timing happens when the United States, along with a larger group of countries (including China, India, Japan, Republic of Korea, and the UK) have made the decision to release some of their strategic oil reserves on the market, aiming at artificially increasing the supply, and thus lowering oil prices. Well, this may represent one driver of prices indeed, although a more general economic slowdown associated with a non-sustained demand as we are getting into the winter, may be the main concern now. On the other hand, the winter – expected to be colder in certain regions – is also supporting the gas prices, hence the recent surge on the Henry Hub futures, along with sustained US exports of Liquefied Natural Gas (LNG) that are also supporting natural gas prices. Henry Hub Natural Gas (NGF22) Futures (January contract, daily chart) In conclusion, we could be entering a new volatile period on the global markets, associated with various fears maintained through headlines by media (Covid variants, restrictions, etc.). For now, I would suggest staying away from the noisy headlines and just relax and enjoy some new pieces of turkey leftovers, or whatever else if you don’t eat meat. Ignore the noise and trade what you see (not what you think). Stay tuned and enjoy your weekend! As always, we’ll keep you, our subscribers well informed. Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve a high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Sentiment Remains Fragile

Sentiment Remains Fragile

Marc Chandler Marc Chandler 29.11.2021 14:08
November 29, 2021  $USD, Covid, Currency Movement, Federal Reserve, Inflation, Japan Overview: The fire that burnt through the capital markets before the weekend, triggered by the new Covid mutation, burned itself out in the Asian Pacific equity trading earlier today. A semblance of stability, albeit fragile and tentative, has emerged. Europe's Stoxx 600 is up about 1%, led by real estate, information technology, and energy.  US index futures are trading higher, with the NASDAQ leading.  Benchmark 10-year yields are firmer.  The US 10-year Treasury yield has risen about six basis points to 1.53%.  European yields are mostly 1-2 basis points higher, while the UK Gilt yield is up four basis points. The dollar remains, as we say, at the fulcrum of the major currencies, but in an opposite way, with the funding currencies that rallied strongly before the weekend seeing their gains pared today, while the dollar bloc and Scandis trade firmer.  Among the emerging market currencies, the liquid and freely accessible currencies, such as the South African rand, Russian rouble, and Mexican peso are leading the recovery.  The Turkish lira and central European currencies, perhaps dragged down by the softer euro, underperform.  The JP Morgan Emerging Market Currency Index is slightly firmer after falling around 0.4% before the weekend.  Gold held support near $1780 but has been unable to resurface above $1800.  January WTI jumped by about 5% after the 13% drop at the end of last week.  Iron ore surged 6.5%, recouping in full the 5.6% decline in the last session to approach its recent highs.  Winter weather is beginning to be experienced in Europe, and natural gas (Netherlands) is up 7.75% after falling 4.8% ahead of the weekend.  Copper is recouping a little less than half of last Friday's nearly 4% fall.   Asia Pacific Faced with much unknown about the new mutation, several Asia Pacific countries are opting to close their borders to foreign travelers.  Initially, countries limited the travel ban to a handful or so of countries from Southern Africa.  It does appear that the omicron variant has been around before being sequenced in South Africa, and it is has been found in several countries. However, the origin is still not clear.  While some reports from South Africa suggest mild symptoms, there is good reason for the World Health Organization's caution.  If a new vaccine is needed for the variant, reports suggest it could take around 100 days.  Recall that Japan has lifted its formal emergency in late September, and the economy is rebounding as anticipated.  Today's data showed retail sales rose for a second month in October.  The 1.1% increase lifted the year-over-year rate to 0.9%.   Purchases of clothing and food surged by 9.2%.  Auto sales, still hampered by supply chain disruptions, was the only category that fell.  After a frustratingly slow start, Japan's inoculation efforts have been successful, and the vaccination rate is above 75%.   Before news of the new variant broke, the dollar was around JPY115.50.  It fell to nearly JPY113.00 before the weekend.  It recovered in early dealing to almost JPY113.90 before the weakness of the regional equities contributed to its push lower.  Bloomberg pricing data showed it recorded a JPY112.99 low near midday in Tokyo.  It bounced to almost JPY113.65 in late dealings and has been consolidating in the European morning.  The option for $350 mln at JPY113.40 that expires today has likely been neutralized.  The market appears to be waiting for a new development to push it out of the JPY113-JPY114 range.  The Australian dollar held the pre-weekend low slightly below $0.7115 and is making session highs late in the European morning near last Friday's high (~$0.7155).  Nearby resistance is seen in the $0.7180-$0.7200 area. Recall that last week's 1.55% decline was the fourth consecutive weekly loss and the largest in three months.  The greenback gave up its pre-weekend gain against the Chinese yuan and a bit more today.  It did not even trade above CNY6.39 today, settling above it at the end of last week.  As we have noted, it remains within the range set on November 16 of roughly CNY6.3670-CNY6.3965. The PBOC set the dollar's reference rate at CNY6.3872 and continued to set it above expectations (CNY6.3858, via Bloomberg).   Two issues seem to be receiving attention today.  First are the prospects of easing by the PBOC in the face of continuing weakening of the economy. The November PMI will be released starting first thing tomorrow.  Second, China's property developers have an estimated $1.3 bln in debt servicing next month, following $2 bln this month.   Europe Outside of the virus, two issues dominate investors' attention in Europe today.  First are the November inflation reports from Spain and Germany ahead of the preliminary aggregate figures tomorrow.  The other is the increasingly bellicose rhetoric between the UK and France over the channel crossings and fishing.   Spain's harmonized November CPI rose by 0.3% to lift the year-over-year rate to 5.6%.  It is the fastest pace since 1992.  It follows October's 1.6% increase and 5.4% 12-month rate.  Food and energy were the main drivers.  The increase was in line with forecasts.  In September, the central bank's chief economist had anticipated that November could be the peak in inflation and anticipated it falling back below the 2% target in 2022.  German states are reporting their November CPI figures, and the country's measure will be reported late today.  The states' measures are consistent with forecasts calling for the nation's harmonized measure to fall around 0.2%.  However, the year-over-year pace is projected to accelerate to 5.5% from 4.6% due to the base effect.  The EMU aggregate preliminary CPI is forecast (Bloomberg median) to be flat on the month for a 4.5% year-over-year pace (up from 4.1% in October).  The core rate is projected to climb to 2.3% from 2.0%.  The euro poked slightly above $1.1330 at the end of last week and settled just above $1.1315.  It traded near $1.1260 in late Asia/early Europe and caught a bid that brought it back to about $1.1290.  There is a 1.7 bln euro option at $1.13 that expires today.  The intraday momentum indicators are getting stretched, warning of the downside risk in early North American activity.  Sterling recorded a new low for the year ahead of the weekend, near $1.3280. It is trading in about a quarter-cent range today, around $1.3335, and staying within last Friday's range.  The pre-weekend high was closer to $1.3365.   After an eight-day rally, the December short-sterling interest rate futures contract is trading slightly heavier today.  The market expectations have shifted from a good chance of a hike next month to a bit more than a third of a chance.   America The US auto sales and jobs highlight this week, but Fed officials are out in force too.  Today Powell, Williams, and Hasson speak at an innovation conference, and Bowman discusses the central bank and indigenous economies. Tomorrow, Powell and Yellen testify before a Senate committee on the CARES Act.  Their prepared remarks are expected to be released later today that may also work for the testimony on Wednesday on the same topic before a House committee.    Tuesday, Clarida discusses the Fed's independence, while Williams will speak on food security.  The Beige Book, in preparation for next month's FOMC meeting, is due Wednesday too.  No fewer than five Fed officials speak in the second half of the week.  Our initial bias continues to be for faster tapering at the December FOMC meeting. It still seems to be the prudent course to maximize the Fed's ability to respond to a broad range of probable economic outcomes.  The US pending home sales and the Dallas Fed manufacturing survey, due today, are not typically market movers.  And today is unlikely to be an exception.  Canada reports its Q3 current account surplus (expected to be around C$5.7 bln, up from C$3.6 bln in Q2.  It also reports raw material and industrial prices for October.  The week's highlight is tomorrow's September and Q3 GDP, followed by Friday's employment report.  Mexico reports October unemployment figures (median forecast in Bloomberg's survey calls for a 4.07% rate, down from 4.18% in September). Concerns about President AMLO's appointment to the central bank lingers even though the peso may benefit from the correction to the 1.6% pre-weekend drop.   The US dollar spiked to almost CAD1.28 before the weekend.  It fell to nearly CAD1.2720 today.  The pullback was seen in Asia, and it has been consolidating since then.  Still, the greenback looks vulnerable to a further retracement of the pre-weekend gains. Initial potential extends toward CAD.2680-CAD1.2700.   The broader risk appetites may be the key today for both the Canadian dollar and Mexican peso.  The greenback jumped to MXN22.1550 amid the pre-weekend turmoil.  This now marks the high for the year.  It pulled back initially to MXN21.6850 in Asia, but the selling pressure eased, and it traded in an MXN21.7630-MXN21.9000 range in Europe.  We suspect the combination of the trajectory of US monetary policy plus the concerns about the central bank of Mexico boosts the chances that the peso underperforms generally.  Moreover, rising price pressures and a weak economy put officials in a difficult position, especially given AMLO's reluctance to deploy fiscal measures to support the economy.   Disclaimer
Fragile Calm Returns and Powell's Anti-Inflation Rhetoric Ratchets Up

Fragile Calm Returns and Powell's Anti-Inflation Rhetoric Ratchets Up

Marc Chandler Marc Chandler 01.12.2021 14:08
December 01, 2021  $USD, China, Currency Movement, EMU, Federal Reserve, Japan, PMI, South Korea, UK Overview:  Into the uncertainty over the implications of Omicron, the Federal Reserve Chairman injected a particularly hawkish signal into the mix in his testimony before the Senate.  These are the two forces that are shaping market developments.  Travel restrictions are being tightened, though the new variant is being found in more countries, and it appears to be like closing the proverbial barn door after the horses have bolted. Equities are higher.  The MSCI Asia Pacific Index, led by South Korea, and India, rose for the first time in four sessions, and Europe's Stoxx 600 is recouping more of yesterday's loss.  US futures are trading more than 1% higher.  Benchmark yields are higher.  The 10-year US Treasury yield is up four basis points though is still below 1.50%.  European yields are mostly 3-5 bp higher, though Italy's benchmark is 8 bp higher near 1.05%.  The dollar remains the fulcrum of the see-saw, but the funding currencies (yen, Swiss franc, and euro) are lower, and the dollar bloc is higher.  The dollar is pulling back against the Turkish lira after approaching TRY14 yesterday, even though President Erdogan's rhetoric about pushing for even lower rates seemed to have ratcheted up.  Emerging market currencies are more broadly mixed, but the JP Morgan Emerging Market Currency Index is up for the third consecutive session to match the longest advance in nearly three months.  Gold posted an outside down day yesterday, but there has been no follow-through selling today, and the yellow metal is consolidating inside yesterday's range.  January WTI slipped below $65 yesterday and is pushing above $69 today ahead of the OPEC meeting.   Dutch natural gas prices are firm, recouping most of yesterday's loss.  Iron ore and copper prices are also retracing yesterday's weakness.   Asia Pacific China's Caixin manufacturing PMI unexpectedly slipped below the 50 boom/bust level, albeit barely (49.9).  It was expected to be unchanged at 50.6.  It had eased below 50 in August (49.2).  Recall that the world's second-largest economy nearly stagnated in Q3 (0.2% quarter-over-quarter), and it appears to be accelerating here in Q4. Still, many look for the PBOC to provide more stimulus, perhaps in the form of a cut in reserve requirements, as it did this past July.  Separately,  officials seem to be cracking down harder on the "variable interest entity" structure that characterizes offshore listings, especially in the US.   Japan's November manufacturing PMI was revised to 54.5 from 54.2.  It stood at 53.2 in October.  The world's third-largest economy is recovering.  Australia reported Q3 GDP contracted by 1.9%, less than the 2.7% contraction economists had projected (Bloomberg median).  Its economy also is recovering.  The November manufacturing PMI was confirmed at 59.2, up from 58.2 previously.  House prices in Australia and New Zealand rose last month but sequentially at a slower pace.  To round out this regional overview, note that South Korea's exports in November were stronger than expected, pointing to robust foreign demand.  Exports rose 32.1% year-over-year.  Economists (Bloomberg median) expected a 27.2% pace after 24.1% in October.   It is the strongest pace since August.  Imports jumped 43.6% year-over-year, which was also more than expected, and follows a 37.7% increase previously.   The dollar is firm after being sold to its lowest level against the yen yesterday since October 11 (~JPY112.55).  It stalled near JPY113.60 in late Asia, which is slightly lower than the high seen in the US yesterday in response to the Fed's Powell hawkish pivot. However, barring fresh negative impulses, the JPY113 area may offer support again.  The Australian dollar is firm near yesterday's highs after falling to a new low for the year yesterday.  That low (~$0.7065) approached the (38.2%) retracement objective of the Aussie's rally from the March 2020 low near $0.5500.  A move now above $0.7080 would lift the technical tone and target the $0.7120-$0.7150 area.  The greenback initially fell to nearly CNY6.36, just ahead of the year's low recorded in May near CNY6.3570, before recovering to around CNY6.3720.  Resistance may be seen in the CNY6.3750-CNY6.3800 area.  The PBOC set the dollar's reference rate CNY6.3693.  The market (Bloomberg survey) had anticipated CNY6.3682.   Europe Covid was surging in several parts in Europe, including Germany, before the sequencing of the Omicron variant, and things have gotten worse.  The economic impact is beginning to be evident.  Germany's October retail sales, which economists had expected to recover after falling by 1.9% in September, disappointed with a 0.3% decline. The final November manufacturing PMI was revised to 57.4 from the flash 57.6 (and 57.8 in October).  It is the fourth consecutive decline.  The French manufacturing PMI was revised to 55.9 from the preliminary estimate of 54.6 (53.6 in October).  It is the first gain since May.  Economists hoped that Spain's manufacturing PMI was going to rise after falling for two months through October.  Instead, it fell again (51.1 vs. 57.4) to stand at its lowest level since March.  Italy is the standout.  Its manufacturing PMI was stronger than expected, jumping to 62.8 from 59.7, representing a new cyclical peak.  The aggregate for the eurozone as a whole edged up to 58.4 from 58.3 in October, but slower than the 58.6 flash estimate.  Still, it managed to eke out its first gain since June.  The UK's November manufacturing PMI stands at 58.1, down slightly from the preliminary estimate (58.2).  It was at 57.8 in October.  It is the second consecutive monthly gain after falling from June through September.  The UK economy grew by 1.3% in Q3 and is expected to slow to 1.1% this quarter.  The implied yield of the December 2021 short-sterling interest rate futures fell for eight sessions coming into this week.  It has been choppy so far this week, and net-net, the yield is about 1.5 bp higher than at the end of last week.  The overnight index swaps imply about a 40% chance of a hike next month.   The euro traded on both sides of Monday's range yesterday and closed above Monday's high.  However, there has been no follow-through buying today, and a consolidative tone has emerged.  A move above $1.1400 is needed to lift the tone, and it most likely won't happen today.  A 1.2 bln euro option is struck there that expires today.  The focus is on the downside. So far, it has held above $1.13, and support is seen around $1.1290.  Sterling recorded the low for the year yesterday, a little below $1.3200.  It stopped shy of our $1.3165 target, the (38.2%) retracement of cable's recovery from the March 2020 low. Its bounce off yesterday's lows fizzled out near $1.3330. Note that there is a GBP600 mln option at $1.33 that expires tomorrow.   America We have argued that the US October CPI surprise (6.1%) was a pivot point for Fed officials, even a reputed dove like San Francisco's Daly.  We also detected a change in rhetoric, and this point was driven home by Fed Chair Powell yesterday.  He clearly brandished his anti-inflaton credentials. Powell declared that the Fed would use its tools to step inflation from becoming entrenched.  At the same time, he recognized that it cannot assess Omicron now, though it clearly poses a risk.  Still, the next FOMC meeting is two weeks away, and by then, more information will be known.  Powell confirmed that the Fed would discuss the pace of tapering.  While the Fed will stop referring to inflation as transitory, Powell echoed Yellen's recent assessment that price pressures are projected to ease in H2 22.  Of note, the short end of the coupon curve sold off, but the long end remained firm.  The 30-year bond yield slipped to its lowest level since January, and the 2-10 year curve flattened 13 bp to below 90 bp, the flattest in 10 months.   The North American economic calendar is jammed today.  The US sees ADP's private-sector jobs estimate. Around 525k jobs are expected to have been filled, down from 571 in October.  In the last three months, the ADP estimate has undershot the official measures by an average of 23k.  Year-to-date, the average under-estimate is a little more than 50k.  November auto sales are expected to have risen for the second consecutive month after falling from May through September.  The final manufacturing PMI will also be reported.  The flash reading was the first increase since July.  The ISM manufacturing survey will also be published.  It has been a bit more resilient than the PMI.  Late in the session, the Beige Book will be released.  Canada reports October building permits (expected softer after the 4.3% gain in September) and the manufacturing PMI (57.7 in October).  Mexico reports its manufacturing PMI and IMEF surveys.  The central bank's inflation report is also due.  Mexico reports October worker remittances today.  They have averaged $4.15 bln a month this year through September.  The average for the same period in 2020 was $3.33 bln, and in 2019 $3.03 bln.  Note that the average trade deficit this year (through October) is almost $1.2 bln.   After reaching almost CAD1.2840 yesterday, its highest level since the September FOMC meeting, the greenback has come back offered today. It briefly and marginally traded below yesterday's CAD1.2730 low.  It needs to convincingly break below CAD1.2720 to be of any technical significance.  Initial resistance now may be seen near CAD1.2780.  The dollar peaked against the Mexican peso at the end of last week near MXN22.1550.  It is moving lower for the third consecutive session, and found initial support around MXN21.27 today.  The MXN21.20 area is the halfway mark of last month's range.  A move above  MXN21.40 may signal the dollar's downside correction is over.   Disclaimer
Saxo Bank 2022 Outrageous Predictions: Here comes a revolution!

Saxo Bank 2022 Outrageous Predictions: Here comes a revolution!

Saxo Bank Saxo Bank 02.12.2021 14:35
Saxo Bank has today released its 10 Outrageous Predictions for 2022. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets: The plan to end fossil fuels gets a rain check Facebook faceplants on youth exodus The US mid-term election brings constitutional crisis US inflation reaches above 15% on wage-price spiral EU Superfund for climate, energy and defence announced, to be funded by private pensions Women’s Reddit Army takes on the corporate patriarchy India joins the Gulf Cooperation Council as a non-voting member Spotify disrupted due to NFT-based digital rights platform New hypersonic tech drives space race and new cold war Medical breakthrough extends average life expectancy 25 years While these predictions do not constitute Saxo’s official market forecasts for 2022, they represent a warning against the potential misallocation of risk among investors who might typically assign just a one percent chance of these events materialising.  It’s an exercise in considering the full extent of what is possible, even if not necessarily probable, and particularly relevant in the context of this year’s unexpected Covid-19 crisis. Inevitably the outcomes that prove the most disruptive (and therefore outrageous) are those that are a surprise to consensus. Commenting on this year’s Outrageous Predictions, Chief Investment Officer at Saxo Bank, Steen Jakobsen said:   “The theme for 2022 Outrageous Predictions is Revolution. There is so much energy building up in our inequality-plagued society and economy. Add to that the inability of the current system to address the issue and we need to look into the future with a fundamental view that it’s not a question of whether we get a revolution but a more a question of when and how. With every revolution, some win and some lose, but that’s not the point—if the current system can’t change but must, a revolution is the only path forward. A culture war is raging across the globe and the divide is no longer simply between the rich and the poor. It’s also the young versus the old, the educated class versus the less educated working class, real markets with price discovery versus government intervention, stock market buy-backs versus R&D spending, inflation versus deflation, women versus men, the progressive left versus the centrist left, virtual signalling on social media versus real changes to society, the rentier class versus labour, fossil fuels versus green energy, ESG initiatives versus the need to supply the world with reliable energy—the list go on. We collaborated globally on Covid vaccines in 2020 and 2021. Now we need a new Manhattan Project–-type endeavour to set the marginal cost of energy, adjusted for productivity, on the path to much lower levels while eliminating the impact of our energy generation on the environment. Such a move would unleash the most significant productivity cycle in history: we could desalinate water, make vertical farms feasible almost anywhere, increase computer powers to quantum states, and continue to explore new boundaries in biology and physics.” Remember that the world is forever evolving if at varying speeds, while business and political cycles are always finite.” The Outrageous Predictions 2022 publication is available here with headline summaries below: 1. The plan to end fossil fuels gets a rain check Summary: Policymakers kick climate targets down the road and support fossil fuel investment to fight inflation and the risk of social unrest while rethinking the path to a low-carbon future. Realising the inflationary threat from surging commodities prices and the risk of an economic train wreck due to the unrealistic timeline for the green energy transition, policymakers kick climate targets down the road. They relax investment red tape for five years for oil production and ten years for natural gas production, to encourage producers to ensure adequate and reasonably priced supplies that bridge the gap from the energy present to the low-carbon energy future. This development has already jacked up prices and price volatility, not only for energy, but also for industrial metals, most of which are needed in greater quantities for the green transformation push. On top of this, surging energy prices have spiked prices for diesel and especially fertiliser, important farming costs that raise concerns about the production of key food crops. Market impact: The iShares Stoxx EU 600 Oil & Gas ETF (Ticker: EXH1:xetr) surges 50 percent as the whole energy sector gets a new lease on life 2. Facebook faceplants on youth exodus Summary: The young abandon Facebook’s platforms in protest at the mining of personal information for profit; the attempt by Facebook parent Meta to reel them back in with the Metaverse stumbles. Facebook has gone from being a vibrant hub of young people, to a platform for older “boomers” as young people would say. Young people are increasingly turned off by Facebook’s algorithms turning their social media experiences into that of homogenous feedback loops of identical content, or even worse, hateful and disinforming content. Facebook’s own research suggests that teens spend 2 to 3 times longer on TikTok than on Instagram (which is Facebook’s youngest social media asset), and that Snapchat is the preferred way to communicate with friends. A new company name (Facebook is now called Meta) and brand identity to separate and shield Instagram (its most valuable current asset), together with creating a new product tailored towards young people, is the exact same playbook tobacco companies have used for years. But in 2022, investors will realise that Meta is rapidly losing the young generation and thus the future potential and profitability of the company. In a desperate move, Meta tries to acquire Snapchat or TikTok while throwing billions of dollars into building the creepy Metaverse, which is aimed at surveilling users more directly than ever before and getting young people back into Meta’s universe of social media platforms, in the perceived wisdom that being a first mover is always best in technology. The plan struggles to take off as the young generation fails to sign up. Market impact: Facebook parent company Meta struggles, down 30 percent versus the broader market and is urged to spin off its components as separate entities, shattering Zuckerberg’s monopolistic dreams. 3. The US mid-term election brings constitutional crisis Summary: The US mid-term election sees a stand-off over the certification of close Senate and/or House election results, leading to a scenario where the 118th Congress is unable to sit on schedule in early 2023. The chaotic 2020 US Presidential Election was a scary moment for many US institutions. The sitting president Donald J. Trump initially refused to conceded defeat in the election and complained that the election was stolen, a claim that was never seriously challenged in a court of law but one which had widespread sympathy among the Trump base. A crowd of hard-core believers in the stolen election conspiracy was encouraged by the President’s rhetoric to a sufficient degree to storm Capitol Hill and “stop the steal”, i.e., to prevent the election result from being made official on January 6, 2021, in a scene unprecedented in US history. Prior to this, and then again later in the hotly contested Senate run-off elections in Georgia, dedicated election officials—many of them Republican—were doing their duty to tally the real results while risking their life amidst threats—even death threats—from extremists. In 2022, the Republicans ensure that no such traditional duty-bound officials are in the “wrong” place, with all election-related positions filled by toe-the-line partisans ready to do anything to tilt the results to suppressing voter turnout. In the wake of the 2022 election, a handful of key Senate and House races come down to the wire and one or both sides move against certifying the vote, making it impossible for the new Congress to form and sit on its scheduled first day of January 3, 2023. Joe Biden rules by decree and US democracy is suspended as even Democrats also dig in against the Supreme Court that was tilted heavily by Trump. A full-blown constitutional crisis stretches over the horizon over the stand-off as 2023 gets under way. Market impact: extreme volatility in US assets, as US treasury yields rise and the USD drops on hedging against the existential crisis in the world’s largest economy and issuer of the world’s reserve currency of choice. 4. US inflation reaches above 15% on wage-price spiral Summary: By the fourth quarter of 2022, the wages for the lower half of US incomes are rising at an annualised 15% clip as companies scramble to find willing and qualified workers who are increasingly selective due to a rising sense of entitlement as jobs are plentiful relative to the meagre availability of workers at all skill levels. The official US CPI reached a peak at 11.8% in February 1975. It wasn’t until the recession of 1980-82 and brutal policy rate increases to levels as high as 20% that inflation was finally killed. In 2022, the Federal Reserve and Fed chair Jerome Powell repeats the same mistake all over again as the post-Covid outbreak economy and especially the labour market are severely supply constrained, making a mockery of the Fed’s traditional models. Powell believes millions of Americans will return to work and fill some of the 10.4 million open job positions as Covid-19 fades. But this is plain wrong. Some have retired early due to the crisis and thus have permanently left the US workforce. The big difference between today and yesterday is that the pandemic has fuelled a great awakening of workers. Across sectors and income classes they realise they are now more empowered than ever. They demand a better experience: better job conditions, higher wages, more flexibility and a sense of purpose from work. Coupled with persistent inflationary pressures coming from the production side, the energy crisis and labour shortage, this results in unprecedented broad-based double-digit annualised wage increases by Q4. As a consequence, US inflation reaches an annualised pace above 15% before the start of 2023, for the first time since WWII. This prompts the Federal Reserve into a too-little, too-late move to tighten monetary policy faster in a desperate effort to tame inflation. But the central bank has lost credibility; it will take time to regain it. Market impact: extreme volatility in US equity and credit markets. The JNK high-yield ETF falls as much as 20% and the VIXM mid-curve volatility ETF soars as much as 70%. 5. EU Superfund for climate, energy and defence announced, to be funded by private pensions Summary: To defend against the rise of populism, deepen the commitment to slowing climate change, and defend its borders as the US security umbrella recedes, the EU launches a bold $3 trillion Superfund to be funded by pension allocations rather than new taxes. The security umbrella provided by the US during the Cold War and afterwards over much of Eastern Europe is rapidly fading and threatens to fail entirely in the years ahead as the US looks east at far more serious economic and military rivals. French President Macron, backed by a Draghi moving to stave off Italy’s own rise of the populists, rolls out a vision for an “EU Superfund” that will address the three-fold priorities of defence, climate and the related clean energy transition. Given the EU’s aging population and heavy tax burdens, policymakers know that it will be impossible to finance the Superfund with higher taxes on incomes or other traditional tax revenues. Instead, France has a light-bulb moment as it seeks to overhaul its pension system and looks at Europe’s enormous pensions. It decides that all pensions for all workers above the age of 40 must allocate a progressively larger portion of their pension assets into Superfund bonds as they age. This allows new levels of fiscal stimulus in the EU even with the sleight-of-hand trick of hiding the spending in inflation and negative real returns on low-yielding Superfund bonds that are actually EU bonds in disguise. At the same the younger generation enjoys a stronger job market and less unfair tax burdens as the system proves such a success that income taxes are lowered progressively. Market impact: Bond yields harmonise across Europe, leading to German Bunds underperforming. EU defence, construction and new energy companies are some of the best performers. 6. Women’s Reddit Army takes on the corporate patriarchy Summary: Mimicking the meme stock Reddit Army tactics of 2020-21, a group of women traders launch a coordinated assault on companies with weak records on gender equality, leading to huge swings in equity prices for targeted companies. Women are not willing to wait any longer. Tired of the lack of progress, 2022 sees a massive grass-roots effort based on social media platforms to force companies that break civil rights laws to address unfair and sexist, racist, ageist and ableist practices. Although women have been struggling with lower salaries, they have higher saving rates than men. Those savings will now come in handy as they decide to take the situation into their own hands and throw their considerable influence around in a #metoo movement in financial markets. In contrast to the often-nihilistic original Reddit Army, the Women’s Reddit Army will be more sophisticated, with women traders coordinating a long squeeze by shorting stocks of selected patriarch companies. At the same time, they will direct funds to companies with the best metrics on female representation in middle management and among executives. Instead of condemning the development, politicians worldwide welcome and support their cause, putting even more pressure on companies with outdated patriarchal attitudes, poor gender equality in pay, and under-representation of women on boards and in management to address the errors of their ways. Market impact: The movement gets real results as the broader market catches on to the theme and joins in, forcing targeted company prices sharply lower, which sees companies scrambling to change their ways. It marks the beginning of a gender parity renaissance in markets. 7. India joins the Gulf Cooperation Council as a non-voting member Summary: The world’s geopolitical alliances will lurch into a phase of drastic realignment as we have an ugly cocktail of new deglobalising geopolitics and much higher energy prices. Countries reliant on imports for the majority of their energy inputs in a rapidly deglobalising world will need to move fast to strategically reorientate strategic alliances and secure long-term energy supplies. One such alliance could involve India, with its mighty technology sector, joining the Gulf Cooperation Council (GCC) as non-voting member, or in some sort of free trade zone. This alliance would see a reduction in India’s energy insecurity as it secures long-term import commitments. Interregional trading zones will secure “closer to home” production and investment, combined with the security of reliable supplies from India’s point of view, and a reliable destination market from the GCC’s point of view. The alliance helps lay the groundwork for the GCC countries to plan for their future beyond oil and gas and for India to accelerate its development via huge new investments in infrastructure and improvements in agricultural productivity together with fossil fuel imports, bridging the way to a post-carbon longer-term future. Market impact: The Indian rupee proves far more resilient than its EM peers in a volatile year for markets. The bubbly Indian stock market corrects with other equity markets in early 2022 but proves a strong relative performer from the intra-year lows. 8. Spotify disrupted due to NFT-based digital rights platform Summary: Musicians are ready for change as the current music streaming paradigm means that labels and streaming platforms capture 75-95 percent of revenue paid for listening to streamed music. In 2022, new blockchain-based technology will help them grab back their fair share of industry revenues. While the early days of NFTs have looked chaotic and dangerous for asset buyers, the outlook is bright for NFT technology. Not only does an NFT-based platform offer a new way to verify the ownership of rights, but also a way to distribute rights without intermediaries, i.e., a completely decentralised system obviating the need for a centralised platform. The use case for NFTs could prove particularly compelling in the next step for the technology for content generators in the music industry as musicians feel unfairly treated by the revenue sharing models of the current streaming platforms like Spotify and Apple Music. These models don’t guide individual subscribers’ fees to the actual music an individual subscriber listens to. Rather, all subscription fee revenues are aggregated and distributed based on every artist’s share of total streams. In addition, the platforms take a substantial cut, which together with the cut paid to labels is some 75 percent or more of the total revenue. In 2022, an NFT-based service takes hold and begins offering music from notable stars – perhaps the likes of Katy Perry, The Chainsmokers and Jason Derulo, all of whom have recently backed an effort to create a new blockchain-powered streaming platform. Other well-known artists begin pulling their music from the now “traditional” streaming platforms, which suddenly find themselves terminally disrupted. Investors see the eventual writing on the wall for podcasts, movies and other forms of digitisable contents as well. Market impact: Investors recognise that Spotify’s future is bleak, sending its shares down 33 percent in 2022. 9. New hypersonic tech drives space race and new cold war Summary: The latest hypersonic missile tests are driving a widening sense of insecurity as this tech renders legacy conventional and even nuclear military hardware obsolete. In 2022 a massive hypersonic arms race develops among major militaries as no country wants to feel left behind. In 2022, it is clear from funding priorities that hypersonics and space are the heart of a new phase of the deepening rivalry between the US and China on all fronts—economic and military. Other major powers with advanced military tech join in as well, likely including Russia, India, Israel and the EU. Hypersonic capabilities represent a game-changing threat to the long-standing military strategic status quo, as the technology brings asymmetric new defensive and offensive capabilities that upset the two massive pillars of military strategy of recent decades. The first is the potential for devastating hypersonic tech defence against the conventional attack capabilities of long-range bombing aircraft, as well as the so-called “deep water” navy of ships that can bring the fight to any corner of the globe without refuelling. The second pillar of the old Cold War era was the principle of mutually assured destruction (MAD) in the event of nuclear war, under which it was pointless to launch a nuclear war as long as there was still time for the opponent to launch an equally destructive ICBM counterattack from land- and submarine-based ballistic missiles. But the speed and agility of hypersonic tech introduces the belief that superior defence could thwart an attack entirely and even allow for new first-strike capabilities. Market impact: massive funding for companies like Raytheon that build hypersonic tech with space delivery capabilities and underperformance of “expensive conventional hardware” companies in the aircraft and ship-building side of the military hardware equation. 10. Medical breakthrough extends average life expectancy 25 years Summary: Young forever, or for at least a lot longer. In 2022, a key breakthrough in biomedicine brings the prospect of extending productive adulthood and the average life expectancy by up to 25 years, prompting projected ethical, environmental and fiscal crises of epic proportions. The year 2022 sees a breakthrough from a multi-factor approach, as a cocktail of treatments is put together that tweaks cell-level processes in order to extend their life and thus the life of the organism composed of those cells. It’s not cheap, but it’s effective and has already been demonstrated on laboratory mice containing human DNA, extending their lives some 30% and more. The prospect of a massive leap in human quality of life and life expectancy are huge wins for mankind but bring an enormous ethical and financial quandary. Imagine that almost everyone can look forward to living to an average age of 115 and more healthily. What would this mean for private and government pensions, or even the ability or desire to retire? And what about the cost to the planet if it is set to support billions more people, not to mention whether or not there is enough food to go around? And then there is the ethical question of whether it is humane to not make the cocktail available to everyone. In short, how would our value systems, political systems and planet cope?
Focusing On US CPI, Fed, Commodities and Bank Of Japan - Saxo Market Call

Destruction unfolds beneath the surface in equities

Saxo Bank Saxo Bank 03.12.2021 10:23
Podcast 2021-12-03 10:00 20 minutes to read Summary:  Equities were looking to skid further yesterday but mustered a comeback erasing the prior day's decline, but underneath the rebound overall in equities we observe outright destruction across many key bubble stock names. Evidence of this destruction was well on display in DocuSign plunging 30% in extended trading on a minor miss on revenue for Q4. We also discuss the market's pricing on interest rate hikes next year before cuts showing that the market has difficulties believing in higher interest rates over a longer period. On commodities we highlight the recent rebound in oil despite OPEC+ intentions to lift production and the recent slump in natural gas prices in the US on mild weather. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast and have a look at today’s slide deck. Follow Saxo Market Call on your favorite podcast app: Apple Spotify Soundcloud Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.
The Greenback Finds Traction ahead of the Jobs Report

The Greenback Finds Traction ahead of the Jobs Report

Marc Chandler Marc Chandler 03.12.2021 12:19
December 03, 2021  $USD, Australia, Canada, China, Currency Movement, EMU, FOMC, Inflation, Japan, jobs, UK Overview:  The Omicron variant has been detected in more countries, but the capital markets are taking it in stride.  Risk appetites appear to be stabilizing.  The MSCI Asia Pacific Index rose for the third consecutive session, though Hong Kong and Taiwan markets did not participate in the advance today.  Europe's Stoxx 600 is struggling to hold on to early gains, while US futures are narrowly mixed.  The US 10-year yield is a little near 1.43%, down around six basis points this week.  European yields are slightly softer. Core yields are off 5-6 bp this week.  The dollar is firm ahead of the jobs data.  The Antipodeans and Swedish krona are the heaviest, falling around 0.6% through the European morning.  The Swiss franc and euro are up about 0.1% and are the most resilient so far today.   The JP Morgan Emerging Market Currency Index is trading lower for the third session and is set to extend its losing streak for the fourth consecutive week.  Accelerating inflation is the latest drag on the Turkish lira.  The 0.6% decline today brings the week's drop to around 10.5%.  Gold is little changed within yesterday's range.  Last week, it settled a little above $1802.  Now it is below $1775  Oil is extending yesterday's recovery. Although OPEC+  unexpectedly stuck with plans to boost output by 400,000 barrels a day next month, it warned it could change its collective mind at any point.  January WTI recovered from around $62.40 yesterday to close at $66.50.  It is trading close to $68.20 before US markets open.  US natural gas fell nearly 25.5% over the past four sessions but is bouncing by around 3.7% today. European gas (Dutch) is stabilizing after yesterday's 5.6% decline.  Still, it is posting gains for the fifth consecutive week and is up more than 35% over the run.  Iron ore and copper prices are little changed.   Asia Pacific At the same time that Chinese officials are cracking down on the "variable interest entity" form of offshore listings for domestic companies, the US SEC is moving to enforce the 2002 laws that require foreign companies to allow greater scrutiny by US regulators.  Didi, the ride-hailing service, which listed in the US over local official objections, is now in the process of reversing itself.  The press reports that China and Hong Kong companies are the only ones to refuse to acquiesce to US demands.  This seems to be another facet of the decoupling meme.  Note that the NASDAQ Golden Dragon Index that tracks 98 Chinese companies listed in the US has fallen for five consecutive sessions coming into today, for a cumulative loss of about 10%.  China's Caixin service PMI was weaker than anticipated at 52.1, down from 53.8.  This, coupled with the softer manufacturing reading, shaved the composite to 51.2 from 51.5.   In contrast, Japan and Australia's flash service and composite PMIs were revised higher.  In Japan, the service PMI was revised to 53.0 from 52.1 and 50.7 in October.  The composite was revised to 53.3 from 52.5, to rise for its third consecutive month.  Australia's service PMI stands at 55.7, up from the flash reading of 55.0 and 51.8 in October.  The composite PMI is at 55.7, its third consecutive monthly rise as well.  Japan and Australia's PMI contrasts with the disappointment in China and Europe, and the US. This is because they are recovering from the long emergency (Japan) and lockdowns (Australia).   Trading remains choppy, and market confidence is fragile.  The dollar remains in the range set against the yen on Tuesday((~JPY112.55-JPY113.90).  Today's high has been just below JPY113.50, where options for $520 mln expire today.   Options for around $1.3 bln at JPY113.00 also will be cut today.  The greenback settled last week slightly below JPY113.40.  The Australian dollar has been sold to new lows for the year a little lower than $0.7050.  We have noted that this area corresponds to the (38.2%) retracement of the Aussie's rally from the March 2020 low near $0.5500.  The next area of support is seen around $0.7000.  It is the fifth consecutive weekly decline that began in late October above $0.7500.  The US dollar's two-day rise against the Chinese yuan is ending with a minor loss today. Similarly, the greenback posted gains for the past two weeks and has given it all back this week.  The PBOC set the dollar's reference rate at CNY6.3738, just below the median (Bloomberg survey) projection of CNY6.3740.   Offshore investors appear to have bought the most Chinese stocks today via the connect-link in a couple of weeks.  Also, note that China extended the tax exemption for foreign institutional investors from the interest tax through the end of 2025.    Europe German and French PMIs were revised lower, while Spain and Italy surprised on the upside.  The revisions shaved the gains initially reported for the service and composite PMIs.  Still, the German composite rose for the first time in four months to stand at 52.2 from 52.0.  The French composite PMI stands at 56.1, up from 54.7.  It is the first increase since June.  Separately, France reported a 0.9% rise in October industrial output, which is better than expected, but the September contraction was revised to -1.5% from -1.3%.   Spain's service PMI rose to \59.8 from 56.6 and was well above expectations.  The composite reading is 58.3, up from 56.2.  It is the first gain in five months and is the highest since August.  Italy's service PMI rose to 55.9 from 52.4.  Economists had expected something closer to 54.5.  The composite rose to 57.6 from 54.2.  It has softened in September and October, and the November reading is the best since August.   The UK's service and composite PMI were revised to show a slightly larger decline than initially seen in the flash report.  The service PMI slipped to 58.5, from 58.6 preliminary estimate and 59.1 in October.  The composite PMI was shaved to 57.6 from the 57.7 initial estimate and 57.8 in October.  The November weakness was disappointing after rising in September and October to snap a three-month decline.  The December short-sterling interest rate futures consolidated in a choppy activity this week after the implied yield fell for eight consecutive sessions previously.  The market is discounting about a 1 in 3 chance of a hike at the BOE meeting on December 16.  The euro slipped to a three-day low slightly above $1.1280 in late Asian turnover before resurfacing the $1.1300 area in the European morning.  Still, we suspect the upside is limited.  The 20-day moving average is near $1.1350, and the single currency has not traded above it since November 9.  The euro remains within the range set on Tuesday (~$1.1235-$1.1385).  Given the divergence of monetary policy, resistance looks stronger than support.  For its part, steering is holding barely above its three-day low near $1.3260.  It, too, remains within Tuesday's range (~$1.3195-$1.3370).  Recall that the $1.3165 area corresponds to the (38.2%) retracement objective of the rally from the March 2020 low near $1.14.  Meanwhile, the euro is pressing below CHF1.04.  It has not closed below there in six years.   America Fully cognizant of the irony here, but barring a shockingly poor report, today's US employment data may have little last impact on the market.  If there was any doubt about it before, since Federal Reserve Chair Powell spoke, there isn't.  The Fed has shifted from helping to facilitate recovery to preventing inflation expectations from getting entrenched.  That means that even a mediocre report today will be overshadowed by next week's CPI, which will likely show that inflation is still accelerating.  Conventional wisdom holds that the White House prefers doves at the Fed, but that does not hold now.  President Biden's public approval rating is low, and the Vice President's is lower still. Polls suggest that inflation is a knock against the administration.  When Biden announced the re-nomination of Powell and Brainard's nomination to Vice-Chair, both candidates reaffirmed their commitment to combat inflation.  What is true of the employment data also holds for the final services and composite PMI, factory orders, and the service ISM.  There may be headline risk but little implication for policy.  The Senate passed the stop-gap measures to keep the federal government funded through February 18.  Meanwhile, the debt ceiling is expected to hit between December 21 and late January.   Canada's labor market has recovered quicker than the US.  Today's another constructive report will likely solidify expectations that the Bank of Canada may hike rates in the March-April period.  The Bank of Canada meets next week.  Of course, it may be cautious with the unknowns surrounding the Omicron variant, but the economic recovery is solid after the weakness in Q2.  Trade tensions with the US are rising.  The US doubled its anti-dumping and countervailing tariffs on Canadian softwood imports (almost 18%).  US January lumber prices were limit up ($45) Wednesday and yesterday and have risen by more than 19% so far this week to reach five-month highs. There is a dispute over Canadian potato exports as well.  There are also disputes over some US initiatives' "Buy American" thrust, including electric vehicles.   The US dollar is at its best level against the Canadian dollar since late September.  It is pushing near CAD1.2840. The September high was closer to CAD1.29, and the late August high, which is also the high for the year, was near CAD1.2950. Barring a reversal, this will be the sixth consecutive week of the greenback's gains.  The swaps market has the first hike discounted for March 2022.  The US dollar began the week with a seven-day advance against the Mexican peso in tow.  It ended with a 1%+ pullback on Monday and again on Tuesday.  It consolidated Wednesday and fell another 1%+ yesterday.  It is little changed today near MXN21.29.  Next week, the November CPI will be reported.  It looks set to accelerate from about 6.25% to around 7.25%.  The central bank meets on December 16, after the FOMC meeting.  A 25 bp rate hike is the consensus, but an argument can be made for a 50 bp increase from the current 5.0% target.   Disclaimer
Ahead Of The US CPI, Speaking Of Crude Oil And Metals - Saxo Market Call

Market Quick Take - December 6, 2021

Saxo Bank Saxo Bank 06.12.2021 09:31
Macro 2021-12-06 08:45 6 minutes to read Summary:  Friday saw global markets weakening again in another violent direction change from the action of the prior day. With futures for the broader US indices up this morning, the damage is somewhat contained, even if nerves are ragged. At the weekend, cryptocurrencies suffered a major setback in what looked like a run on leveraged positions that erased 20 percent or more of the market cap of many coins before a bit more than half of the plunge was erased with a subsequent bounce. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - despite the US 10-year yield pushed lower on Friday on the string of strong macro numbers, Nasdaq 100 futures are oddly weak in early European trading hours sitting around the 15,700 price level. The 100-day moving average down at 15,400 is the key price level to watch should the weakness in US technology and bubble stocks continue today. We see clear exposure overlap between cryptocurrencies and growth stocks, and with the steep plunge in Bitcoin over the weekend the risk-off might not be over. Stoxx 50 (EU50.I) - Stoxx 50 futures continue to be in a tight trading range sitting just above the 4,100 level this morning with little direction as traders are still digesting the US labour market report and Omicron news which at the margin seems to be improving somewhat, although expectations are still that jet fuel demand will be impacted. The weaker EUR is also short-term helping some of the exporters in Europe and generally leading to positive sentiment in early trading with European equities up 1%. USDJPY and JPY crosses – USDJPY closed the week near 112.50-75 support that was tested multiple times last week, but is once again rebounding overnight, while JPY crosses elsewhere continue to trade heavily, with the likes of AUDJPY, a traditional risk proxy, cementing the reversal back lower and GBPJPY closing the week near a significant zone of support into 148.50-149.00. Safe haven seeking in US treasuries at the long end of the curve are the key coincident indicator driving the JPY higher, with Friday’s weak risk sentiment driving fresh local lows in US long yields, with the 30-year T-bond yield at its lowest since January, below 1.75%. AUDUSD – the AUDUSD slide accelerated Friday in what looks like a capitulation ahead of tonight’s RBA meeting, where the feeling may be that there is a high bar for a surprise, given that the RBA has declared it would like to wait for the February meeting before providing guidance on its ongoing QE. Weak risk sentiment and uninspiring price action in commodities (with the partial exception of the very important iron ore price for the Aussie recently) are weighing and the price action has taken the AUDUSD pair to the pivotal 0.7000 level, an important zone of support and resistance both before and after the pandemic outbreak early last year. Crude oil (OILUKFEB22 & OILUSJAN21) trades higher following its longest stretch of weekly declines since 2018. Today’s rise apart from a general positive risk sentiment in Asia has been supported by Saudi Arabia’s decision to hike their official selling prices (OSP) to Asia and US next month. Thereby signaling confidence demand will be strong enough to absorb last week's OPEC+ production increase at a time when mobility is challenged by the omicron virus. For now, both WTI and Brent continue to find resistance at their 200-day moving averages, currently at $69.50 and $72.88 respectively. Speculators cut bullish oil bets to a one-year low in the week to November 30, potentially setting the market up for a speculative-driven recovery once the technical outlook turns more friendly. US natural gas (NATGASUSJAN22) extended a dramatic collapse on Monday with the price down by 7% to a three-month low at $3.84 per MMBtu, a loss of 31% in just six trading day. Forecasts for warmer weather across the country have reduced the outlook for demand at a time where production is up 6.3% on the year. A far cry from the tight situation witnessed in Europe where the equivalent Dutch TTF one-month benchmark on Friday closed at $29.50 while in Asia the Japan Korea LNG benchmark closed at $34. Gold (XAUUSD) received a small bid on Friday following the mixed US labor market report, but overall, it continues to lack the momentum needed to challenge an area of resistance just above $1790 where both the 50- and 200-day moving averages meet. Focus on Friday’s US CPI data with the gold market struggling to respond to rising inflation as it could speed up rate hike expectations, leading to rising real yields. A full 25 basis point rate hike has now been priced in for July and the short-term direction will likely be determined by the ebb and flow of future rate hike expectations. US Treasuries (IEF, TLT). This week traders’ focus is going to be on the US CPI numbers coming out on Friday, which could put pressure on the Federal Reserve to accelerate tapering as the YoY inflation is expected to rise to 6.7%. Yet, breakeven rates started to fall amid a drop in commodity prices, indicating that the market believes that inflation is near peaking despite we are just entering winter. It is likely we will continue to see the yield curve bear flattening, as the short part for the yield curve is adjusting to the expectations of more aggressive monetary policies, and long-term yields are dropping as economic growth is expected to slow down amid a decrease in monetary stimulus and the omicron variant. Last week, the 2s10s spread suffered the largest drop since 2012 falling to 74bps. The 5s30s spread dropped to 53bps. What is going on? COT on commodities in week to November 30. Hedge funds responded to heightened growth and demand concerns related to the omicron virus, and the potential faster pace of US tapering, by cutting their net long across 24 major commodity futures by 17% to a 15-month low. This the biggest one-week reduction since the first round of Covid-19 panic in February last year helped send the Bloomberg Commodity index down by 7%. The hardest hit was the energy sector with the net long in WTI and Brent crude oil falling to a one year low. Following weeks of strong buying, the agriculture sector also ended up in the firing line with broad selling being led by corn, soybeans, sugar and cocoa. Evergrande plunges 16% to new low for the cycle. The situation among Chinese real estate developers is getting more tense with Evergrande’s chairman being summoned by Guangdong government on Friday as the company is planning a larger restructuring with its offshore creditors. The PBOC has said that they are working with the local government to defuse risk from a restructuring and the regulator CSRC said over the weekend that risks into capital markets are manageable. This week another real estate developer Kaisa Group is facing a deadline on debt which will be critical for the Chinese credit market. US Friday data recap: Services sector on fire, November jobs report stronger than headlines suggest. The November ISM Services report showed the strongest reading in the history of the survey (dating back to 1997) at 69.1, suggesting a red-hot US services sector, with the Business Activity at a record 74.6, while the employment sub-index improved to 56.5, the highest since April. The November employment data, on the other hand, was somewhat confusing. Payrolls only grew 235k vs. >500k expected, but the “household survey” used to calculate the unemployment rate saw a huge growth in estimated employment, taking the overall employment rate down to 4.2% vs 4.5% expected and 4.6% in October. The Average Hourly Earnings figure rose only 0.3% month-on-month and 4.8% year-on-year, lower than the 0.4%/5.0% expected, though the Average Weekly Hours data point ticked up to 34.8 from 34.7, increasing the denominator. Twitter sees exodus of leaders. Part of Jack Dorsey stepping down as CEO at Twitter is a restructuring of the leadership group which has seen two significant technology leaders at engineering and design & research steeping down. The new CEO Agrawal is setting up his own team for Twitter which if done right could make a big positive impact on the product going forward. What are we watching next? Study of omicron variant and its virulence, new covid treatment options. Discovery of omicron cases is rising rapidly, with some anecdotal hopes that the virulence of the new variant is not high, but with significant more data needed for a clearer picture to emerge. Meanwhile, a new covid treatment pill from Merck (molnupiravir) may be available in coming weeks in some countries as it nears full approval. Next week’s earnings: The earnings season is running on fumes now few fewer important earnings left to watch. The Q3 earnings season has shown that US equities remain the strongest part of the market driven by its high growth technology sector. Today’s focus is on MongoDB which is expected to deliver 36% y/y revenue growth in Q3 (ending 31 October). Monday: Sino Pharmaceutical, Acciona Energias, MongoDB, Coupa Software, Gitlab Tuesday: SentinelOne, AutoZone, Ashtead Group Wednesday: Huali Industrial Group, GalaxyCore, Kabel Deutschland, Dollarama, Brown-Forman, UiPath, GameStop, RH, Campbell Soup Thursday: Sekisui House, Hormel Foods, Costco Wholesale, Oracle, Broadcom, Lululemon Athletica, Chewy, Vail Resorts Friday: Carl Zeiss Meditec Economic calendar highlights for today (times GMT) 0830 – Sweden Riksbank Meeting Minutes 0900 – Switzerland Weekly Sight Deposits 1130 – UK Bank of England’s Broadbent to speak 0330 – Australia RBA Cash Rate Target   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
Semblance of Stability Returns though Geopolitical Tensions Rise

Semblance of Stability Returns though Geopolitical Tensions Rise

Marc Chandler Marc Chandler 06.12.2021 12:39
December 06, 2021  $USD, China, Currency Movement, EU, Hungary, Italy, Russia Overview:  The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week.  Asia Pacific equities traded heavily, and among the large markets, only South Korea and Australia escaped unscathed today.  Europe's Stoxx 600 is trading higher, led by energy, financials, and materials.  US futures are narrowly mixed.  Similarly, Asia Pacific bonds played a little catch-up with the large Treasury rally ahead of the weekend.  The US 10-year had approached 1.30% but is now up almost four basis points to almost 1.39%.  European yields are also a little firmer, though Italian bonds are outperforming after the pre-weekend credit upgrade by Fitch. The dollar is mixed.  The yen and Swiss franc are the heaviest, while the Scandis lead the advancers.  Among the emerging market currencies, most liquid and freely accessible currencies are higher, while India, Indonesia, and Turkey are trading lower.  The JP Morgan Emerging Market Currency Index has a four-week drop in tow and is starting the new week with a small gain.  Gold initially moved higher but is now little changed.  Iron ore and copper remain firm.  January WTI is trading firmly within the pre-weekend range, while natural gas, which collapsed by 24% in the US last week, extended its sell-off today.  European natural gas (Dutch benchmark) is trading lower after rising for the past five weeks.   Asia Pacific As tipped by Chinese Premier Li last week, the PBOC cut reserve requirement by 0.5%.  This frees up an estimated CNY1.2 trillion.  Many market participants had anticipated the timing to help banks pay back borrowing from the Medium-Term Lending Facility.  Banks owe about CNY950 bln on December 15 and another CNY500 bln on January 15.   Separately, several property developers have debt serving payments due and Evergrande is at the end of a grace period today.  Lastly, the US and a few other countries are expected to announce a diplomatic boycott of the Winter Olympics.  This is seen as largely symbolic as few diplomats were going to attend due to the severe quarantine imposed by Chinese officials.   China needs bargaining leverage if it is going to influence US policy.  It might come from an unexpected source.   While recent press reports focused on China's attempt to project its power into Africa, they have missed a potentially more impactful development.  Consider the Caribbean, which the US often acts as if it is theirs.  Barbados became a constitutional republic last week, though it is still a member of the UK Commonwealth.  The left-of-center government is friendly toward Beijing.  Under the Belt Road Initiative, Barbados and Jamaica have received several billion dollars from China.  Moreover, a recent US State Department report found that the two countries have voted against the US around 75% of the time at the UN last year.   This week, the regional highlights include the Reserve Bank of Australia (outcome first thing tomorrow in Wellington) and the Reserve Bank of India (December 8).  The RBA may revise up its economic outlook, yet, it is likely to continue to push against market expectations for an early hike.  The derivatives market appears to have the first hike priced in for late next summer.    India is expected to be on hold until early next year but could surprise with a hike.  China is expected to report trade figures tomorrow and the November CPI and PPI on Wednesday.  Lending figures may be released before the weekend.  Japan's highlights include October labor earnings and household spending tomorrow, the current account, and the final Q3 GDP on Wednesday.   The dollar's range against the yen on November 30 (~JPY112.55-JPY113.90) remains dominant.  It has not traded outside of that range since then.  The rise in US yields and equities has helped the dollar regain a toehold above JPY113.00.  The pre-weekend high was near JPY113.60, which might be too far today.  The Australian dollar traded below $0.7000 before the weekend and again today, but the selling pressure abated, and the Aussie has traded to about $0.7040. A band of resistance from $0.7040 to $0.7060 may be sufficient to cap it today.   The dollar has been in essentially the same range against the Chinese yuan for three sessions (~CNY6.3670-CNY6.3770).  If the dollar cannot get back above CNY6.38, a new and lower range will appear to be established.  The PBOC set the dollar's reference rate at CNY6.3702.  The market (Bloomberg median) had projected CNY6.3690.   Europe Germany's new government will take office in the middle of the week.  It has three pressing challenges.  First is the surge in Covid, even before the Omicron variant was detected.  Second, the economy is weak.  Last week's final PMI reading picked up some deterioration since the flash report and the 0.2 gain in the composite PMI more than 10.0 point fall in the previous three months. Third, today Germany reported dreadful factory orders.  The market had expected a slight pullback after the 1.3% gain in September.  The good news is that the September series was revised to a 1.8% gain.  However, this is more than offset by the 6.9% plummet in October orders.  If there is a silver lining here, it is that domestic orders rose 3.4% after falling in August and September.  Foreign orders plunged 13.1%, and orders from the eurozone fell by 3.2% (after falling 6.6% in September).  Orders outside the euro area collapsed by 18.1%.  The sharp drop in factory orders warns of downside risk to tomorrow's industrial production report.  Industrial output fell by 3.5% in August and 1.1% in September. Before today's report, economists were looking for a 1% gain.  Germany also reports the December ZEW survey tomorrow. Again, sentiment is expected to have deteriorated.  The third issue is Russia.  Reports suggest the US has persuaded Europe that Russia is positioned to invade Ukraine early next year.  US intelligence assessment sees Russia planning a multifront offensive.  Putin and Biden are to talk tomorrow.  Meanwhile, Putin makes his first foreign visit today in six months.  He is in India.  India is buying an estimated $5 bln of Russian weapons, including the S-400 anti-aircraft system that Turkey purchased to the dismay of Washington, which banned it from the F-35 fighter jet program.  India is a member of the Quad (with the US, Japan, and Australia), a bulwark against China.  A Russian official was quoted in the press claiming India sent a strong message to the US that it would not tolerate sanctions against it.  The regional alliances are blurry, to say the least. The US maintains ties with Pakistan.  India has had border skirmishes with China.  Russia and China have joint military exercises.   Before the weekend, Fitch upgraded Itay's credit rating one notch to BBB.  It cited the high vaccination rate, increased public and private spending, and confidence in the Draghi-led government's ability to spend the 200 bln euro funds from the EC prudently.  Recall that last week's composite PMI rose to 57.6 to snap a two-month decline.  The market (Bloomberg median) sees the Italian economy as one of the strongest in Europe this year, expanding around 6.3%.  The IMF sees it at 5.8%. The euro has been confined to about a quarter-cent range on both sides of $1.1300.  It is within the pre-weekend range (~$1.1265-$1.1335).  It was offered in Asia and turned better bid in the European morning.  Still, the consolidative tone is likely to continue through the North American session.  A move above the 20-day moving average (~$1.1335), which has not occurred for over a month, would help lift the technical tone.  Sterling tested $1.3200 before the weekend, and it held.  The steadier tone today saw it test the $1.3265 area.  It will likely remain in its trough today, though a move above the $1.3280-$1.3300 area would be constructive.   America Today's US data includes the "final" look at Q3 productivity and unit labor costs.  These are derived from the GDP and are typically not market-movers.  The US also reported that the October trade balance and improvement have been tipped by the advance merchandise trade report.  October consumer credit is due late in the session, and another hefty rise is expected ($25 bln after nearly $30 bln in September.  Consumer credit has risen by an average of $20.3 bln this year.  It fell last year and averaged $15.3 bln in the first nine months of 2019.  No Fed officials speak this week, and the economic highlight is the November CPI report at the end of the week.   Canada reports October trade figures and IVEY survey tomorrow.  The highlight of the week is the Bank of Canada decision on Wednesday.  It is not expected to do anything, but officials will likely be more confident in the economic recovery, especially after the very strong jobs report before the weekend.  The Canadian dollar's challenge is that the market has five hikes already discounted for the next 12 months.  Mexico reports November vehicle production and exports today.  The economic highlights come in the second half of the week.  November CPI on Thursday is expected to see the headline rate rise above 7%.  Last month alone, consumer prices are projected to have risen by 1%.  On Friday, Mexico is expected to report that industrial output rose by 0.9% in October after falling 1.4% in September.  Brazil reports its vehicle production and exports today and October retail sales on Thursday before the central bank meeting.  A 150 bp increase in the Selic rate, the second such move in a row, has been tipped and will put the key rate at 9.25%.  Ahead of the weekend, the IPCA measure of inflation is due.  It is expected to have ticked up closer to 11% (from 10.67%).  Lastly, we note that Peru is expected to deliver another 50 bp increase to its reference rate on Thursday, which would lift it to 2.5%.   The US dollar posted an outside up day against the Canadian dollar ahead of the weekend.  The risk-off mood overwhelmed the positive implications of the strong jobs data.  There has been no follow-through selling of the Canadian dollar today.  The pre-weekend US dollar low near CAD1.2745 is key.  Last Wednesday's range remains intact for the greenback against the Mexican peso (~MXN21.1180-MXN21.5150).  So far today, it has been confined to the pre-weekend range.   Initial support is seen near MXN21.16.  The cap around MXN21.50 looks solid.  Meanwhile, the US dollar closed above BRL5.60 for six consecutive sessions coming into today.   Disclaimer
Turning the Corner in Style

Turning the Corner in Style

Monica Kingsley Monica Kingsley 07.12.2021 16:05
S&P 500 bulls delivered, and the revival in risk-on is increasingly getting legs as HYG rebounded sharply. The sharply increasing participation is counterbalanced by still compressing yield curve, but yields finally rose yesterday. Finally, we saw a truly risk-on positioning in the credit markets – and that won‘t be without (positive) consequences. Still, it pays to be ready for the adverse scenario that I‘ve described in yesterday‘s key analysis, in connection with which I have received an interesting question. It‘s essentially a request to dig in some more so that my thinking can‘t be interpreted as being on the verge of immediately flipping bearish: Q: Your analysis of today: "Downside risks having sharply increased since Thanksgiving. Not only for stocks, where we might not be making THE correction's low, but also for commodities, cryptos and precious metals". I am not sure if I am interpreting this right (English is not my native language). Are you saying that the market might turn down spectacular, even for precious metals? A: it's specifically the market breadth for larger than 500 stock indices that tells me we possibly aren't out of the woods yet - no matter the technical improvements that I looked for us to get yesterday, and that are likely to continue thanks not only to solid HYG performance. What I'm saying is that unless there is broader participation in the unfolding S&P 500 rally (and in the rally of other indices), we're in danger of a more significant move to the downside than we saw already (those few percents down). You can also watch for the sensitivity to Fed pronouncements - on one hand, we have the taper, even accelerated one on the table, yet through Nov, total assets grew by practically $100bn, and it was only the 7-day period preceding Dec 01 that marked balance sheet contraction. This sensitivity to hawkish statements would show in downside hits to risk-on assets (cyclicals), and also in VIX spikes. There, my mid-session Friday call made on Twitter for VIX to better reverse from its highs for Friday's close, came true. So, should a sharper decline happen (as said, the risks thereof haven't disappeared), it would (at least initially) influence precious metals too, and not remain limited to stocks and commodities. Having answered, let‘s move on. I like the strength returning to energy – both oil and natural gas as I tweeted yesterday. While financials are taking their time, and consumer discretionaries lagged hugely on a daily basis behind staples, I look for more strength to return to cyclicals at expense of interest rate sensitive sectors (that includes utilities also). Rising yields (however slowly) would underpin commodities, and it‘s showing already. Precious metals continue needing the newfound Fed hawkishness image to start fracturing, or causing inordinate level of trouble in the real economy. The latter would take time as manufacturing is pretty much firing on all cylinders, which is why I‘m not looking for overly sharp gold and silver gains very soon. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bears were more than a bit tired, and Friday‘s candle being unable to break below preceding day‘s lows while not too much stood in the way, was telling. What can‘t go down, would sooner or later go up. Credit Markets HYG upswing is a pleasant sight for the bulls – half of the prior decline has already been erased. Quite some more still needs to happen, and the lack of volume yesterday is a sign that patience could very well be required (let‘s temper our expectations while still being positioned bullishly). Gold, Silver and Miners Precious metals are still looking stable, and are waiting for the Fed perceptions to fade a little. CPI inflation hasn‘t peaked neither in the U.S. nor around the world (hello, Europe), neither have energy prices or yields – so, get ready for the upswing to continue at its own pace. Crude Oil Crude oil confirmed the bullish turn, and the modest volume isn‘t an issue for it indicates lack of sellers willing to step in. Plenty of positioning anticipating the upswing happened in the days before, I think. Copper Copper prices are taking the turn alongside the CRB Index – it‘s starting to lean as much as APT in the direction of no economy choking response to Omicron that would necessitate further GDP downgrades. I‘m looking for the red metal to continue gradually favoring the bulls even more. Bitcoin and Ethereum Bitcoin and Ethereum attempt base building, but both cryptos (Bitcoin somewhat more) remain vulnerable. There are a few good explanations for that, and the most credible ones in my view revolve around stablecoins backing. Summary S&P 500 reversal higher is looking increasingly promising, and the signs range from sharply broadening market breadth to encouraging HYG performance. Commodities aren‘t being left in the cold, and I‘m looking for their own reversal to gradually spill over into precious metals – depending upon the evolving Fed perceptions, of course. The odds of us having seen the worst in this correction have considerably improved, and while positioned appropriately, I‘m not yet sounding the analytical all clear of blue skies ahead. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Markets Calmer, Awaiting Fresh Incentives

Markets Calmer, Awaiting Fresh Incentives

Marc Chandler Marc Chandler 08.12.2021 13:51
December 08, 2021  $USD, Bank of Canada, Currency Movement, Germany, India, Japan, Poland, Russia Overview:  The capital markets are calmer today, and the fear that was evident at the end of last week remains mostly scar tissue. Led by gains in Japan, China, Australia, New Zealand, and India, the MSCI Asia Pacific Index extended yesterday's gains.  Europe's Stoxx and US futures are firm.  The US 10-year yield is softer, around 1.43%, while European yields are mostly 1-2 bp lower.  The Norwegian krone and euro lead major currencies higher against the greenback, but the New Zealand dollar and sterling are underperforming. Most of the emerging market currencies are enjoying an upside bias. The Turkish lira is giving back a little more than half of yesterday's 2.25% bounce.  Gold is edging higher and is near the 200-day moving average (~$1792).  January WTI is off $1 around  $71 after rallying around 8% in the past two sessions.  API reported a three million barrel drawdown in inventories but a big jump in Cushing.   US natural gas is consolidating and paring Monday's 11.5% drop.  Europe (Dutch) natural gas prices are rising for the third consecutive session and around 10% this week.  Iron ore has extended this week's rally and is at the highs since October.  Copper is flat.   Asia Pacific Australia has joined the US in the diplomat boycott of the winter Olympics in Beijing.  South Korea and Japan have not formally decided yet.  China's quarantine policies made it difficult for many diplomats to attend in any event, and many apparently will not attend.  Beijing threatens unspecified retaliation.   Japan reported an increase in its October current account, rising to JPY1.18 trillion from JPY1.03 trillion in September.  The swing in the trade balance from a JPY230 bln deficit to a JPY167 bln surplus more than accounted for it.  Japan also revised Q3 GDP to a 0.9% contraction (from -0.8%).  The composition changed.  Consumption was a greater drag (-1.3% quarter-over-quarter rather than -1.1%), and inventories contributed less (0.1% vs. 0.3%) and net exports were flat (rather than contribute 0.1 percentage points).  Business investment was less a drag (-2.3% vs. -3.8%).  Still, there is reason to be more optimistic about the outlook for the world's third-largest economy.  Social restrictions have eased, the vaccination rate is among the best, and the government is providing fresh stimulus.  The Kishida government is expected to finalize its fiscal efforts toward the end of the week. A key issue is the tax incentive (subsidy) for companies that boost wages by 3%, which has not happened since 1997.   India left its key rate corridor on hold today.  The repo rate is 4%, and the reverse repo rate is 3.35%.  Some observers saw the possibility of a hike in the reverse repo rate.  The monetary policy committee voted unanimously to keep the repo rate steady.  The reverse repo rate is a broader issue decided by the central bank, not the MPC.  The emergence of Omicron may have encouraged the central bank to maintain a steady hand, while the cut in the excise duty and VAT for petrol and diesel may help ease price pressures.  It made some technical changes in its liquidity management, which some see as a prelude to a hike in February 2022, when the central bank meets again.   The dollar is consolidating in a narrow 30-point range above JPY113.35 against the Japanese yen.  Yesterday's high was just below JPY113.80.  An option for about $550 mln will roll off today at JPY114.25, while there is a nearly $1.5 bln option at JPY114.00 that expires tomorrow.  The JPY114 area also holds the 20-day moving average, which the dollar has not closed above since November 25. The Australian dollar began the week flirting with the $0.7000 area.  It is rising for its third consecutive session and has reached almost $0.7145 today.  Last week's highs were set a little above $0.7170.  Despite words of caution by Chinese officials and the cut in reserve requirements, the yuan continues to march higher.  It is at new three-year highs today.  The dollar has been sold down to almost CNY6.3455.  Local dollar bonds and bonds below investment grade have rallied as officials signal a focus on supporting the economy.  Today the rate for re-lending to rural and small businesses was cut by 25 bp.  The PBOC has also been generous with its liquidity provisions.  The reference rate for the dollar was set at CNY6.3677, a little firmer than expected (CNY6.3665, Bloomberg survey).    Europe An era is formally over today as Germany's new government takes office.  The challenges it faces are profound.  The virus was surging even before the Omicron variant was detected.  The economy has been hobbled.  Inflation is high (6% on the harmonized measure in November) and without the fiscal stimulus seen in the US, where CPI is up 6.2% from a year ago (October).  This year, the German deficit is estimated to be about 5.8% and seen falling to 2.5% next year.  The US deficit is around 12.5% this year and is expected to fall to around 6.5% in 2022. Russia is amassing troops, and fears that it will invade Ukraine early next year are running high.  Germany reportedly will nix the controversial Nord Stream II pipeline if Russia carries through with its threat as part of the economic sanctions being considered.  Italy's Draghi has had a bit of a honeymoon, but that will change.  Two of the three largest unions will strike on December 16 to protest Draghi's budget, which must be passed by the end of the month.   Moreover, the selection of a new Italian president in January may mark the beginning of the political process that will lead to a new parliamentary election by the middle of 2023.  The president of Itlay is chosen by the Italian Parliament and regional representatives.  The current president, Mattarella, has declined to run for a second term.  Draghi does lead any political party, but the latest surveys show the center-left Democratic Party is in first place, polling a couple percentage points higher than it got in the last election at 21.4% support.  The Brothers of Italy on the right are in second place with slightly less than 20% support.  The Five Star Movement has seen its fortunes slip to about 15%.  Poland's central bank is set to hike its base rate today.  It will be the third consecutive increase.  The base rate was slashed from 1.50% last year to 10 bp.  It was hiked by 40 bp in October and 75 bp last month to stand at 1.25%. The headline CPI surged from 2.4% at the end of last year to 7.7% in November. Czech and Hungary have been more aggressive in raising rates.  Last month, Czech's central bank delivered a 125 bp increase to lift its key two-week repo rate to 2.75%.   It was at 25 bp to start the year.  Its CPI is near 6%.  Hungary has raised its base rate every month since June and taken it from 60 bp to 2.10%.  It has also taken its one-week deposit rate from 75 bp to 3.10%, with 130 bp delivered in the past three weeks. Earlier today, it reported that CPI rose to 7.4% last month from 6.5%.  Most look for a 50 bp increase from Poland's central bank today.   The euro briefly dipped below $1.1230 yesterday but recovered in the North American afternoon.  It is extending the recovery today and traded $1.1300 in the European morning.  The $1.1310-$1.1320 offers nearby resistance.  The UK government is being embarrassed by reports about its holiday party a year ago in violation of the social restrictions in place at the time.  It adds to the sleaze factor that has weakened it.  The latest polls show that the Labour Party is extending its lead.  Also, ideas that the BOE could raise rates next week have diminished and been pushed into next February.  Sterling is heavy, near $1.3200.  We have warned of near-term risk toward $1.3165, the (38.2%) retracement objective of the rally from the March 2020 low near $1.14.   America A deal appears in the works to lift the US debt ceiling.  The maneuver requires 60 votes to allow the debt ceiling to pass with a simple majority.  The Republican leadership appears willing to go along with this.  It will likely set a new precedent that will be used and possibly expanded when control of Congress changes.  PredictIt.Org shows that the Republicans are favored to win control of both houses in next year's mid-term election.   The US calendar today features the JOLTS report on job openings.  The week's highlight, the November CPI, is out on Friday, and both the headline and core rates are expected to accelerate.  Fed officials are in the blackout period ahead of next week's FOMC meeting.  Today's North American feature is the Bank of Canada meeting.  No one expects a change in rates.  It is more about the rhetoric.  Despite the uncertainty surrounding the Omicron variant, Bank of Canada officials are likely to be more confident about the strength of the recovery.  Last week's jobs data adds to the positive impulses.  Moreover, the government is providing more fiscal support.  The biggest challenge is that the market has discounted five hikes over the next 12 months.  This is aggressive and difficult for the central bank to get ahead of market expectations. Even after the strong Canadian jobs data at the end of last week, the US dollar closed firmly above CAD1.28, showing the Loonie's vulnerability to the risk-off wave.  However, as cooler heads have prevailed, the Canadian dollar has bounced back.  The US dollar closed below the 20-day moving average yesterday (~CAD1.2670) for the first time in a month and was sold to about CAD1.2620 today. The (38.2%) retracement of the greenback's rally since the October 21 low (below CAD1.23) is found near CAD1.2640. The next retracement (50%) is around CAD1.2570.  Initial resistance now is likely by CAD1.2680.  The greenback also closed below its 20-day moving average against the Mexican peso yesterday for the first time since November 9.  It has slipped below MN21.00 today for the first time in about two-and-a-half weeks.  With today's loss, the US dollar has retraced (61.8%) of its rally from November 9 low (~MXN20.2750). The move seems exaggerated, and consolidation is likely.  Nearby resistance is seen in the MXN20.05-MXN20.10 area.  Disclaimer
Markets Turn Cautious Ahead of Tomorrow's US CPI

Markets Turn Cautious Ahead of Tomorrow's US CPI

Marc Chandler Marc Chandler 09.12.2021 12:34
December 09, 2021  $USD, Brazil, Canada, China, Currency Movement, Germany, Japan, Portfolio flows, UK Overview: The euro has come back offered after its seemingly inexplicable advance yesterday.  The dollar is firmer against most major currencies today, with the yen an exception after JPY114.00 held on yesterday's advance.  Most emerging market currencies are also softer, with a handful of smaller Asian currencies proving a bit resilient.  Most large bourses advance in the Asia Pacific region, except Japan and Australia.  Europe's Stoxx 600 is steady after retreating late yesterday while US futures are pointing to a softer opening.  After rising for the past three sessions (~18 bp), the yield of the 10-year US Treasury is consolidating by hovering a little below 1.5%.  European yields are 3-5 bp softer.   Gold is little change.  This week's quiet tone contrasts with the sharp moves in Bitcoin and Ethereum.  Oil is consolidating after the three-day advance that lifted January WTI by around 8.5%.  US and European natural gas is also softer after the rally over the last few days.  Iron ore, which rallied over 10% in the first two sessions this week, edged lower yesterday and is off 3% today.  Copper's three-day rally is in jeopardy.   Asia Pacific The number of countries participating in a diplomatic boycott of the Beijing Winter Olympics is growing.  In addition to the US, Lithuania, Australia, New Zealand, Canada, and the UK have joined.  While it may annoy Chinese officials, it is symbolic.  Given Chinese quarantine protocols, many diplomats were not going to attend in the first place.  Also, the impact on China's human rights will likely be negligible.  The moral righteousness is signaling to domestic constituencies.  Yet, treatment of the Peng Shuai and the jailing of reporters needless antagonized the already precarious situation.  China's consumer inflation rose less than expected while producer prices rose more.  Owing to a jump in vegetable prices (30.6%), November CPI rose 2.3% from a year ago. The median forecast (Bloomberg survey) was for a 2.5% increase.  It is the fastest pace since August 2020. The decline in pork prices (-32.7% year-over-year) is slowing.  Excluding pork, the CPI would have risen by 3%.  Service prices remain soft.  Excluding food and energy, the core CPI is up 1.2% over the past year (1.3% previously).  Producer price inflation slowed from 13.5% in October to 12.9% in November.  Economists had forecast a 12.1% pace.  Recall officials moved to boost supplies, including coal, helping to ease the strong upside pressures.   Officials have moved to a more pro-growth stance, which means that inflation will not stand in the way of further easing monetary policy (via reserve requirements even if not interest rates) next year. Meanwhile, Evergrande and the Kaisa Group have formally missed debt-servicing payments on dollar obligations. Still, unlike the end of the property bubble in the US and Europe, China is forcing banks to continue to lend. This keeps the proverbial treadmill going.   The lending figures for November, released today, illustrate it.  New yuan loans, which track bank lending, rose by 50%+ to CNY1.27 trillion from CNY826 bln in October.  Aggregate financing, which adds shadow banking activity to bank lending, rose to CNY2.61 trillion from CNY1.59 trillion.  Note that just before publishing this report, the PBOC announced a two percentage point hike in the reserve requirement for foreign currency deposits.  This will likely weigh on the yuan, initially.    Japanese weekly portfolio flows were unusually large last week.  Data from the Ministry of Finance showed that Japanese investors were large sellers of foreign bonds for the second consecutive week.  The JPY1.18 trillion in sales followed the divestment of JPY1.34 trillion the previous week. It was the most selling in a two-week period since February.  From a high level, most of the selling last week did not require net yen buying as Japanese investors essentially shifted into foreign equities, snapping up JPY1.2 trillion.  This is the most since the time series began in 2005.  Separately, foreign investors bought JPY2.0 trillion of Japanese bonds, which appears to be the second-highest on record (after the JPY2.57 trillion bought in early July).   For the third consecutive week, foreign investors were small sellers of Japanese shares.  The dollar approached JPY114.00 yesterday and was turned back, falling to JPY113.35 today.  The JPY114 area is "defended" by a $2.2 bln option at JPY114.10 that expires today and a $1.15 bln option at JPY114.25 that expires tomorrow.  A break of JPY113.25-JPY113.35 could signal a test on JPY113.00, but the market will likely be cautious ahead of tomorrow's US CPI report.  The Australian dollar's recovery faltered earlier today slightly above $0.7185, the 20-day moving average, which it has not traded above since November 4.  The first retracement (38.2%) of this week's bounce is near $0.7115, but initial support is seen in the $0.7140 area.  The greenback edged slightly lower against the Chinese yuan (~CNY6.3430) before steadying and turning marginally higher.  It is caught between two large options expiring today.  One set is for around $2.5 bln at CNY6.34, and another set is for about $950 mln at CNY6.35.  The PBOC's reference rate for the dollar today (CNY6.3498) was the largest gap with the median projection (Bloomberg, CNY6.3467) since the middle of October.   Europe Germany's October trade figures are maybe too dated to have much market impact, but the growth of imports and exports is a constructive development.  The 4.1% rise in exports, the most since July 2020, were well above expectations, as was the 5% jump in imports (most since August 2020).  For Germany, it translates into a smaller than expected trade surplus (12.8 bln euros).  The monthly average surplus this year through October is 15.5 bln euros, which is a little above the average for the same period last year (14.4 bln euros), but off average in 2019 (through October) of 19 bln euros.   On the heels of "party-gate," UK Prime Minister Johnson has announced Plan B in the face of the new infection surge that calls for people to work from home again.  It has created much furor. Businesses have called for more government support, and unions want the furlough program to be re-instituted.  Any lingering ideas of a rate hike next week by the Bank of England have faded.  The short-sterling interest rate futures contract expiring shortly is implying the lowest yield (11 bp) in three months.   Short-covering appeared to lift the euro to $1.1355 yesterday, and it settled above its 20-day moving average for the first time since November 3.  However, this was not a harbinger of a breakout, and the euro's gains are being pared today. Initial support is seen around $1.13 and then $1.1275 area.  Sterling recorded new lows for the year yesterday slightly below $1.3165, the (38.2%) retracement of the rally since March 2020 low.  Today, it is in less than a quarter-cent range capped near $1.3215.  It is consolidating weakly.  There are options at $1.32 that expire today (~GBP370 mln) and tomorrow (GBP600 mln) that are likely neutralized.   America The US reports weekly initial jobless claims, wholesale trade and inventories, and Q3 household net worth. These are not market movers, especially today. Instead, investors' focus will likely be on equities as it waits for tomorrow's CPI.  US inflation is still accelerating, and the headline CPI is likely to move closer to 7%, setting the stage for a hawkish FOMC meeting next week.  An acceleration in tapering and more officials will likely see the need for more hikes.  Recall that in September, the last time officials updated their forecasts, half did not see a need to hike rates next year.  The market has done much of the heavy lifting for the Federal Reserve.  The implied yield of the December 2022 Fed funds futures contract has risen around 50 bp since the September FOMC meeting.  The Bank of Canada left policy on hold yesterday, as widely expected.  However, the market was disappointed that it did not upgrade its forward guidance to reflect the strong data.  The swaps market is pricing in five hikes over the next 12 months, and the central bank said nothing to encourage such an aggressive stance.  This leaves the Canadian dollar somewhat vulnerable, we think.   Brazil did not disappoint.  The central bank hiked the Selic rate by 150 bp for the second consecutive month and signaled another hike of the same magnitude in February when it meets again.  It has lifted the Selic rate by 750 bp this year.  It is being driven by rising inflation, and the economy contracted in Q2 and Q3.  The Selic rate stands at 9.25%.  The IPCA inflation measure is due tomorrow, and it is expected to have risen to 10.9% (Bloomberg survey) from 10.67% in October.   Peru is expected to hike its reference rate by 50 bp to 2.5%. It would be the third 50 bp in a row.   Its November CPI, reported at the start of the month, is slightly above 5.6%.   Mexico reports its November CPI figures today.  It is expected to rise from about 6.25% to 7.25% and set the stage for another 25 bp rate hike next week in the overnight rate to 5.25%.   The US dollar is trading firmly against the Canadian dollar, and the heavier equities may be helping it.  While initial resistance is seen near CAD1.2700, we suspect there is scope toward CAD1.2730-CAD1.2750.  The greenback fell to almost MXN20.8860 yesterday, its lowest level since November 23, and the five-day moving average crossed below the 20-day moving average for the first time since early last month.  The move appears to have exhausted itself, but the dollar needs to resurface above the MXN21.05 area to boost confidence that a low is in place.  Disclaimer
Natural Gas looks oversold and has potential for some rebound

Natural Gas looks oversold and has potential for some rebound

Alex Kuptsikevich Alex Kuptsikevich 09.12.2021 14:37
The price of natural gas in the US had collapsed by almost half in just over two months and is back to July levels when the European energy crisis’ rally had started. Interestingly, gas prices have also remained under increased pressure during periods of rising oil, indicating more selling. The history of recent years suggests that sharp spikes act as the final stage of a rally, and then we see the price returning to the starting point of an upward momentum or even lower. In this long-term pattern, the price from the current $3.75 has the potential to move down to $2.50 or even back to the multi-year support levels near $2.00 during 2022. However, locally, a 45% drop from the peak in early October with a sharp acceleration late last month looks excessive and needs a correction. The prices on the New York Mercantile Exchange have barely broken through its 200 SMA and touched the oversold area on daily RSI charts. A stabilisation at those levels could start a corrective bounce. A new round of rising energy prices in Europe is also on the buyers’ side. Moreover, the cost of oil has added 15% to the lows of early December, contrasting with a 20% fall in gas. This divergence is rarely sustained unless caused by supply problems. Thus, short-term traders should take a closer look at natural gas, which is poised for a corrective bounce to $4.5-4.7, following its oversold trend of recent weeks.
New Profitable Call on Natural Gas: “The Yoyo-Trade” Is Back

New Profitable Call on Natural Gas: “The Yoyo-Trade” Is Back

Sebastian Bischeri Sebastian Bischeri 10.12.2021 15:42
  What will next week bring us? Hopefully, another profitable trade! The entry has been triggered, and we are on track to reaching our first target. The fundamental question is: are we witnessing a resumption of bullish factors on natural gas? The price of gas hit its highest level since February 2014 in early October. Tight supplies and concerns about a rougher than expected winter in the northern hemisphere were the main propellants for natural gas. However, quite suddenly, a dip took place over the past week. Since exiting the key $ 5.00 per Million British thermal units (MBtu) support zone a week ago, it has fallen by more than 25% – more than 40% drop from its highest level in October. Meanwhile, at the pre-open last Monday, I told our subscribers to get ready to go long around the $3.604-3.716 support zone (yellow band), with a stop placed just below the $3.424 level (red dotted line) and targets at $4.009 and $4.355 (green dotted lines). As a result, gas prices contracted in stride while trading just into the provided entry area before the bull crowd woke up to push them back up in the following days. In fact, with gas prices picking up momentum from Wednesday, the proposed trade entry on the Henry Hub futures is turning profitable (and getting closer to target #1). Trading Charts Chart – Henry Hub Natural Gas (NGF22) Futures (January contract, daily chart, logarithmic scale) Now, let’s zoom into the 4H chart to observe the recent price action all around the abovementioned levels of our trade plan: Chart – Henry Hub Natural Gas (NGF22) Futures (January contract, 4H chart, logarithmic scale) In summary, my trading approach has led me to suggest some long trades around potential key supports, as this dip on natural gas offered a great opportunity for the bulls to enter long whilst aiming towards specific projected targets. If you don’t want to miss any future trading alerts, make sure to look at our Premium section. By the way, for those of you who are interested in trading biofuels, please note that I recently wrote an article on this topic to diversify your portfolio. Alternatively, you can have a closer look at my selection of stocks and MLPs through our public dynamic stock watchlist. Stay tuned – and happy trading! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Omicron, USDJPY, Gold, DXY highlighted in this Luke Suddards' piece

Omicron, USDJPY, Gold, DXY highlighted in this Luke Suddards' piece

Luke Suddards Luke Suddards 10.12.2021 15:15
Pfizer and BioNTech released the results of their recent laboratory study which found that their vaccine’s antibody response is capable of neutralizing omicron (levels similar to 2 doses against previous strains) after three doses. There was a more than 25-fold reduction in the efficacy of the vaccine however, showing the 32 mutations in omicron does certainly have an impact. The vaccine induced T cells are not affected by omicron and should therefore still provide protection from severe symptoms. To finish off a Japanese study showed that omicron was 4.2 times more transmissible than delta in its early stage. We know that omicron was far more transmissible already so this isn’t a major shock, however, the issue with higher transmissibility is the opportunity for further new variants to arise which (hopefully) will not increase in lethality. Dollar Index (DXY): The greenback is basically flat from where it started the week as traders remain hesitant to push price in a new direction until today’s CPI result is out the way. Omicron news as mentioned above has been on the positive side so risk-off flows derived from that side of things has been non-existent. However, where we could see more safe haven bids for the dollar is from any escalation in the Russia Ukraine tensions, with an invasion very likely seeing risk-off ensconcing markets. This would clearly benefit the dollar on the lhs of the smile (risk-off). Data wise, job numbers filled the rather quiet calendar throughout the week with vacancies reaching new records as well as jobless claims breaching the 200k mark, coming in at 184k. We also had bond auctions coming to the fore, beginning with the front end of the curve, 3-year auctions showed strong demand despite today’s inflation numbers; moving to the back end of the curve the 10-year also showed relatively robust demand. It was the 30-year bond which was very weak with yields spiking higher leading to fears over today’s inflation numbers being the main driver. Inflation numbers were smack bang in line with consensus at 6.8% YoY (highest since 1982) and 4.9% YoY for core. The initial market reaction saw the dollar softer as short term rates fell (clearly the market was positioned for 7%), but that initial dollar weakness is now being retraced as it's still a solid number (Fed won't change path) with prices increases broad based.  Next week the focus will be on the Fed meeting where the risks are definitely tilted towards the hawkish side for the dollar. (Source: TradingView - Past performance is not indicative of future performance.) The dollar is ever so slightly above its upper trend line and the 21-day EMA has provided good dynamic support. The RSI has bounced off the 55 support level too keeping the uptrend momentum in tact. There is some resistance at 96.5 to monitor and on the downside the 21-day EMA would be important to watch if price slides. EURUSD: The euro continues to tread water as it faces headwinds on multiple fronts. The week began with fairly positive ZEW sentiment reading with current conditions missing (expected with covid restrictions), but the main index reading more positive than expected. Olaf Scholz has now been inducted as Chancellor of Germany with the end of Merkel’s reign officially coming to an end. European gas has been soaring again as tensions between Russia and US led to reports than Biden could implement sanctions on Russia. Europe is highly exposed to the price of natural gas so this could be one to watch for sure. Next week sees a very important ECB meeting with a fresh set of economic projections out (I’ll be watching their inflation forecasts particularly) as well as insights into how they’ll navigate the completion of their PEPP programme and transition. I’ll be providing a preview next week.  (Source: TradingView - Past performance is not indicative of future performance.) EURUSD moves sideways with a slight tilt towards the downside capped by the overhead 21-day EMA. 1.135 resistance has formed as the one to watch. The price support at 1.125 should be on your radar too. The RSI has rolled over a touch and pointing lower. The former low around the lower trend line at 1.12 could be very important over the next week. GBPUSD: Sterling has been under pressure as multiple factors line up against it. The week began with centrist Ben Broadbent’s speech which didn’t drop any hints on what the BoE may do at their December meeting. UK GDP data was disappointing with missed expectations on a monthly time frame as well as YoY and 3-month average. Plan B restrictions have now been implemented - guidance to work from home from Monday, and an extension of face masks to most public indoor venues (public transport etc). Mandatory Covid-19 passes will now be needed for entry to places such as nightclubs and venues with large crowds. With Plan B restrictions and softer GDP data, markets are all but certain a BoE hike will not happen at next week’s meeting, opting to rather wait until February for a move. I’ll be providing a preview for this event, but we shouldn’t be getting any curve balls as expectations are widely baked in for no hike, leading to very muted reactions in GBP crosses if any. UK opinion polls have moved against Boris Johnson after the uproar caused by allegations of his rule breaking Christmas party. Labour is now ahead in a variety of polls, which hasn’t occurred for a long time. If the fallout continues the Conservative MPs may decide to trigger a vote of no confidence in him which may inject some political instability. Article 16 could be used as a deflection and distraction tactic to turn the spotlight away from himself. (Source: TradingView - Past performance is not indicative of future performance.) GBPUSD looks technically weak as it trades below the lower trend line of its descending channel. The RSI hovers just above oversold. 1.315 on the downside would be key for a move lower while 1.32.5 - 1.33 on the upside just below the 21-day EMA would be key. USDJPY: The yen continues to come under pressure as the US 10-year yield moves higher and risk sentiment leans on the positive side, reducing the need for risk-off hedges. Tensions over Russian invading Ukraine will need to be monitored though as this could see flows directed towards the yen. (Source: TradingView - Past performance is not indicative of future performance.) USDJPY continues to be bid around its 38.2% Fibonacci level and mini range support around 113.5. The 50-day SMA and 21-day EMA are bunched up right together on the price candles. The RSI edges above the 46 level of support. Targets wise, on the upside 114-114.5 will remain key while on the downside 112.5 will be important to watch. Gold: Omicron variant positive news flow is taking the allure away from gold for safe haven flows, however, rising tensions between the US and Russia is helping to offset that. Real yields have also been rising higher of late which will pressure gold as well as a stronger dollar. Gold is a tad stronger on the inflation release as traders had most likely positioned for a 7% print and this not being the case has led to some bids flowing through.  (Source: TradingView - Past performance is not indicative of future performance.) Gold remains trapped in a tight range with today's inflation data a potential catalyst for a more directional move. Price is now just above the $1775 support level. The RSI has turned back upwards, but remains in no-man's land. The important level on the upside will be $1800 just above all the key moving averages. Oil: Oil certainly saw some new hot money coming back in to drive the recent recovery up from the $68 support area. Beginning the week we saw Saudi Arabia decided to hike their selling price to Asia and the US, indicating that they believe demand will remain robust despite omicron restriction fears. So far omicron news has been positive enough not to lead to expectations of serious demand destruction. Plan B work from home guidance has probably led to some slight weakness in crude, but we’ll need to watch what airlines decided to do in the next few weeks for jet fuel demand. Official US inventory data showed a modest reduction in inventory levels, but nothing to get excited about. Iranian talks are continuing ahead with nothing of anything major to report back on (Source: TradingView - Past performance is not indicative of future performance.) Oil now between its 200-day SMA and the 21-day EMA, is looking for its next direction. Support comes in around $73.50 with the 200-dauy SMA just below there. On the upside $76 provides resistance aided by the 21-day EMA. The RSI, has turned upwards and will need to continue in that direction for bulls to be satisfied.
Market Quick Take - December 10, 2021

Market Quick Take - December 10, 2021

Saxo Strategy Team Saxo Strategy Team 10.12.2021 12:10
Macro 2021-12-10 08:30 6 minutes to read Summary:  Risk sentiment has consolidated after sharp gains earlier this week as the market nervously eyes the US November CPI release today from the US and whether this will trigger a more hawkish FOMC meeting next week. The US White House has already been out attempting damage control from the inflation headlines today, saying that the data will not reflect recent declines in gasoline and other prices.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities and particularly tech stocks consolidated a significant chunk of the sharp gains from earlier this week, with speculative sectors getting the worst of it on the day, although most stocks were down on the day. A high US November CPI release today could spook investors as it would raise the anticipation of an even more hawkish FOMC meeting next week. EURUSD – The EURUSD rally attempt from Wednesday faltered in what now looks a mere tactical squeeze ahead of today’s US November CPI report (more below). Given that the slide in EURUSD has largely tracked with the rise in Fed expectations, the degree to which those expectations are adjusted higher or lower in the wake of today’s US CPI data and then next week in the wake of the FOMC meeting Wednesday and ECB meeting Thursday will likely correlate with EURUSD direction, where the focus is on the cycle lows just below 1.1200 for a possible run at 1.1000 on a break lower and the tactical pivot high near 1.1380. USDJPY and JPY crosses – the omicron variant news of some two weeks ago triggered a huge slide in USDJPY just after it was trying to engineer a break above multi-year highs near 114-50. Similar to developments in crude oil and longer US yields, USDJPY has failed to get back to the upper reaches of the recent range since that sell-off, which bottomed out near the 112.50 area – the current trigger zone for a possible further sell-off wave (most like in a scenario of cratering risk sentiment and US treasuries serving as a safe-haven) that could poke at the important 111.00-50 downside pivot zone. Elsewhere, JPY crosses backed up very sharply this week on hopes that the omicron variant will prove mild and won’t impact the growth outlook, but the scale of the rally or squeeze has been modest relative to the prior sell-off. Watching areas like 127.50-128.00 in EURJPY and 79.00 in AUDJPY in coming sessions for whether another wave of JPY strength is in the cards. Crude oil’s (OILUKFEB22 & OILUSJAN22) week-long rally hit the buffers yesterday with Brent and WTI retracing back towards support at their 200-day moving averages at $73 and $69.80 respectively. A study finding the omicron variant is 4.2 times more transmissible than the delta combined with new restrictions among several nations helped weaken the sentiment, and with end of year approaching many traders are increasingly becoming more risk adverse, potentially leading to more fluctuations. Focus today on omicron news, US inflation data and whether the mentioned support level can be maintained. Wheat (WHEATMAR22 & ZWH2) trades near five-week low following three days of losses which accelerated yesterday after the USDA raised its outlook for global stocks. The 3% drop in Chicago also helped drag down the recent highflyers futures for Kansas and Paris milling wheat. Global stock levels at the end of the 2022-23 season received a boost from production upgrades in Russian (1mt) and Australian (2.5mt) while US export slowed with high prices curbing demand. US Treasuries (TLH, TLT).  Yesterday’s 30-year auction showed that the market is not willing to buy long-term US Treasuries at current low yields. The 30-year auction was priced with a high yield of 1.895%, tailing by 3.2bps. Although the tail was smaller than last month’s 5.2bps, it would have been enough to cause a selloff in long-term Treasuries. However, covid distortions kept yields compressed, hence volatility in rates was avoided. Today’s CPI numbers are in focus as a high number is likely to contribute to more upward pressure in the yield curve. What is going on? The US White House was already out attempting damage control on inflation before today’s CPI release. A White House official, economic adviser Brian Deese, was out late yesterday saying that today’s US November CPI release won’t reflect recent drops in the price of key commodities, especially gasoline and natural gas as it is “backward looking”. China property developers formally declared to have defaulted - as Fitch Ratings noted missed interest payments on Evergrande and Kaisa Group Holdings USD bonds as it downgraded these issues to restricted default. USDCNY and USDCNH bounce sharply a day after posting new low for the year - China fixed the USDCNY level at a far weaker level than expected and announced an FX reserve ratio increase to 9%, forcing domestic banks to maintain higher reserves of foreign currencies.  These are rather obvious signals that China would like to avoid a further rise in its currency after a powerful and broad rally that saw both the offshore and onshore yuan posting new highs for the US dollar for the year just this Wednesday. Bitcoin and other cryptocurrencies close sharply lower – with Bitcoin closing at its lowest levels on a weekday since September. Technically, the 40-45k zone looks important for avoiding a more significant capitulation lower after the recent weekend meltdown that took the price some 20% lower to below 43k before support was found. According to coinmarketcap.com, the market cap of the nearly 15.5k cryptocurrencies is currently near $2.26 trillion after peaking near $2.93 trillion in November, a drawdown of over 22%. What are we watching next? US November CPI data release today, expected at 6.8% year-on-year for the headline number and 4.9% at the core, both of which would be the highest readings in decades. Given that expectations are so high, would a slightly hotter than expected number move the needle on a Friday ahead of next week’s important FOMC meeting? A significant beat to the upside just might make a difference, given that the Fed has clearly made a shift toward fighting inflation and would probably need to bring a March 2022 rate hike possibility into its forward guidance. Fed rate expectations for next year are poised near the high for the cycle, suggesting a 0.8% Fed Funds rate (vs. currently 0-0.25%) is priced in through the December 2022 Fed meeting. The EU is set to decide by December 22 whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter. Economic calendar highlights for today (times GMT) 0905 – ECB President Lagarde, others speaking at panel discussion1300 - Poland National Bank of Poland meeting minutes1330 – US Nov. CPI1500 – US Dec. Preliminary University of Michigan Sentiment Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple Spotify Soundcloud Sticher
No Turnaround Tuesday for Equities?

No Turnaround Tuesday for Equities?

Marc Chandler Marc Chandler 14.12.2021 15:01
December 14, 2021  $USD, Canada, Chile, Currency Movement, EMU, Hungary, Japan, Mexico, UK Overview:  Activity in the capital markets is subdued today, ahead of tomorrow's FOMC meeting conclusion and the ECB meeting on Thursday.  The MSCI Asia Pacific equity index fell for the third consecutive session.  European bourses are heavy after the Stoxx 600 posted an outside down day yesterday. Today would be the fifth consecutive decline. Selling pressure on the US futures indices continues after yesterday's losses.  Australia and New Zealand bonds played catch-up to the large drop in US Treasury yields yesterday, while European benchmark yields are edging higher.  The 10-year US Treasury yield is around 1.43%.  The dollar is mixed against the major currencies.  The Canadian and Australian dollars and Norway are softer, while the Swiss franc and euro lead with around a 0.25%-0.35% gain.  Most emerging market currencies are little changed, though the Turkish lira is paring yesterday's intervention-fueled gains.  Led by the Hungarian forint ahead of the outcome of the central meeting, and helped by a firm euro, central European currencies lead the emerging markets.  The JP Morgan Emerging Market Currency Index is off for a second session after breaking a four-week slide last week.  Gold continues to consolidate and is within yesterday's range ($1782-$1791).  Oil is also trading quietly, with the January WTI contract in a $70.50-$72.00 range.  European (Dutch) natural gas is rising for the sixth session of the past seven, during which time it has increased by nearly a third.  US natgas has fallen by almost 30% in the past two weeks and is off for about 4.4% this week already.  Iron ore is paring yesterday's 6.5% gain, while copper is drifting lower and is extending its loss into the fourth consecutive session.   Asia Pacific Year-end pressures are evident in Japan's money markets, and the BOJ responded by arranging an unscheduled repo operation for the second consecutive session.  Yesterday's overnight operation was for JPY2 trillion (~$17.5 bln) after the repo rate rose to two-year highs.  The repo appeared to have been lifted by dealers securing funding for bill purchases.  Today the BOJ offered to buy JPY9 trillion of bonds under the repo agreement.   The US has offered to lift the steel and aluminum tariffs on Japan on similar terms as the deal struck with the EU.   A certain amount, based on some historical market share, can be shipped to the US duty-free, but over that threshold, a levy will be imposed.  Unlike the EU, Tokyo did not impose retaliatory tariffs.  Estimates suggest that Japan shipped around 5% of its steel to the US, though some might have made its way through Mexico.   The regional highlights for the week still lie ahead.  Tomorrow, China reports November retail sales, industrial production, new home prices, investment, and the surveyed jobless rate.  Retail sales are expected to have slowed, while industrial output may have firmed.  Investment in property and fixed assets may have stalled.  Japan has its tertiary index (October) tomorrow, a November trade balance on Thursday (it nearly always deteriorates from October), and the Friday BOJ meeting.  The BOJ is expected to extend some of its emergency facilities.  Australia reports its November jobs data first thing Thursday morning in Canberra.  After three months of job losses, a strong report is expected as social restrictions were lifted.   Today, the dollar is confined to about a quarter of a yen range above JPY113.50.  It has not traded above JPY114.00 this month so far.  Nor has it traded below JPY113.20 since last Monday.  An option for $760 mln at JPY1113.85 rolls off today.  The Australian dollar tested the session high near $0.7135 in the European morning but met a wall of sellers, perhaps, related to the nearly A$600 mln option at $0.7130 that expires today. It has traded down to a five-day low around $0.7090, which is the halfway point of last week's rally.  The next retracement (61.8%) is near $0.7065. The dollar continues to struggle to sustain upticks against the Chinese yuan. It is trading heavily today, its seventh loss in the past eight sessions.   Still, the greenback held above yesterday's low (~CNY6.3580).  It was unable to poke above CNY6.37.   The PBOC's dollar fixing was set at CNY6.3675, while the market (Bloomberg survey) anticipated CNY6.3666.   Europe The UK reported solid employment data.  The November claimant count rate eased to 4.9% from a revised 5.0% (initially 5.1%), representing a nearly 50k decline after the October decline was revised to 58.5k from -14.9k.  The pace of earnings growth slowed to 4.9% from 5.9% (three-month, year-over-year).  Employment rose by nearly 150k (three months) after a 247k increase previously.  Tomorrow, the UK sees November CPI and PPI.  Both are expected to have quickened from October.  Nevertheless, the BOE is now seen on hold until February.   Hungary's central bank is set to hike the base rate today.  A 40 bp increase would follow last month's 30 bp hike.  Today's move would be the sixth in a row.  The base rate began the year at 60 bp, and today's hike would lift it to 2.50%.  On Thursday, Hungary likely hiked the one-week deposit rate.  It has been hiked for the last four weeks.  It had been at 75 bp until June, when it was hiked by 15 bp.  It was lifted by 30 bp in July and again in August.  It reverted to 15 bp increases in September and October.  The one-week deposit rate was raised several times last month to 2.90%.  It is up another 40 bp so far this month, and it is expected to be lifted by another 20 bp this week.   In October, industrial output in the euro area rose 1.1% after a 0.2% decline in September.  The preliminary PMI will be reported on Thursday, ahead of the ECB meeting.  Activity likely slowed. The focus of the ECB meeting is on the guidance about bond-buying next year.  The emergency facility is expected to wind down at the end of Q1, but given that it will still be buying bonds, tapering may not be as necessary or pronounced as, say, with the Federal Reserve.  The ECB staff will also update forecasts, including a sharp upward revision to next year's while extending the projections to 2024.  There is also interest in what the ECB will do about its long-term loans (TLTRO).    The euro has firmed in the European morning but remains mired in a narrow range.  Indeed, the range over the past five sessions is a little less than a cent (~$1.1260-$1.1355). There is an option for nearly 500 mln euros at $1.1330 that expires today.  For the past month, the euro has been in a $1.12-$1.14 trading range, with the notable exception on November 24, when the low for the year was recorded (~$1.1185).   Sterling slipped below $1.32 in late Asian turnover but found bids lurking there, and Europe has extended its recovery toward $1.3235.  Resistance is seen in the $1.3260-$1.3275 area. Sterling has not traded above $1.33 since December 3, yet a move above there is necessary to lift the technical tone.   America The US reports November producer prices today.  The headline rate is expected to push above 9%, while the core rate pokes through 7%.  The market is understandably more sensitive to consumer prices than producer prices.  Tomorrow, ahead of the FOMC statement, the November retail sales (softer than the 1.7% headline increase in October) and the December Empire manufacturing survey will be released.   Although the Senate is expected to maneuver to lift the debt ceiling today, the Treasury is planning a large bill pay down (~$175 bln) to ensure it would have the space to settle the coupon auctions.  That said, the supply of bills is likely to improve through Q1 22, according to estimates.  By most accounts, the Treasury has overfunded itself, and this will allow it to cut back further on new supply, just as the Federal Reserve is expected to accelerate its tapering.   The Bank of Canada was told its inflation target remains 2% but that it can overshoot to support "maximum sustainable employment."  The central bank's language is important.  It said it would "continue" to support the labor market objective, suggesting that yesterday's adjustment to the mandate will have a minor operational impact.  In fact, with inflation (October CPI 4.7%, an 18-year high), Governor Macklem quickly indicated that this was not the situation when it could probe for the maximum sustainable employment.  Still, the new mandate requires that the central bank explain when it is using its new flexibility and how labor market outcomes are incorporated into monetary decisions.  Separately, Canada is proposing alternatives to the US proposed tax incentives for electric vehicles in the Build Back Better initiative.  Canada and Mexico claim that it violated the USMCA and throws a wrench in the 30-year auto integration.  The EU trade commissioner has also expressed concerns about whether the legislation would break the WTO rules too.   Late today, Chile's central bank is expected to deliver a 125 bp rate hike, the same as in October.  The overnight target rate began the year at 50 bp.  It was hiked by 25 bp in July and 75 bp in August.  With today's hike, it will stand at 4%.  More work is needed as November CPI was at 6.7%.  Chile holds the run-off presidential election this weekend.  In the first round last month, the conservative Kast drew 28% support while the left candidate Boris garnered 26%.  Chile's innovation during Covid was to allow people to withdraw funds from their pensions (yes, like a farmer eating their corn seed).  Three withdrawals were granted, but a fourth effort was rebuffed earlier this month.  The World Bank and the IMF expressed concern about the pension fund industry, which had been among the best in the region.  The Chilean peso is among the worst-performing emerging market currencies this year.  It has fallen nearly 15.5% and has only been "bested" by the Argentine peso (~17.3%) and the Turkish lira (-48%).   The Canadian dollar's retreat is being extended for the fifth consecutive session.  The greenback has largely held above CAD1.2800 and is drawing near the high seen after the employment reports on December 3 (~CAD1.2855).  We usually see the exchange rate is driven by 1) general risk appetite, 2) commodity prices, and 3) rate differential.  Here we note that Canada's 2-year premium has fallen from about 60 basis points at the start of last month to around 27 bp now.  Over the same time, the 10-year premium has wholly disappeared.  It was almost 20 bp on November 1 and currently is trading at a four basis point discount.  Meanwhile, the greenback is consolidating against the Mexican peso. For the fifth consecutive session, it has been mainly chopping in a MXN20.85-MXN21.08 range.   On Thursday, Banxico is expected to hike its overnight rate by 25 bp.  We continue to think it is more likely to hike by 50 bp than standpat.  Since June, it has lifted the target rate by 100 bp to 5%.   November CPI stood at 7.37%.     Disclaimer
High-Yield Dividend King: Altria Group, Inc. (MO)

High-Yield Dividend King: Altria Group, Inc. (MO)

Sure Dividend Sure Dividend 16.12.2021 15:19
The 3 Highest-Yielding Dividend Kings Now By Josh Arnold for Sure Dividend Income investors are faced with many choices when it comes to selecting the stocks they wish to hold in their portfolio. These choices include high current yield, dividend growth potential, dividend safety, dividend longevity, and more. However, there are certain stocks that possess more than one of these qualities. It is the intersection of these characteristics where we believe we find the best dividend stocks. One place we like to start is with the Dividend Kings, a group of just 35 stocks that have increased their dividends for at least 50 consecutive years. This longevity implies these companies all have sustainable competitive advantages, as well as exemplary recession resistance. These 3 Dividend Kings have each raised their dividends for over 50 consecutive years, and are currently the highest-yielding Dividend Kings today. Our first stock is Altria, a manufacturer and distributor of cigarettes, oral tobacco, and more. The company sells the very famous Marlboro brand of cigarettes, Black & Mild cigars, and chew tobacco under the Copenhagen, Skoal, Red Seal, and Husky brands. Altria was founded in 1822, employs about 7,000 people, generates $21 billion in annual revenue net of excise taxes, and trades with a market capitalization of $83 billion. The company’s dividend increase streak stands at 52 years. Altria’s dividend yield is currently 7.9%. Altria reported its most recent earnings for the third quarter on October 29th, 2021, and results were weaker than expected on both the top and bottom lines. Total revenue was off 4.7% from the year-ago period, coming to $6.8 billion before excise taxes, which was entirely due to smokeable product revenue declining 5.4%. Earnings-per-share came to $1.22 on an adjusted basis, which was actually slightly higher than the $1.19 from last year’s comparable period. Management announced it repurchased 6.7 million shares during the quarter, and boosted its existing buyback authorization to try and offset declining volumes. Our estimate for this year now stands at $4.62 for earnings-per-share. Altria’s recession resistance is outstanding given its products are literally addicting to the company’s customers. Tobacco products in general hold up very well during recessions because even consumers on the margin prioritize tobacco. This affords Altria stable and predictable cash flows irrespective of economic conditions, which it has used over the past five decades to consistently increase its dividend payment. We expect a 78% dividend payout ratio for this year, which is quite comfortable for a tobacco company. More cyclical companies would like see a dividend cut during a recession with that kind of payout ratio, but tobacco stocks – including Altria – see minor impacts to earnings during tough economic periods. Therefore, we see that payout as safe under any reasonable recession scenario. High-Yield Dividend King: Universal Corporation (UVV) Our next stock is Universal, a company that processes and supplies leaf tobacco and plant-based ingredients to manufacturers worldwide. Unlike Altria, Universal doesn’t actually sell finished product to wholesalers; it is further down the supply chain and produces what amount to ingredients to create final products. This still ties Universal’s fortunes very closely with those that do sell the final products, but Universal isn’t beholden to a single brand name or product succeeding for this reason. Universal was founded in 1886, employs 9,000 people, generates $2 billion in annual revenue, and trades with a market capitalization of $1.2 billion. Universal’s dividend increase streak is currently 50 years. In addition, its dividend yield stands at 6.1%. Universal’s most recent earnings were reported on November 3rd, 2021, and results were strong compared to the same period a year ago. Total revenue came to $450 million, which was 22% higher than last year’s Q2, and gained 16% for the first half of the year. Last year’s comparable period was heavily impacted by the pandemic, but those conditions have normalized, resulting in what is certainly an unsustainable level of sales growth. Earnings-per-share came to 66 cents on an adjusted basis in Q2, which puts first half earnings at 96 cents per share. We currently expect $4.40 in earnings-per-share in fiscal 2022. Universal doesn’t face a huge amount of competition given its industry has been in decline for many years. As the demand for cigarettes and other tobacco products continues to wane, the need for tobacco leaf wanes as well. That means new entrants aren’t attracted to compete with Universal, and that means the need for constant investment doesn’t exist. Universal, therefore, has strong cash flows it can return to shareholders. The payout ratio stands at 71% for this year, which we find to be quite safe given the company’s stable earnings. We don’t see a huge amount of payout growth on the horizon given the structural challenges a tobacco leaf provider faces, but for the foreseeable future, we think Universal’s dividend will be reliable. High-Yield Dividend King: Northwest Natural Holding Company (NWN) Our final stock is Northwest Natural, a regulated natural gas utility based in Oregon. The company serves 2.5 million natural gas customers in 140 communities. It was founded in 1859, employs 1,200 people, generates about $830 million in annual revenue, and its market capitalization is $1.4 billion. Northwest’s dividend increase streak stands at 66 years, and its current yield is 4.2%. The company reported its most recent results on November 5th, 2021, and results were well ahead of expectations on both the top and bottom lines. Northwest reported revenue that grew 8.7% year-over-year to $101 million during the seasonally weak quarter. Northwest also added 12,000 new metered connections, and reaffirmed guidance for $2.40 to $2.60 in earnings-per-share for this year. Like other regulated utilities, Northwest enjoys what amounts to a monopoly in its service area. This allows it pricing power and high margins, as well outstanding recession resilience. That helps dividend safety, which we give the highest marks to Northwest for given its 66-year dividend increase streak. The payout ratio stands under 80% for this year, and we see that as plenty safe given the utility’s very stable and predictable earnings profile. Final Thoughts Investors with capital to invest today would do well to start with the Dividend Kings when making a dividend stock investment. We like the Dividend Kings for their inherent recession resistance, and dividend longevity. However, Altria, Universal, and Northwest Natural offer those benefits in addition to very strong current dividend yields.
Not Only Gold Lacks Energy – We All Do Now

Not Only Gold Lacks Energy – We All Do Now

Arkadiusz Sieron Arkadiusz Sieron 17.12.2021 15:19
  First a pandemic, then inflation, and now an energy crisis. Should you buy gold when preparing for the winter? Brace yourselves, winter is coming! And this time I’m deadly serious, as there is a global energy crisis. Not only does gold lack energy to fuel its rally right now, but people from all over the world lack it to fuel their operations and to heat their houses. Apparently, the coronavirus pandemic wasn’t enough, so we also have to deal with inflation, supply bottlenecks, and the energy crisis. I guess there is nothing else to do now but wait for the frogs to start falling from the sky. But let’s not give the gods ideas and focus on the energy crisis today. What is it about? A picture is worth a thousand words, so please take a look at the chart below, which presents the Dutch Title Transfer Facility, Europe’s leading benchmark for natural gas prices. As you can see, future prices for European natural gas have skyrocketed to a record level in October 2021, surging several times from their low in May 2020. The persistence and global dimension of these price spikes are unprecedented, as natural gas prices have also surged in Asia and America (although to a lesser degree). What caused such a spike? Well, as a trained economist, I cannot resist answering that it’s a matter of demand and supply! Yeah, thank you, Captain Obvious, but could you be a little more specific? Sure, so on the demand side, we have to mention a fast recovery from the epidemic and cold fall that increased the use of energy. Oh, and don’t forget about the ultra-low interest rates and the increase in the money supply that boosted spending on practically everything. The increased demand for energy is hardly surprising in such conditions. On the supply side, there were unpredictable breakdowns of gas infrastructure in Russia and Norway that decreased deliveries. The former country reduced its exports due to political reasons. What’s more, the reduction in the supply of CO2 emission rights and unfavorable weather didn’t help. The windless conditions in Europe generated little wind energy, while drought in Brazil reduced hydropower energy. More fundamentally, the decline in energy prices in response to the economic crisis of 2020 prompted many producers to stop drilling and later supply simply didn’t catch up with surging demand. You can also add here the political decisions to move away from nuclear and carbon energy in some countries. Last but not least, the butterfly’s wings flapped in China. Coal production in that country plunged this year amid a campaign against corruption and floods that deluged some mines. Middle Kingdom therefore began to buy significant amounts of natural gas, sharply increasing its prices. China’s ban on importing coal from Australia, of course, didn’t help here. Great, but what does the energy crisis imply for the global economy and the gold market? First, shortages of energy could be a drag on global GDP. The slowdown in economic growth should be positive for gold, as it would bring us closer to stagflation. Second, the energy crisis could cause discontent among citizens and strengthen the populists. People are already fed up with pandemics and high inflation, and now they have to pay much higher energy bills. Just imagine how they will cheer when blackouts occur. Third, the surge in natural gas prices could support high producer and consumer inflation. We are already observing some ripple effects in the coal and oil markets that could also translate into elevated CPI numbers. Another inflationary factor is power shortages in China, as they will add to the supply disruptions we are currently facing. All this implies more persistent high inflation, which should provide support for the yellow metal as an inflation hedge, although it also increases the odds of a more hawkish Fed, which is rather negative for gold. It’s true that a replay of the 1970s-like energy crisis is remote, as today’s economies are much less energy-consuming and dependent on fossil fuels. However, the worst is possibly yet to come. After all, winter hasn’t arrived yet – and it could be another harsh one, especially given that La Niña is expected to be present for the second year in a row. Meanwhile, gas stocks are unusually low. You can connect the dots. So far, gold has rather ignored the unfolding energy crisis, but we’ve already seen that market narratives can change quickly. It’s therefore possible that prolonged supply disruption and high inflation could change investors’ attitude toward the yellow metal at some point. The weak gold’s reaction stems from the limited energy crisis in the US and from the focus on the Fed’s tightening cycle. But investors’ attention can shift, especially when the Fed starts hiking federal funds rate. Brace yourselves! Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Crude Oil ahead of 2022

Crude Oil ahead of 2022

Sebastian Bischeri Sebastian Bischeri 30.12.2021 17:54
  Omicron did a bit of a mess at the end of 2021, with oil too. Will crude oil break new price records in the New Year 2022? What do you guys reckon? Market Updates Yesterday, crude oil prices ended modestly higher after a volatile session with amplitudes increased by closing trades, as US crude inventories fell by 3.6 million barrels – more than expected – which is a positive sign for demand. Commercial crude oil reserves in the United States fell more than expected last week, recording the third consecutive significant decline on the back of strong demand, according to figures released yesterday by the US Energy Information Agency (EIA). On the other hand, the overall volatility is mainly due to the possible impact of the Omicron variant on demand; projects, commutations, as well as trips are cancelled, and more severe restrictions are put in place in Europe and China. (Source: Investing.com) The oil market continues to be tight due to the increased demand for heating oil to replace natural gas, which has become very expensive, especially in Europe; the Dutch TTF (Title Transfer Facility) benchmark dropped almost 8% to €89 there. As you may know, one third of European gas supplies come from Russia. This explains why the energy market is also keeping an eye on the Russo-Western crisis around Ukraine. Russian gas exports could be affected if tensions rise, as Russian President Vladimir Putin is due to speak on the phone with his American counterpart Joe Biden later today. I bet they won’t talk about Russian caviar (which might also be considered Russia’s original black gold). RBOB Gasoline (RBF22) Futures (Continuous contract, daily chart, logarithmic scale) Henry Hub Natural Gas (NGF22) Futures (January contract, daily chart, logarithmic scale) WTI Crude Oil (CLG22) Futures (February contract, daily chart, logarithmic scale) Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Quiet Start to New Year

Quiet Start to New Year

Marc Chandler Marc Chandler 03.01.2022 14:10
January 03, 2022  $USD, autos, Canada, China, Currency Movement, Inflation, jobs, Mexico, PMI, Trade Overview:  The New Year begins slowly.  Japan, mainland China, Australia, New Zealand, and the UK markets remain closed.  While Hong Kong shares traded heavily, Taiwan, South Korea, and India moved higher.  Led by consumer discretionary and staple sectors, Europe's Stoxx 600 is up about 0.6%.  US futures are 0.4%-0.6% higher.  European yields have drifted lower, with the periphery doing bettter than the core.   The US 10-year yield will begin the local session at 1.51%.  The dollar is mostly firmer, after weakening broadly at the end of last year.   The Norwegian krone and New Zealand dollar are the most resilient,  while the Canadian dollar is off nearly 0.3% to pare the year-end gains, followed by the euro, which is in the middle of its $1.1335-$1.1380 range.  The greenback is holding above JPY115.00.  Emerging market currencies are mixed but mostly softer.  Higher than expected inflation is weighing on the Turkish lira. The South Korean won leads the other softer EM currencies. It is off about 0.25%.  The South African rand (~0.7%) and Russian ruble (0.5%) lead the advancers.  The JP Morgan Emerging Market Currency Index rose by about 2.5% in the last two weeks of 2021 and is slightly firmer today (~0.2%).  Iron ore is higher for the third consecutive session and rallied more than 45% from the middle of November through Xmas, before falling 5.3% last week.  Copper has a four-week 4.6% rally in tow but is slightly softer today.  Gold is stalling near $1830, the (61.8%) retracement of its sell-off from $1880 mid-November high.  Oil rallied for the last two weeks, with February WTI gaining about 6.2%.  OPEC+ meets tomorrow and WTI is up a nearly 1.5% to push above $76.  US natural gas gained slightly more than 1% in the past two weeks and is hovering around little changed level.  Recall that diverted shipments from the US and Asia to Europe saw natural gas prices collapse from above 180 euros on December 21 to 65.5 euros at the end of last week.   Asia Pacific China's property developers remain in the spotlight. Bloomberg estimates that the sector's debt servicing costs, including deferred wages, and maturing obligations are at $197 bln this month.  Evergrande shares were suspended in Hong Kong.  When the problems, bubbling below the surface for some time, emerged last September, global risk appetites were shaken, and many observers made comparisons to the Great Financial Crisis.  However, so far, the problems seem localized and unlike the US and Europe, new lending has not frozen.   The macro data highlights include China's Caixin PMI after the official one surprised on the upside. The preliminary PMIs for Australia and Japan steal the thunder from the final report. Japan's weekly MOF report on portfolio flows may be noteworthy. Foreign investors have been on a buying spree, buying the most Japanese bonds over the first three weeks of December in at least 20 years.   The dollar has risen for the past four weeks against the Japanese yen.  It closed the last two sessions slightly above JPY115.00 and remains above it today.  Recall, last year's high, set in late November, was near JPY115.50.  Today's high thus far is about JPY115.35.  The market may be reluctant to push the dollar much higher before Tokyo returns.  The Australian dollar advanced almost 2% in the second half of December.  It is stalling near the (50%) retracement of its decline from around $0.7555 in late October, found close to $0.7275.  Support is ahead of $0.7200.  Thin trading on New Year's Eve saw the dollar plunge to its low for the year near CNY6.34 before settling slightly above CNY6.3560.  Chinese officials have signaled their desire to avoid further yuan appreciation. If the divergence of monetary policy and higher fx reserve requirements are not sufficient, investors must be wary that other tools can be deployed.   Europe The uptick in Germany's December manufacturing PMI was revised away, leaving it unchanged from November at 57.4.  The flash estimate put it at 57.9.  In contrast, the French reading was revised up to 55.6 from 54.9.  This pared the decline from 55.9 in November.   Italy's manufacturing PMI held in better than expected, slipping to 62.0 from 62.8, the post-Covid high.  Spain, on the other hand, disappointed, with its manufacturing PMI falling to 56.2 from 57.1, its lowest since last February.  The net result was the flash aggregate estimate of 58.0 was sustained (58.4 in November).   The final Eurozone aggregate PMI is of passing interest. The main takeaway from the preliminary estimate continues to resonate:  the economic activity was slowing. The flash estimate put the composite at 53.4 (down from 55.4), the lowest since March. It has risen once in the last five months. More notable for the market will be the preliminary estimate of December inflation. Consumer prices are expected to have stabilized after reaching 4.9% year-over-year in November (2.6% core).   The Turkish government has tried to absorb the currency-risk that it has unleashed by forcing the central bank to cut key interest rates by 500 bp since mid-September.  It managed to spur a powerful short-covering squeeze in the lira, which saw the dollar fall from around TRY18.36 on December 20 to nearly TRY10.25 on December 23.  The greenback recovered to nearly TRY14.00 today, its sixth consecutive advance.  Today's CPI report blew away expectations.  Just in the month of December, Turkish consumer prices jumped nearly 13.6%.  This sent the year-over-year rate to almost 36.1%.  The core rate rose about 31.9% year-over-year.  Short covering helped lifted the euro a little more than 1.1% over the past two weeks.  It reached about $1.1385 on New Year's Eve.  It has not traded above $1.14 since mid-February.  Ahead of this week's two key economic reports (EMU CPI and US employment), the market may not have the conviction necessary to extend its year-end gains.  Sterling gained about 2.1% in the last two weeks.  It reached $1.3550 at the end of last week, its best level since mid-November.  It is little changed today.  The $1.3575 area corresponds to the (50%) retracement of its sell-off from $1.3835 area in late October.  Initial support is seen in the $1.3455-$1.3465 area.   America The US economic diary is jammed packed to begin the New Year. The highlight is the jobs report at the end of the week. The median forecast (Bloomberg survey) calls for a 400k increase after being disappointed with the 210k increase in November. The unemployment rate is expected to ease to 4.1% from 4.2%, and average earnings growth likely moderated. At the end of last year, an article in the Financial Times made two important observations. First, the uniqueness of the covid-impact renders seasonal adjustments suspect. The response rate was less than two-thirds, the lowest for the month of November in more than a decade. In November, the raw establishment survey showed a 778k gain in nonfarm payrolls, but the BLS adjustment cut a record 568k. Second, also complicating the data is the participation by businesses. The response rate was less than two-thirds, the lowest for the month of November in more than a decade.   The monthly auto sales report seems under-appreciated as a broad economic indicator. The supply chain disruptions depressed auto production and, in turn, auto consumption (not just in the US). However, late in the year, there seemed to be some improvement. The median forecast (Bloomberg survey) December US auto sales (seasonally adjusted annual rate) at 13.1 mln, which would then be the most since July. Elsewhere, the preliminary goods trade balance, like the flash PMI, is the real new news. The final reading tends not to be very meaningful. In any event, the trade deficit will widen considerably. The goods deficit widened to a record $97.8 bln from $83.2 bln.   Lastly, the FOMC minutes will be looked at especially for clues about the timing of the first hike. March? It is unreasonable to expect Canada to match the nearly 154k job increase reported for November. The median forecast is 25k. Canada also reports November trade figures. Canada's trade balance has steadily improved since March 2020, and the 12-month moving average through October was the highest in around six years. The swaps market has a little more than half of the first hike (25 bp) priced in at the January 26 Bank of Canada meeting.   Mexico's data highlights include worker remittances, which could be the most important source of private capital inflows. Without meaningful fiscal support and in the face of tightening monetary policy, the economy lacks much momentum. The December CPI is expected to have edged higher toward 7.5%. Monetary policy is where the drama will be as the new central bank governor takes the reins (Rodriguez). The 50 bp hike in December lifted the overnight target to 5.5%. If the market is concerned about a policy mistake or possible erosion of its independence, you would not know it from looking at the peso. It was the strongest currency in the world in December, rising almost 4.5% against the dollar.   The Canadian dollar rallied about 2% over the past two weeks.  This saw the US dollar retrace half of its rally from the mid-October low below CAD1.23 that peaked on December 20 by CAD1.2965.  That retracement came it near CAD1.2625.  The momentum indicators are still headed down, but the greenback is recovering today.  Initial resistance is seen around CAD1.2700.  A move above CAD1.2750 warns that a low may be in place.  The Mexican peso has rallied for the past five weeks, and despite the poor close at the end of the year, it is bid today.  The US dollar was sold from near MXN20.55 to MXN20.45 in the European morning but has found a bid near midday.  The low from New Year's Eve was set around MXN20.3070 and the 200-day moving average is closer to MXN20.27.    Disclaimer
Why Successful Traders Make More By Trading Less

Why Successful Traders Make More By Trading Less

Chris Vermeulen Chris Vermeulen 06.01.2022 18:20
During my 25 years of trading and mentoring others, I have been dragged through the coals a few times. And by that, I mean I have; blown up a few trading accounts; had some massive gains only to watch them turn into worthless penny stocks, and; I even had one trade based around the volatility index blow up and become worthless the day after I bought it. I've had many other painful and costly trading experiences between those as well, and I know there will be more in the future. This leads me to the first topic I would like to talk about – learning through experience.#1 - Learned Through Expensive ExperiencesI help a lot of traders each year from all walks of life. They range from 18 to 85+ years of age. Some are total newbies, financial advisors, money managers, all the way up to billionaires. What is apparent is that the most successful traders (those who make money year after year) have the same things in common with how they trade. They all: walk a straight and somewhat unemotional line outside of learning from losses and trading mistakes.  focus on managing their capital because they understand just how quick and easy it is to lose money, which is why they focus and follow strict rules. follow very specific trading strategies/rules and do not trade on emotions. protect their capital ALWAYS with stops and position management only trade specific trade setups that put the probabilities in their favor focus heavily on index and bond positions say their trading feels slow/boring most of the time trade multiple strategies#2 - Ignore High Flying, News, Manipulated, and Hype Based MovesIt's hard not to participate in some of these wild rallies and stock crashes we have seen over the last couple of years. It's a natural tendency to want to take part in what everyone else is doing, and the lure of instant oversized gains is powerful. But, unfortunately, most individuals who get involved in these trades lose money for a good reason. They are trading based on greed/emotions with no real measured trading plan.Don't get me wrong; I'm not saying, "don't trade these stocks." In fact, many of these are incredible opportunities for experienced traders. These types of stocks generally become ideal for day traders and even momentum and aggressive swing traders. They can provide some quick extra cash. But that's what these types of trades are - small, fast, higher risk trades that only a seasoned trader should trade.Sign up for my free trading newsletter so you don’t miss the next opportunity!For some reason, traders come into this business thinking it's a game and believes these are the types of trades that should always be traded. They take oversized positions only to experience significant damaging losses to their account.I conducted a survey a little while back, and the survey results blew my mind. Most people want to trade the volatile media-driven hype stocks and commodities. People fall in love with specific assets and want to trade only those, even if there are better assets and more efficient ways to pull money out of the market.The results below frustrate the heck out of me because, to me, it makes no logical sense if you are in the market to make money.Trader Survey Results Confirm Why it is Hard To Make MoneyThe above results make sense as studies have proven that humans react seven times more based on emotions versus logic. This is why the stock market has such wild price swings with Euphoric blowoff tops and Panic washout lows.People are highly addicted to riding their emotions (adrenaline/dopamine), and they love the rush of fast-moving stocks and gambling, which is why the markets are regulated, along with casinos, for that matter. Simply put, people lose control of common sense and logic when they are on tilt with emotion.Fast-moving assets with extreme volatility act as a bug-zapper light, which attracts bugs, only to kill anything that gets too close. In this case, new traders think they can make quick and easy money from hot stock in the news.Trading is a numbers game, and it requires logic, rules,and a proven strategy to win long-term.Based on the survey we did with thousands of traders, you can see that making the same amount of money with fewer trades and lower risk is not that exciting. Instead, traders prefer high volatility assets like metals, and natural gas, which are manipulated and have large wild price swings.Also, from a trading statics point of view, those two are among the most difficult to trade.As a pilot, I know the importance of keeping calm, having checklists/rules, and systems in place. Without them, you will eventually crash and burn; it is just a matter of time. The same holds true for trading and investing in that you need to trade what makes the most money, trade only the best setups, and have the lowest risk.Hottest Symbols vs Biggest TrendsBottom line, I don't care about trading every day or trying to catch the hottest symbols everyone is talking about. Instead, I care about catching and riding the biggest trends in the US stock index and the Treasury Bond ETFs. These are highly liquid sentiment trends that produce oversized gains each year. This is also the reason ETFs have taken over the mutual fund market and why financial advisors and hedge funds primarily trade/own stock index funds and bonds.Through the Technical Index and Bond ETF Trading strategy, I help individuals and advisors trade more efficiently. This strategy trades SPY, SSO, SPXL, QQQ, QLD, TQQQ and TLT, TBT, TMF, which generate large, compounded returns as shown in the chart below:This proprietary ETF trading strategy is straightforward and only generates about 3 to 10 trades per year. Most traders dislike this type of strategy because it lacks lots of action and volatility. If you noticed, you won't find many professional advisors telling you to jump into the fast-moving hype stocks, and for a good reason - they know better and want to protect your hard-earned capital. #3 - The Power Of Slow & Steady Gains Are Mind-Bending!As I learned a long time ago (and this holds true for almost everything across the board), learning something new, like mastering how to trade slower, consistent strategies, can take some getting used to. Everything new will always be a challenge, but once you master something, it becomes simple, low stress, and you will experience more consistent results.Take a look at this data from an Atalanta Sosnoff report. This should get my point across about how powerful slow, boring, consistent returns pack a powerful punch and why thousands of traders from 82 countries follow my index and bond trading signals.Source: Eagle Asset Management.The Technical Index & Bond ETF trading strategy has consistently produced positive annual results (CGAR average ROI 15% - 51% depending on ETF leverage, only 7 - 21% max drawdown). If you traded with the 2x or 3x ETFs, you would have crushed the S&P 500 every year and experienced that rush feeling that leverage/volatility provides but within a safer/smarter way.Passive trading styles like this are a bit different from those you may have traded in the past. My objectives consist of four very important concepts:Protect Capital At All Times.Trade Only When Strategically Opportunistic (probabilities are favorable).Trade Efficiently Using Bonds As Trade When Fear Rises among traders and investors.Move to cash or money market fund when the index and bonds are both out of favor.Concluding Thoughts:In short, I hope this has helped confirm your thinking of trading less and focusing on more solid trade setups. Or maybe it has opened your eyes to the world of slow and steady gains wins the race, with much less stress and effort.If you are interested in learning more about TIBT – Technical Index & Bond Trader, I invite you to visit www.TheTechnicalTraders.com/twa 
Commodities - Crude Oil and Natural Gas in times of Omicron and low temperatures

Commodities - Crude Oil and Natural Gas in times of Omicron and low temperatures

Sebastian Bischeri Sebastian Bischeri 05.01.2022 17:19
  Happy new year, everyone! We hope that 2022 will be a prosperous one for all our readers. However, will it be successful for oil? Energy Market Updates Yesterday, crude oil prices ended higher, after a volatile session as US inventories fell by 6.4 million barrels – more than twice the previous week – which is another positive sign for demand. US inventories levels of crude oil, gasoline, and distillates stocks are again forecasted to fall by about 3 million more than expected last week. That would be another significant decline on the back of greater demand, according to estimated figures released by the American Petroleum Institute (API) yesterday. (Source: Investing.com) Crude oil prices stabilized near their 6-week highs following the OPEC+ group meeting, which maintained a limited increase in production of 400k barrels/day (no surprise). It is therefore a matter of maintaining an increase in production for the seventh consecutive month. This also shows that the organization was confident and believed in the resistance of global oil demand despite the recent restrictions implemented by several governments scared by Omicron, even though those travel restrictions may likely delay the resumption of aviation demand. RBOB Gasoline (RBG22) Futures (February contract, daily chart) WTI Crude Oil (CLG22) Futures (February contract, daily chart) Regarding natural gas, the Henry Hub (US benchmark) is slowly climbing as temperatures are dropping in many regions, while the European benchmark, the Dutch Title Transfer Facility (TTF), rallied 3.5% as European gas prices remain extremely volatile due to reduced exports from Russia (notably via the Yamal pipeline) but also via Ukraine. The upward momentum is also linked to weather forecasts, such as colder temperatures and frost encountering the European continent in the coming days and weeks, which may obviously have a stimulating effect on gas demand. Henry Hub Natural Gas (NGG22) Futures (February contract, daily chart) Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
New Profitable Call on Natural Gas: The Yoyo-Trade Is Back! - 14.01.2022

New Profitable Call on Natural Gas: The Yoyo-Trade Is Back! - 14.01.2022

Sebastian Bischeri Sebastian Bischeri 14.01.2022 16:22
  Gas prices surged in stride and then the market plunged back down like a yoyo thrown from a balcony. What caused such a reaction? At the beginning of the week, Henry Hub natural gas futures closed above the $4 psychological mark on the NYMEX for the first time this new year as a result of robust US LNG exports and weather-driven demand. Overall, the prices on the February contract were still trading on a longer-term downtrend, which is why I was especially looking for the best spot to initiate a short-selling trade rather than jumping on a galloping horse. Meanwhile, some of our subscribers – always free to scalp the market (or to take more aggressive counter-trend trades towards our suggested entries) – were just getting ready to go short around the $4.876.5.079 resistance zone (highlighted by a yellow band), with a stop placed just above the higher $5.400 level (represented by a red dotted line) and targets at $4.568 and $4.213 (also marked by two green dotted lines), according to my last projections. As a result, gas prices indeed surged in stride (performing a high-speed rally up to the 4.879 that got almost immediately stopped by the yellow band – thus triggering our entry). It was just before the market plunged back down like a yoyo thrown from the third floor and wheeling on the first-floor balcony, considering our targets to be located on both the second and first floors. This sudden reversal move was certainly triggered on the one hand, technically by aggressive traders taking profits, but also , more fundamentally, by a slowdown in gas demand as the purchases for colder weeks were already anticipated by the commercials (large MNCs hedging their risk, oil and gas majors, utility companies, etc.); the latter having undoubtedly more impact and weight than we, or larger speculators, on those markets. Thus, I would say the key is trying to think like them to get some understanding of trading energies. Trading Charts Chart – Henry Hub Natural Gas (NGG22) Futures (February contract, daily chart) Now, let’s zoom into the 4H chart to observe the recent price action all around the above mentioned levels of our trade plan: Chart – Henry Hub Natural Gas (NGG22) Futures (February contract, 4H chart) In summary, my trading approach has led me to suggest some short trades around potential key resistances since this sudden surge in natural gas offered a great opportunity for the bears to enter short whilst aiming towards specific projected targets. Some of you – more aggressive traders – may also enjoy jumping on galloping horses. However, for such trades, the timeframe would be much shorter and difficult to make everyone take advantage of them, due to the volatility in the markets and the fact that I always try to provide trades with optimal entry levels meeting a profitable risk-to-reward ratio. You are always free – at your own risk and time schedule – to scalp the markets in a more aggressive way (counter-trend trading) towards a projected entry area if you feel comfortable doing so. However, sometimes, the “FOMO” (Fear-Of-Missing-Out) voices might tell you to trade when you shouldn’t, so just be aware that over-trading could also lead you to take more risky positions – refraining from trading all the time is also part of trading – a mind game that you will have to rapidly master! If you don’t want to miss any future trading alerts, make sure to look at our Premium section. Stay tuned – have a nice weekend! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
5 Interesting Energy Stocks added to our Watchlist this Quarter

5 Interesting Energy Stocks added to our Watchlist this Quarter

Invest Macro Invest Macro 02.12.2021 10:12
December 1, 2021 The fourth quarter of 2021 is approximately two-thirds over and we wanted to highlight some of the Top Energy Companies that have been analyzed by our QuantStock system so far. Our QuantStock system is a proprietary algorithm that takes into account key company fundamentals, earnings trends and other strength components to find quality companies. We use it as a stock market ideas generator and to update our stock watchlist every quarter. The QuantStock system does not take into consideration the stock price or technical price trends so one must compare each company idea against the current stock prices. There are a plethora of professional studies that continue to show stock markets are overvalued and this is always a key component to consider when researching any stock market idea. As with all investment ideas, past performance does not guarantee future results. Suncor Energy Energy Stock | Medium Cap | 5.42 percent dividend | 15.22 P/E | Our Grade = C+ Suncor Energy Inc. (NYSE: SU) is one of Canada’s biggest energy stocks. It is an integrated energy company engaged in producing synthetic crude from oil sands. Suncor last announced its financial results for the third quarter on October 27. It came up with earnings of 56 cents per share and revenue of $8.11 billion for the three months ended September 30. The results showed significant improvement from the comparable quarter of 2020 but missed the consensus forecast of 58 cents per share for profit and $8.5 billion for revenue. Despite missing expectations, Suncor Energy stock climbed to a new high of $26.97 earlier this month. Matador Resources Co. Energy Stock | Small Cap | 0.51 percent dividend | 16.78 P/E | Our Grade = C- Matador Resources Co. (NYSE: MTDR) is an energy company based in Texas, United States. The company last month announced impressive financial results for the third quarter. Matador earned $1.25 per share during the three months ended September 30, beating the consensus forecast of 96 cents per share. Moreover, it generated revenue of $472.351 million during the quarter, ahead of analysts’ average estimate of $387.950 million. In addition, Matador stock has also performed exceptionally well so far in 2021. The company’s share price has skyrocketed more than 200 percent on a year-to-date basis. The 52-week range of the stock is $10.16 – $47.23, while its total market value stands close to $4.5 billion. Magnolia Oil & Gas Corp. Energy Stock | Small Cap | 0.84 percent dividend | 11.29 P/E | Our Grade = C- Magnolia Oil & Gas Corp. (NYSE: MGY) is another Texas-based oil producer. The company posted solid financial results for the third quarter earlier this month. Magnolia reported adjusted earnings of 67 cents per share on revenue of $283.58 million. The results easily surpassed analysts’ average estimate of 61 cents per share for earnings and $274 million for revenue. If we quickly look at its key financial metrics, Magnolia stock is currently trading around $18.82, against its 52-week range of $18.38 – $19.07. Moreover, the company’s market value is just over $3.4 billion, while its P/E ratio stands at 11.03. China Petroleum & Chemical Corp. Energy Stock | Medium Cap | 10.26 percent dividend | 3.71 P/E | Our Grade = C China Petroleum & Chemical Corporation (NYSE: SNP), commonly known as Sinopec, is a leading oil and gas company based in China. Besides its listing in the New York Stock Exchange, it also trades in Hong Kong and Shanghai. Sinopec last month announced mixed results for the third quarter. Its reported earnings of $2.64 per share, representing a sharp decline from $5.54 per share in the comparable period of 2020. On the positive side, its revenue for the third quarter grew over 52 percent to $114.58 million. If we look at its share price, Sinopec stock has struggled to gain value so far in 2021. The stock has only increased nearly one percent on a year-to-date basis. Petróleo Brasileiro S.A. Energy Stock | Medium Cap | 19.49 percent dividend | 2.71 P/E | Our Grade = C Petróleo Brasileiro S.A. (NYSE: PBR) is one of the leading energy stocks based in Rio de Janeiro, Brazil. The company, also called Petrobras, is engaged in the exploration and production of oil and natural gas. Petrobras last released its quarterly financial results on October 28. The company reported earnings of $5.9 billion for the third quarter, down 26.9 percent from Q2 but significantly higher than the comparable period of 2020. In addition, its quarterly revenue of $23.3 billion was also well above $13.15 billion in the year-ago period. If we talk about its share price movement, Petrobras stock hasn’t performed well this year. The stock is still down nearly six percent on a year-to-date basis. Article by InvestMacro – Be sure to join our stock market newsletter to get our updates and to see more top companies we add to our stock watch list.
Market Shrugs Off Chinese Signals and Keeps the Yuan Bid

Market Shrugs Off Chinese Signals and Keeps the Yuan Bid

Marc Chandler Marc Chandler 22.11.2021 13:35
November 22, 2021  $CHF, $USD, BOE, China, Currency Movement, FOMC, Japan, Philippines, Russia Overview:  The US dollar has come back bid from the weekend against most currencies following the talk by a couple of Fed governors about the possibility of accelerating the tapering at next month's FOMC meeting.  The weekend also saw protests against the social restrictions being imposed by several European countries in the face of a surge in Covid cases.  The Swedish krona, yen, and sterling are the weakest, while the dollar-bloc currencies are resisting the greenback's tug. Most of the freely accessible and liquid currencies among emerging market currencies, including Russia, Hungary, South Africa, and Mexico, are heavy. At the same time, the Turkish lira recoups a little of the ground lost last week, and the Chinese yuan shrugged off apparently warnings from the PBOC to post its first gain in three sessions.  Equity markets in the Asia Pacific area mostly fell, though China and South Korea were notable exceptions.  Europe's Stoxx 600 snapped a six-week advance last week but has begun the news week with a small gain through the European morning.  US futures are trading higher.  The bond market is heavy, with the 10-year US Treasury up about three basis points to around 1.58%.  European benchmark yields are 2-3 bp higher.  Gold finished last week on a softer note and edged lower today to trade below $1840 for the first time since November 10.  Resistance is around $1850.  News that Japan may join the US to release oil from reserves saw January WTI slip below $75 but recover back above $76.  It met the (38.2%) retracement of the rally from the late August low near $60.75.  European natural gas (Netherlands) is lower for the fourth consecutive session, during which time it has fallen around 11%.   Iron ore extended the 5.6% gains before the weekend with another 4% gain today.  On the other hand, copper rose 3.3% in the past two sessions and has come back offered today.  Lastly, the CRB Index eased less than 1% last week and is off two of the past three weeks.  Its seven-month rally is at risk.   Asia Pacific Despite China's economic success, it remains clumsy and heavy-handed.   As the US and some other countries were considering a symbolic diplomatic boycott of the winter Olympics in Beijing, the tennis star Peng Shuai is being censored or worse for allegations against a former Politburo member.  Meanwhile, at the end of last week, three Chinese coast guard vessels launched water cannons against two Filipino boats sent to resupply a garrison on the Second Thomas Shoal (Ayungin Shoal), which is within the Philippines' Kalayanan Island Group.  The aggressive harassment brought a rebuke by the US, which reminded Beijing of its mutual defense agreement with Manila.   The Philippines will attempt to bring provision again this week.  Separately, note that after being notified by the US of the military nature of the Chinese construction project in the UAE, the project has been halted.   With the yuan at six-year highs against a trade-weighted basket, Chinese officials have begun expressing more concern about the one-way market.  The FX Committee, composed of industry participants, wants members to do a better job monitoring prop trading, and it follows the PBOC works of caution about risk management at the end of last week.  In its quarterly monetary review, the PBOC made a few tweaks that suggest it could ease policy.   Japan's Prime Minister Kishida acknowledged that releasing oil from its strategic reserve was under discussion.  China indicated it would tap its reserves last week for the second time since September, while it is still under review in the US.  Currently, Japan keeps reserves that are intended to last 90 days, while the private sector must hold reserves to last 70 days, according to reports.  Japan is considering selling oil and using the funds to subsidize the rising gasoline prices.  It may also reduce the duration of the reserves.   The dollar is straddling the JPY114.00 level as its hugs the pre-weekend range (~JPY113.60-JPY114.55).  The JPY114.30 area offers initial resistance, while the focus in early North America may be on the downside.  Still, it appears to be going nowhere quickly.   The Australian dollar finished last week at its lowest level since early October.  That low, just below $0.7230, held, and momentum traders covered shorts, helping lift the Aussie back to session highs near $0.7260.  A move above here allows gains into the $0.7270-$0.7290 area.  The PBOC set the dollar's reference rate at CNY6.3952 today.  The market (Bloomberg survey median) had projected a CNY6.3931 fix.  Although the dollar is softer today, it held above last week's lows as consolidation is evident.  It remains within the range set last Tuesday (~CNY6.3670-CNY6.3965).   Europe With the Swiss franc appreciating to six-year highs against the euro, it would not be surprising to see the SNB intervene.  The first place to look for it is in the weekly domestic sight deposits.  They rose by CHF2.58 bln, the second-most in the past three months.  Recall the mechanics.  The SNB buys euros but just sitting on them distorts the allocation strategy.  So it needs to either sell some euros for dollars or Swiss francs for dollars.  If it does the latter, its overall level of reserve growth accelerates.  Many suspect it will do the former, i.e., sell some euros for dollars.   The US continues to warn that Russia's troop and equipment movement is consistent with a rapid large-scale push into Ukraine from multiple spots simultaneously.  The suggestion, according to reports, is that the operation could take place early next year.  Both Ukraine and Georgia are seeking more US assistance.  Recall Russia invaded Crimea in February 2014.   Bank of England Governor Bailey has toned down his rhetoric, though he blames the market for misconstruing his remarks last month.  He warns now that next month's decision is finely balanced and that the price pressures are emanating primarily from supply-side disruptions for which monetary policy is less directly effective.   The implied yield of the December 2021 short-sterling interest rate futures contract is slipping for the fourth consecutive session.  Today's yield of about 21 bp is the lowest since early October.  The yield peaked in mid-October near 62 bp.  Lastly, while progress on the UK-EU talks has been reported, the two sides are still far apart.  Talks between Frost and Sefcovic will resume at the end of this week.   The prospect that a new German government could be announced this week has not helped the euro very much.  The single currency, which was sold through $1.14 and $1.13 last week, is struggling to find a base.  It has held above the pre-weekend low near $1.12560 but only barely (~$1.1260), and the attempt to resurface above $1.1300 was rebuffed. A move above $1.1320 may suggest some near-term consolidation, perhaps ahead of Wednesday's US PCE deflator report.  That said, tomorrow's flash PMI composite reading for the eurozone is expected to have weakened for the fourth consecutive month.  Sterling could not rise 15 ticks from its pre-weekend close (~$1.3450).  The downside was also limited (~$1.3420).  It caught a bid in the European morning that could extend into the US morning.  Still, the $1.3460-$1.3480 band may be a sufficient cap.  The market does not appear inclined to see trigger the $1.3395 option that expires today for about GBP425 mln.   America President Biden's announcement on the Fed's leadership could come as early as tomorrow, as he is set to deliver a speech on the economy tomorrow.  But it probably would be a separate announcement.  Given the expiration of the terms of the two vice-chairs, changes among a few of the regional presidents, and the challenging situation, President Biden is likely to follow Treasury Secretary Yellen's recommendation to re-appoint Powell.  Moreover, a tradition goes back to Volcker of one party making the initial nomination and the other party approving of another term.  This helped "depoliticize" monetary policy.  Trump broke with that tradition, and as Biden has done in a number of other areas, is restoring some traditions.  Lastly, we suspect that if Bernanke or Yellen, or Brainard were at the helm of the Fed, there would not be substantive monetary policy differences.   Vice-Chair Clarida and Governor Waller joined regional Fed President Bullard to suggest that Fed may consider accelerating the pace of tapering at next month's FOMC meeting.  We suspect others will be sympathetic after this week's October PCE and deflator news.  The economy is rebounding in Q4 from the disappointing 2% annualized pace in Q3 (which is likely to be revised higher on Wednesday), and a critical part is consumption.  Personal consumption expenditures are expected to rise by 1% after a 0.6% increase in September.  The headline PCE deflator, which the Fed targets 2% on average, which Governor Brainard reportedly helped devise, is expected to jump above 5% from 4.4% in September.  The core rate is expected to exceed 4%.  No Fed officials are slated to speak this week, but the minutes from the November 3 FOMC meeting will be released on November 24.   El Salvador caught the crypto world's attention again.  It is the first country to make Bitcoin legal tender.  It announced plans to issue a $1 bln bond, and half the proceeds will be used to buy Bitcoin (~2000 coins).  The other half will be used to fund infrastructure projects to build the infrastructure of more Bitcoins.  It will offer a 6.5% coupon, which is lower than current dollar issues.  It looks like one pays a lot for BTC exposures.  El Salvador is rated BB+ of the equivalent by the top three rating agencies.  This makes El Salvador bonds risky, to begin with, and adding Bitcoin on top of that would seem to preclude most retail and institutional investors.  It seems like a desperate act that only an impoverished country can try.  The idea that other countries will quickly follow seems to be a stretch.  There is a good reason why Tesla had few corporate followers to buy Bitcoins with reserve funds.  The same principle would seem to apply to countries.   The economic calendar for North America begins off slowly this week.  Today's main feature is the US existing home sales report.  A pullback after September's heady 7% gain is expected, the strongest in a year.  After a weak start to the year, existing home sales have recovered.  They averaged 5.66 mln (seasonally adjusted annual rate) last year and have averaged more than 6.0 mln for the past three months.  The Canadian dollar has weakened for the past four weeks.  It briefly poked above CAD1.2660 ahead of the weekend to reach its best level since early October.  The greenback is in about a 15-tick range on either side of CAD1.2645 today.  Support is seen in the CAD1.2600-CAD1.2620 area, but it may take a break of CAD1.2585 to boost confidence that a high is in place.  The US dollar rose 1.5% against the Mexican peso last week.  It was the third weekly gain in the past four weeks.  The greenback is trading above last week's high (~MXN20.89) and looks set to test the high set earlier this month near MXN20.98.  Lastly, the Chilean presidential election will go to a run-off next month, as widely expected between the far-right and far-left candidates.   The dollar snapped a five-week pullback against the Chilean peso last week, rising 3.6%, the most in three months.  Year-to-date, the peso is off nearly 14.25%.   Disclaimer
In The Beginning Of This Week, The Eastern Tensions Is The #1 Topic

In The Beginning Of This Week, The Eastern Tensions Is The #1 Topic

Walid Koudmani Walid Koudmani 14.02.2022 14:09
The news from US intelligence that the Russian aggression on Ukraine was a done deal spooked markets on Friday. While Russia denied it, the situation doesn't seem to be getting any better. How will markets react to further developments? Prepare for various options Markets are reacting and investors should prepare for potentially turbulent times. This is why we present 3 potential scenarios of the Ukrainian conflict and highlight key markets that may be affected. Watch these markets: Stocks – Russian banks, RTS and… Nasdaq VTB and Sberbank – the names of these institutions are nearly synonymous with sanctions on Russia. Little wonder these stocks are among top choices on the equity side. Investors may also focus on the diversified RTS Index where Sberbank has 14% share – the index has plenty of energy stocks as well and is down 30% from late 2021 highs. A less obvious choice is Nasdaq (US100). Why would US tech stocks react to the conflict in Europe? Well, since this market has its own share of problems (mainly Fed tightening), other bad news could impact investor sentiment even further. Commodities – Oil, Gold, Platinum, Palladium and Wheat Russia is the second largest exporter of Oil and the commodity is also a substitute for natural gas which has already been in tight supply in Europe. Gold has traditionally been a "top pick”for times of geopolitical uncertainty but we'd like to turn your attention to Palladium and Platinum – these are also precious metals but Russia is way more important here being the number 1 and 2 exporter respectively. Finally, both Russia and Ukraine are important producers of Wheat. FX – focus on USDRUB FX is fairly obvious – any conflict is detrimental for the Russian ruble even despite high oil prices and significant interest rate increases in Russia. On the other hand, USD attracts liquidity in times of distress so USDRUB could be the choice for investors here. 3 scenarios – invasion, tension and compromise The worst case scenario is the one of invasion – the one already hinted at by the US intelligence. Invasion means sanctions but actually the lack of sanctions is the key to reactions here (as the largest guns – like cutting off Russia from SWIFT – are supposedly off the table). Markets know that if Russia invades, forcing it to withdraw will be costly and that will feed uncertainty and fear. Critically negative for Russian stocks, negative for global stocks, positive for oil and precious metals and USDRUB. The most likely scenario could be the one of prolonged tension – Moscow can pose threats for as long as it achieves certain results (there’s a talk of autonomy or even referendums in Eastern parts of Ukraine). While politically complicated, this scenario can actually be a relief for the markets. For as long as invasion risk declines, this scenario is positive for stocks while being negative for oil, precious metals and USDRUB. Finally a scenario most would prefer – there's a sound compromise and Russian troops are ordered away from the Ukrainian border. This would be extremely positive for stocks (especially Russian banks and the Russian index) while negative for oil, precious metals and USDRUB. Unfortunately, this scenario also seems to be the least likely. XTB Research
Gold Price Analysis: XAU/USD underpinned above $1900 as Russia/Ukraine crisis escalates

Gold Price Analysis: XAU/USD underpinned above $1900 as Russia/Ukraine crisis escalates

FXStreet News FXStreet News 22.02.2022 15:58
After hitting fresh multi-month highs at $1914, spot gold is consolidating above $1900 as the Russia/Ukraine crisis escalates.As traders worry about the rising risk of a full-scale Russian military incursion into Ukraine, gold will likely remain supported.As the Russia/Ukraine crisis continues to escalate, most recently with Russia recognising the independence of and moving troops into two separatist regions in eastern Ukraine, prompting NATO nations to announce/prepare new sanctions on Russia, gold has moved back above $1900. Spot prices (XAU/USD) hit fresh multi-month highs at $1914 on Tuesday and, though pulling back from these highs printed during Asia pacific trade as dip-buying facilitating an intra-day rebound in global equities markets, has remained above the key $1900 level.With market participants nervous that Russia/pro-Russia separatists in Eastern Ukraine could initiate further hostilities against Ukraine, thus further escalating the risk of an all-out Ukraine/Russia conflict, gold is likely to remain well underpinned this week. Brent oil spiked to close to $100 per barrel on Tuesday and EU natural gas prices were up sharply as Germany pledged not to approve the Nord Stream 2 pipeline that would bring gas directly to Germany from Russia. The upside risks posed to global inflation from any continued spike in energy prices as a result of further Russia/Ukraine crisis escalation is likely boosting demand for gold as an inflation hedge.Recent Fed speak and US data releases have not had much of an impact on gold in recent days as price action takes its cue from geopolitics. Hawkish commentary from Fed’s Michelle Bowman on Monday, who essentially said she was still undecided as the whether the Fed should hike rates by 25 or 50bps in March, was roundly shrugged off. That suggests that other Fed speak this week is also likely to be ignored, or, at least, play second fiddle, with this also likely the case for Friday’s January US Core PCE inflation data. Ahead of that, traders should keep an eye on upcoming US PMI and CB Consumer Confidence surveys, both the flash readings for February.
Credit Markets Trades Really Low, Oil Price Reaches High Levels At The Same Time

Credit Markets Trades Really Low, Oil Price Reaches High Levels At The Same Time

Monica Kingsley Monica Kingsley 22.02.2022 15:36
S&P 500 is waking up to fresh European news, and holds up well. There is no panic upswing in gold and silver, but crude oil and natural gas are up the most. As the U.S. markets are to open following yesterday‘s Washington‘s Birthday holiday, let‘s bring up the key details of yesterday‘s analysis: (…) S&P 500 opening upswing gave way to more selling, but credit markets didn‘t lead to the downside on a daily basis. This tells me the plunge would likely be challenged shortly. As in facing a reversal attempt – it‘s that junk bonds for all the recent (and still to come) deterioration, will probably rebound a little next. Value already retraced part of Friday‘s decline – it‘s just tech that didn‘t yet react to the Treasuries reprieve. Good to have taken short profits off the table. The table is set for S&P 500 to rise, and for bonds to rally somewhat. And that wouldn‘t be the result of war tensions lifting up Treasuries, gold and oil. Red hot inflation, decelerating growth and compressing yield curve are a challenging environment, and the odds of a 50bp Mar rate hike are overwhelming, but the Fed‘s balance sheet is still rising – now within spitting distance of $9T. Sure they will take on inflation, but I continue to think that by autumn they would be forced to reverse course, and start easing. Fresh stimulus after markets protest during 1H 2022? Would be helpful for the midterms... The consumer isn‘t in a great shape as the confidence data reveal – and that‘s also reflected in the direction of discretionaries vs. staples. Inflation is pinching, and the pressure on the Fed to act, is on – its credibility is being challenged. Food inflation is high, and seeing food at home prices rising this much, is as surefire marker of coming recession as yield curve inversion is. And yield differentials are flattening around the world – quite a few central banks are more ahead in the tightening path than the Fed. Economy slowing down, stock market correction far from over (yes, in spite of the coming rebound, I‘m looking for lower lows still), and precious metals upleg underway – yes, underway, and especially our gold profits can keep rising - as I wrote on Friday: (…) With gold at $1,900 again and silver approaching $24, copper‘s fate is also brightening – the miners‘ continued outperformance is a very good sign. With crude oil taking a breather, the inflationary pressures aren‘t at least increasing, but don‘t look for the Bullard or other statements to defeat inflation – I‘m standing by the 4-5% official rate CPI data for 2022 (discussed in yesterday‘s summary). CPI might turn out even a full percentage point higher – depends upon the hedonics and substitution massaging. What a long quote – let‘s update it with the premarket action. S&P 500 is still waiting with its potential upsing, dollar has gone nowhere really, and precious metals look like having a bright day today. The crude oil upswing shows that markets don‘t like the geopolitical news, and are likely to behave in a risk-off way of late (Treasuries, gold and oil up benefiting most). The internals of today‘s stock market action would be telling – I recently got an interesting question touching also upon rates and real estate: Q: I read your most recent newsletter with great interest: 1. You think the Fed would start to ease this fall? In your opinion, how long would that last?  Midterm would be done soon there after so would it be a quick few months then revert back to higher rates? 2. I’m asking question #1 as it would impact real estate. 3. You anticipate a “temporary” rise in the S&P this week? Are you thinking just a few days? I noticed 10 yr is going down. A: Thank you for asking. I'll take 1 & 2 in one go - I think they would change course latest autumn. So, now hawkish and raising, then turning to easing before midterms. Let's see first the damage this tightening does, and the degree to which they then turn dovish. As regards real estate, it's slowing down, homebuilders, XLRE... Headwinds would be stiffening, rates are eating into mortgages, but those ZIP codes where immigration into is high, would do best - but the overall, total real estate isn't an appealing proposition. When markets open, there is likely to be a little SPX rally off oversold readings. Sure, they can get more oversold - that's the way it goes during bearish episodes, which is why I'm not long. The trend for now is to the downside, so I would keep predominantly looking and taking opportunities to short. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 caught a little buying interest going into the long weekend – better days though look to be coming. Not a monstrous rally, but still an upswing. Credit Markets HYG is indeed basing, and will help stocks move higher next. LQD and TLT are already rising, and there is still somewhat more to come. Bonds have simply deteriorated too fast in 2022, and need a breather. Gold, Silver and Miners Precious metals fireworks continue – we‘re getting started, and $1,920 is the next stop. Kiss of life from the bond market reprieve comes next, on top of all the other factors I‘ve talked about recently. Crude Oil Crude oil is fairly well bid, but the war jitters are helping it out (as in staving off a bit deeper correction). As both oil and base metals are rising, inflation isn‘t likely to slow down (perhaps later in summer?) - black gold‘s uptrend isn‘t over really. Copper Copper keeps going sideways in a volatile fashion, and can be counted on to break higher – inflationary pressures aren‘t abating, and outweigh the slowing economy. Bitcoin and Ethereum Cryptos stopped breaking down today, and the price action smacks of joining in the modest risk-on upswing, as unbelievable as it sounds. Summary Yesterday‘s summary is valid also today – S&P 500 appears on the verge of trying to swing higher, and credit markets would be leading the charge as tech finally turns. Value had trouble declining some more on Friday already. Stock market upswing though wouldn‘t throw the precious metals bulls off balance – not too many weeks have passed since I was at the turn of the year predicting that gold (and silver with miners implied) would be the bullish surprise of 2022 – and for all the talk and preemtive tightening in the credit markets, we haven‘t yet seen the Fed move. Anyway, such a lag in moving the Fed funds rate higher, is normal these decades – we are a long way from the early 1980s when the delay between say 2-year Treasury and Fed funds rate move was some 2 months. Crude oil is likewise going to keep rising, and the same goes naturally for copper following in the footsteps. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Crude Oil Climbs High. Is It Enough to Enjoy a Better View?

Crude Oil Climbs High. Is It Enough to Enjoy a Better View?

Sebastian Bischeri Sebastian Bischeri 07.03.2022 16:45
  The threat of sanctions caused a stir in the markets: WTI spiked above $130 and Brent is nearing the $140 mark. Where is crude oil going next? A possible Western embargo on Russian oil caused oil prices to soar again on Monday, as stock markets feared persistent inflation and a consequent economic slowdown. On the US dollar side, the continued rally of the greenback has propelled the dollar index (DXY) towards higher levels, as it is now approaching the three-figure mark ($100), even though it has not had a huge impact on crude oil, other petroleum products, or any other commodities in general. What we rather witness here is the greenback’s safe haven effect attracting investors, much like gold would tend to act in a “store of value” role. US Dollar Index (DXY) CFD (daily chart) On the geopolitical scene, Russia-Ukraine peace talks will be resumed today in Brest (Belarus) at 14:00 GMT, while another meeting is already scheduled at the Antalya Diplomacy Forum on Thursday in Turkey. Russian Foreign Minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba will talk there in the presence of the Turkish foreign minister. We might therefore expect some de-escalation in the Black Sea basin this week if the two parties involved were able to reach an agreement after further negotiations. WTI Crude Oil (CLJ22) Futures (April contract, daily chart) Brent Crude Oil (BRNK22) Futures (May contract, daily chart) RBOB Gasoline (RBJ22) Futures (April contract, daily chart) Henry Hub Natural Gas (NGJ22) Futures (April contract, daily chart) Regarding natural gas, the U.S. Energy Information Administration (EIA) published its Annual Energy Outlook (AEO) 2022 report, suggesting that even with non-hydro renewable sources set to rapidly grow through 2050, oil and gas-derived sources should still remain the top energy sources to fuel most of the United States. The agency is forecasting a rise in the production of Liquefied Natural Gas (LNG) – which mainly comes from shale gas – by at least 35%! In summary, the threat of sanctions has already wiped out almost all Russian oil – at least 7% of global supply – from the world oil market. In the weeks or months to come, we can see sanctions on Russian oil exports create a boomerang effect on European economies, decreasing world market supply, increasing prices for industry, as well as even more rising expenses, and thus cost of living through a ripple effect. Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Stocks rebound slightly as hopes of a Russia-Ukraine deal increase

Stocks rebound slightly as hopes of a Russia-Ukraine deal increase

Walid Koudmani Walid Koudmani 09.03.2022 11:54
European stock markets started the day trading higher following a mixed Asian session which saw Nikkei drop 0.3% while S&P/ASX 200 gained 1% and as indices from China plunged and finished 1.7-5.0% lower. Meanwhile, the United States announced a total ban on Russian oil, natural gas and coal with the United Kingdom announcing that it will phase out Russian oil in the coming months. In response, Putin signed a decree banning exports of certain commodities from Russia and investors await the announcement within days to determine the potential impact on markets. Furthemore, a growing number of companies have announced their withdrawal from or suspension of services in Russia with McDonald's, Starbucks and Coca-Cola being the latest to make such announcements and isolating the country economically even more. While this rebound may encourage investors and increase confidence in the market, it is essential to keep in mind that any major news related to the ongoing conflict could have wide repercussions and may shake the extremely fragile market sentiment. Crypto markets rebound as sentiment improves ahead of Biden executive orderCryptocurrencies appeared to show signs of strength in the Asian session which have continued at the start of the European trading session with Bitcoin gaining over 8% and trading around $42,000, the highest level in a week. The crypto market cap is up over 6% today and has returned to around $1.85 Trillion after several days of uncertainty which followed the surge in demand seen at the beginning of the Russia-Ukraine conflict that was sparked by significant interest from people of that region as they attempted to seek refuge from the collapsing economy and currency. As has been the case in the past, Bitcoin and Ethereum appear to be dragging the rest of the market with the majority of alt-coins also adding to their gains despite generally lagging slightly behind the majors. Furthermore, US president Biden is expected to make an announcement today regarding an executive order on cryptocurrencies that may pave the way for a broader adoption of digital assets and boost investor confidence in the relatively new asset class. While details of this announcement remain unclear, any sign of regulation or mainstream adoption could prove to be a catalyst for a major move across the crypto markets thanks to the influx of new money of both retail and institutional investors.
ECB Analysis: EUR/USD selling opportunity? Taper helps with inflation, full war shock still to come

ECB Analysis: EUR/USD selling opportunity? Taper helps with inflation, full war shock still to come

FXStreet News FXStreet News 10.03.2022 16:14
The ECB has announced a quick phasing out of bond buys, boosting the euro.Shoring up the currency helps the eurozone in the short term.The full impact of Russia's Ukraine invasion is still to come.ECB may refrain from rate hikes in 2022, bringing the euro down.Influenced by inflation, (almost) ignoring the war – the European Central Bank has announced a fast pace of tapering its bond-buying scheme as prices rise and despite the adverse effects of Russia's invasion of Ukraine. EUR/USD has jumped, but it may be premature. The ECB plans to buy some €40 billion worth of bonds in April, falling to €30 billion in May and €20 billion in June. That opens the door to raising interest rates already in the summer rather than in the autumn. While that would not be considered surprising after the previous decision, it seems hawkish given the war. After two weeks of fighting, the Frankfurt-based institution seems to focus on the surge in commodity prices coming from Russian President Vladimir Putin's "special operation." Russia is the world's third-largest oil producer and some 40% of European natural gas is sent on orders from Moscow. Ukraine and Russia are responsible for a substantial portion of global wheat exports, and port blockades are already felt in supermarkets.However, Russia's atrocities in a European country are pushing prices higher and destroying demand. A war on the doorstep of the eurozone is hitting confidence and also leaving consumers with less money to spend. Even if headline inflation rises, underlying prices may fall.ECB President Christine Lagarde promised decisions based on new forecasts presented in March, but these new projections may remain slient while the cannons are heard. The taper announcement serves to push the euro higher and somewhat squeeze the prices hikes coming from imports. However, that is nothing in comparison to the economic damage done by the war and the sanctions, and that may eventually haunt the common currency. It may come sooner than later, providing a selling-opportunity on EUR/USD now.
Natural Gas Hits Its Final Target. The Luck of St. Patrick’s Day?

Natural Gas Hits Its Final Target. The Luck of St. Patrick’s Day?

Sebastian Bischeri Sebastian Bischeri 18.03.2022 17:14
  St. Patrick’s Day is historically considered among the best trading days. Apparently, judging by the results, it may have brought some luck to natural gas. If you are interested in looking at the stats, an article by Market Watch summed them up. The second target hit – BOOM! Yesterday, on St. Patrick's Day, the opportunity to bank the extra profits from my recent Nat-Gas trade projections (provided on March 2) finally arrived. That trade plan has provided traders with multiple bounces to trade the NYMEX Natural Gas Futures (April contract) in various ways, always depending on each one’s personal risk profile. To get some more explanatory details on understanding the different trading ways this fly map (trading plan) could offer, I invite you to read my previous article (from March 11). To quickly sum it up, the various trade opportunities that could be played were as follows (with the following captures taken on March 11): The first possibility is swing trading, with the trailing stop method explained in my famous risk management article. Henry Hub Natural Gas (NGJ22) Futures (April contract, hourly chart) The second option consisted of scalping the rebounds with fixed targets (active or experienced traders). I named this method “riding the tails” (or the shadows). Henry Hub Natural Gas (NGJ22) Futures (April contract, 4H chart) The third way is position trading – a more passive trading style (and usually more rewarding). Henry Hub Natural Gas (NGJ22) Futures (April contract, daily chart) The chart below shows a good overall view of NYMEX Natural Gas hitting our final target, $4.860: Henry Hub Natural Gas (NGJ22) Futures (April contract, daily chart) Henry Hub Natural Gas (NGJ22) Futures (April contract, 4H chart) As you can see, the market has provided us with multiple entries into the same support zone (highlighted by the yellow band) – even after hitting the first target, you may have noticed that I maintained the entry conditions in place – after the suggestion to drag the stop up just below the new swing low ($4.450). The market, still in a bull run, got very close to that point on March 15 by making a new swing low at $4.459 (just about 10 ticks above it). Before that, it firmly rebounded once more (allowing a new/additional entry) and then extended its gains further away while consecutively hitting target 1 ($4.745) again. After that, it finally hit target 2 ($4.860)! That’s all folks for today. It is time to succesfully close this trade. Have a great weekend! Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
FX: British Pound (GBP) Keeps Struggling, Can EUR/GBP Go On With Recovery? Gold Price: What About XAGUSD?

Natural Gas Price Rises As Triggered By Putin’s Rhetoric That He Will ‘Demand Rouble Gas Payments’

Mikołaj Marcinowski Mikołaj Marcinowski 24.03.2022 12:47
According to Investing.com Russia could require gas payment in roubles what clearly affects both Forex pairs (e.g. EUR/RUB) and natural gas price (TTF) which has increased by 31%. What’s more MOEX is back to the game after such a long break. Some companies have gained significantly already and many would like to know what’s ahead. Generally speaking Russian currency and Russia-associated markets are really volatile at the moment and there are many assets to watch in the following days. Let’s begin with natural gas price. Obviously monthly chart (yes, it’s been one month since the warfare started) shows the fluctuations caused by the start of invasion which took place on February 24th We may say that the true rise came few days later, as negotiations of cease-fire haven’t changed a thing and sanctions have begun to impact the markets. Further developments containing some signals of a ceasefire appeared not to coincide with the reality heading price of natural gas to a next rise. Natural Gas Price Chat (TTF) – monthly 24/02-23/03 - +31% Natural Gas Price Chart (TTF) Daily 22-23/03/22 +18.5% Russian Roubel (RUB) – Forex Charts +11% Monthly chart shows a huge decline and strengthening of RUB. EUR/RUB Chart - Monthly +6% EUR/RUB Chart - Daily (24h) Source/Data: Investing.com, TradingView.com Charts: Courtesy of TradingView.com  
Russian oil and gas divestment forms a steady upward price trend

Russian oil and gas divestment forms a steady upward price trend

Alex Kuptsikevich Alex Kuptsikevich 25.03.2022 10:43
Oil and gas remain hot topics in the markets. Although these energy prices have corrected from their recent highs, the uptrend promised to be with us as long as there are no signs of de-escalation in Ukraine. Moreover, high energy prices are turning into a new reality that could stay with us for years to come.While most news headlines focus on spot gas price developments in Europe, an upward trend has also emerged in the US. This trend has intensified over the past ten days amid discussions about cutting gas supplies from Russia.Biden urged Europe to increase its US liquefied natural gas purchases, even though supplies were already double the previous year's level. Putin's demand to be paid for Russian gas in roubles makes these purchases as uncomfortable as possible. Such a move would accelerate Europe's rejection of Russian energy, proving to voters in the region that they cannot rely on Russian power.The demand for alternative gas from the US and the Middle East is growing. And this demand promises to be a long-term trend. Even in the event of a military de-escalation in the coming weeks, attitudes towards Russia in Europe and the US will be tainted for years, and European countries will continue their economically unprofitable reliance on gas from Russia.The US has all but tapped its spare capacity to produce and supply gas to Europe. It will take time to expand, so competition among buyers is now gaining momentum.Much of the same applies to Russian oil, which is exported at 4 million BPD and, with political will, could be fully substituted in less than a year. OPEC is not showing the necessary will and is in no hurry to take Russia's share of the global oil trade.While oil and gas consumers in Europe and some Asian countries are cutting back as much as possible on purchases from Russia, energy prices on global markets continue to rise. At the same time, the discount for spot prices for Russian oil and gas remains exceptionally high.Reducing Russia's 30% share of Europe's gas supply is painful and long-term. Finding a new balance could take several quarters or even years, during which energy prices will remain above long-term average levels or occasionally spike.
Who Benefits Most From the Russia-Ukraine War?

Who Benefits Most From the Russia-Ukraine War?

Finance Press Release Finance Press Release 28.03.2022 17:25
With the unrest in the Black Sea basin, it appears that there are two more cross-trade wars in the world. These are about energy and currency.Crude oil prices, down most of Friday, finally ended the week higher after a huge fire broke out at oil facilities in Jeddah, Saudi Arabia, following attacks by Yemeni rebels.The great winner of the Russian-Ukrainian conflict is undoubtedly the United States, which now seems to be taking advantage of Europe’s moment of weakness.The latter is indeed currently switching its energy supplies from Russian natural gas (pipeline-transported) to the much more polluting and much more expensive US shale gas. The reasons are much higher extraction (fracking) and transportation costs since it requires additional processes such as liquefaction/degasification and the deployment of more port terminals that are able to provide such steps – also much more energy-consuming – linked to Liquefied Natural Gas (LNG) supplies.(Source: ResearchGate.net)By doing so, the European Union is going to increase its dependence on the US whilst a new and stronger block (including Asia) emerges on the east side.As a result, we have already started to witness dedollarisation in international trade, with the petroyuan set to dethrone the heavily-printed petrodollar.No wonder that the US dollar supply surge has ended up triggering uncontrollable and probably still underestimated inflation. As a result, this monetary virus is spreading through the global economy at a faster pace than any other variant! WTI Crude Oil (CLK22) Futures (May contract, daily chart) Henry Hub Natural Gas (NGK22) Futures (May contract, daily chart)“Inflation is like toothpaste. Once it's out, you can hardly get it back in again. So, the best thing is not to squeeze too hard on the tube.” – Dr Karl Otto PöhlThat’s all folks for today. Happy trading!Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Sebastien BischeriOil & Gas Trading Strategist* * * * *The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Natural Gas News - What Is The Market's Reaction To The Ongoing Russia-Ukraine Conflict?

Natural Gas News - What Is The Market's Reaction To The Ongoing Russia-Ukraine Conflict?

Alex Kuptsikevich Alex Kuptsikevich 01.04.2022 14:46
The energy sector has retreated markedly from its highs in the first days of March but remains a hot topic for markets. Europe’s gas market survived several bouts of fear that it would be without Russian gas. However, we only saw a fourfold increase in value in the first half of the month, followed by stabilisation at high, but not extreme, levels. At the beginning of the last week of March, the price was supported by a fall to EUR 1000 per thousand cubic metres compared to a peak of EUR 3400. This price dynamic clearly showed that the markets did not price for a gas disaster. The current gas payment scheme looks like a nice political compromise. Europe is paying for gas in euros and dollars (as negotiated), and Russia is getting roubles for gas (as it wanted). The net economic effect of such rearrangements is close to zero. Also, these measures are not binding for LNG exports and settlements with Japan. Besides, there is a caveat that a special commission may allow receiving currency in payment for gas. An additional calculation here is that new contracts will always include clauses about alternative payment methods, but they have little effect on the price. Nevertheless, the general upward trend in gas and oil prices is still in place. Spot gas prices in Europe are now six times higher than a year ago and two years ago in March. This does not mean a six-fold increase in prices for final consumers, as most supplies are under long-term contracts. Therefore, what we see in the Dutch TTF prices is nothing more than a struggle between speculators and small buyers in a relatively illiquid market. The NYMEX pricing is much more liquid and representative. Besides, it is pretty far from the conflict. Prices here are up 30% in one month and 130% year to date. Gas was up to $5.6 MMBtu yesterday but 14% below October’s highs near $6.5, making it hard to see market hysteria. Instead, it is just a relatively measured trend. The development of this trend has the potential to return the US gas price to October highs by the end of April due to Europe’s increased interest in non-Russian gas. At the same time, signs that Europe and Russia have managed to formalise some gas purchase terms for themselves are likely to return Dutch’s spot prices to levels near or below EUR 1000.
Back to black: the countries best positioned to replace Russian gas with coal

Price Of Crude Oil (WTI) And Natural Gas (NGAS) Boosting US Dollar (USD) Which Jumps High

Alex Kuptsikevich Alex Kuptsikevich 15.04.2022 09:57
Energy prices continue to fly into the stratosphere, adding 30% since the start of April, strengthening at twice the rate of March. The last time US gas was this expensive was in October 2008. Energy, oil, and gas have a very high price elasticity Demand for American gas has surged as Europe tries to cut back on purchases from Russia as much as possible. But this also puts the current commodity sharply in short supply. Energy, oil, and gas have a very high price elasticity, meaning that a supply or demand shift of just a couple of per cent leads to a much higher price change. Thus, the US provokes soaring prices on domestic markets by providing Europe with gas. Oil also receives a strong upward marches, not only as of the closest substitute but also as another Russian export that the world is in a hurry to abandon. Oil prices managed to stay in an uptrend WTI was back above $105, and Brent closed Thursday above $110, returning to levels of two weeks ago. Oil prices managed to stay in an uptrend, albeit this time as a slider amid accelerating gas prices. The performance of oil and gas prices is supported by US export figures, which is favourable for the Dollar. Notably, in contrast to the historical correlation, energy is rising with the Dollar, although more often than not, a rising dollar pressures energy. As one of the leading energy exporters, having strengthened its position, the states will economically have the most negligible impact on the economy compared with most developed countries that are net importers of oil and gas. Fed can raise interest rates more quickly Higher energy costs may not prevent the Dollar from moving somewhat up further but may strengthen it by giving the Fed carte blanche to tighten policy more forcefully. The Fed can raise interest rates more quickly, but it can also push them to higher levels without the risk of seriously hurting the economy.
Skyrocketing Natural Gas Price (NATGAS)! Will (USOIL) Crude Oil Price Do The Same!? What An Increase!

Skyrocketing Natural Gas Price (NATGAS)! Will (USOIL) Crude Oil Price Do The Same!? What An Increase!

Alex Kuptsikevich Alex Kuptsikevich 18.04.2022 15:37
Gas prices on the NYMEX are adding for the 11th trading session of the last 12, renewing their highs since October 2008. US gas exchange prices have risen by a third since the beginning of the month and more than doubled since the beginning of the year in response to a surge in demand in Europe and rising oil prices. Companies in Europe and Asia are set to cut their purchases of Russian energy as fast as possible, pushing prices up. While the fundamentals are tilting toward later growth, technical analysis increasingly points to overbought conditions, so the likelihood of an imminent correction. In the monthly candlestick chart, the RSI is entering overbought territory (>70), which it has done only six times in the past 20 years. In all cases, prices declined sharply in the following month, or we even saw a fundamental long-term reversal. Thus, it is likely that we could see a bear attack by the end of this month. On the daily charts, the RSI has risen to 88. The last time it was higher was in 2018 briefly, which was also near price peaks. The price frenzy was also fuelled by news of falling oil and gas stocks. However, seasonality is strong in gas, and inventories reach their lowest just in the first days of April. We saw a rise last week, marking the first signs of a trend reversal. However, in the longer term, the current gas price situation lays the foundations for a new gas renaissance in the USA, and it should lead to a recovery in production rather than a price hike.
(UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun

(UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun

Rebecca Duthie Rebecca Duthie 19.04.2022 08:42
Summary: Brent Crude Oil prices are on the rise again hitting their highest prices since late March. Natural Gas Prices hitting almost 14 year high. Cotton prices increasing with crop planting is ahead of schedule. Brent Crude Oil spikes as Libya shuts its biggest oil field The market sentiment for Brent Crude Oil is bullish, reflecting the tight market supply. In an already under-supplied market, the price of Brent Crude Oil rose in reaction to Libya shutting their biggest oil field. The shutdown came in response to protests against the country's prime minister. In addition, increased tensions between Russia and The Ukraine raised concerns of the EU tightening sanctions. The price of Brent Crude Oil is expected to keep rising amidst the concerns of supply shortages world wide.   Read next: (UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun   Brent Crude Oil Price Chart Natural Gas Hits Highest Price since 2008 The NGAS commodity price reached its highest since late 2008, the high prices come in reaction to abnormal weather temperatures along with the supply shortages. In addition, the NGAS inventory is currently sitting at almost 24% lower than this time last year. The mix between increasing demand and tight supply, is contributing to the rising price of the commodity. The Russia-Ukraine conflict still remains one of the main drivers for the increase in NGAS prices.   For you: Forex Rates: British Pound (GBP) Strengthening? Weak (EUR) Euro? GBP, NZD And AUD Supported By Monetary Policy?   Chart Showing the Price of NGAS Cotton July ‘22 Futures Rise as Crop is Planted The price of cotton futures bounced back in yesterday's trading market and in the past week as a result of the cotton crop being planted, the pace of planting is ahead of last year's pace and seems to be sparking investor confidence. The price of cotton is still dependent on some macroeconomic issues such as; post the COVID-19 world, whether the Russia-Ukraine war will be contained and the U.S.-China trade relations. In addition, factors such as weather will also play a part in the futures price of cotton. Cotton Futures Price Chart Sources: Finance.yahoo.com, Marketwatch.com, Tradingeconomics.com, investingnews.com Charts: Finance.yahoo.com
Chart of the Week - Gold Miners vs Energy Producers - 20.04.2022

Chart of the Week - Gold Miners vs Energy Producers

Callum Thomas Callum Thomas 20.04.2022 22:05
Gold Miners Left Behind: This curious chart shows the total assets under management in US equity sector ETFs focused on energy (i.e. traditional energy: oil/gas/coal) and gold miners. AUM in energy ETFs has gone up more than 5x since the low point: part of this is clearly price-driven as surging energy prices have triggered better stock price performance and improved financial results. But clearly investors have also had a change of heart on the sector after shunning it for some time (particularly with the rise of ESG investing). To be fair, precious metal prices have been a big fat range trade for most of the past 2 years The standout though in this chart is the one that isn’t standing out: gold mining ETF AUM has by contrast been very sleepy. To be fair, precious metal prices have been a big fat range trade for most of the past 2 years, and at the end of the day when it comes to these commodity equity sectors, commodity prices matter.With gold itself on the cusp of a breakout, this chart begins to look very interesting, and we could easily see a stampede into gold miners if gold itself can manage to break through to new highs. Indeed, with the bull market in equities seemingly in its final throes this could end up appealing to the hoard of retail speculators still searching for their golden ticket…         Key point: Gold miners have been left behind. NOTE: this post first appeared on our NEW Substack: https://topdowncharts.substack.com/Best regards, Callum Thomas Head of Research and Founder of Topdown Charts Follow us on: LinkedIn https://www.linkedin.com/company/topdown-charts Twitter http://www.twitter.com/topdowncharts
The Commodities Feed: Copper supply risks | ING Economics

Natural GAS (NGAS) and RBOB Gasoline’s (RB) May Futures Expected To Increase Further In 2022. Copper (HG) Prices Also Forecasted To Increase.

Rebecca Duthie Rebecca Duthie 28.04.2022 09:13
Summary: Natural Gas and RBOB gasoline prices are expected to increase even more throughout 2022. Increasing energy prices raise concerns around the future of clean-energy. Increasing costs of metals are driving the price of renewable energy up. Natural Gas Futures prices are expected to increase further this year. Over the past week the price of Natural Gas has dipped and then recovered. Since the market opened this morning the price of this commodity has fallen by almost 2.6%. On Wednesday the World Bank released a statement indicating that they expected energy prices to increase by a further 50% throughout 2022 before easing in 2023 and 2024. The prices of most commodities are dependent on what happens with the Russia-Ukraine conflict, which has already shocked the commodity market by altering trading patterns, production and consumption. NGAS Futures Price Chart RBOB Gasoline prices are expected to increase in 2022. Since the market opened this morning, the price of RBOB Gasoline has fallen by almost 0.7% and has seen varied prices over the past week. Since RBOB Gasoline forms part of energy commodities, the price is expected to increase according to the World Bank's forecast above. The increase in energy prices has raised concerns that the transition to clean-energy will be delayed, as many countries have announced plans to increase their production of fossil fuels. RBOB Gasoline Futures Price Chart Copper Futures prices are expected to increase in 2022. According to the article of commodity markets outlook released by the World Bank, the price of metals are expected to increase almost 20% in 2022. Should the war between Russia and the Ukraine persist, price forecasts could change even more. The price of Copper will also be affected by the changing trade patterns being more expensive, in addition the higher metal prices are pushing up the cost of renewable energy in general. However, since the market opened this morning the price of copper has fallen by 0.83%, this has been the general price trend of the commodity over the past week, perhaps a result of investor sentiment and uncertainties around China's lockdowns. Copper Futures Price Chart Sources: worldbank.org, finance.yahoo.com
The Commodities Feed: Another week passes with no EU ban | ING Economics

Cotton Prices Reach Highest Prices In Almost 11 Years, Copper Prices Facing Negative Outlook and EU Announces 6 Month Plan To Phase Out Russian Crude Oil Imports.

Rebecca Duthie Rebecca Duthie 04.05.2022 12:40
Summary: The factors affecting the cotton price. The price of copper has been affected largely by the current market environment. EU to cut off Russian energy demand. Read next:Brent Crude Oil Price Continues To Dive, Silver Struggling To Hold Its Price Position & Corn Prices Soaring.  The Cotton supply is under pressure, driving prices upwards Over the past week, cotton prices have seen a surge in prices. The futures for this commodity reached their highest prices since 2011. The price surge is related mainly to adverse weather conditions, droughts in the U.S. being a major factor. The lockdown in China has not decreased demand from the U.S. to China. The demand for cotton has also been impacted by rising energy prices as the price of materials derived from oil has risen. Jul ‘22 Cotton Futures Price Chart Copper prices continue to fall amidst market conditions Copper has lost major ground on the commodity market in the past week, this comes as a result of the extended lockdowns in China, the interest rate hike announcements and a continually strengthening US Dollar. On Monday Copper closed at close to neutral for the first time since May 2020. The continuing adverse market conditions will continue to cause Copper prices to struggle. Jul ‘22 Copper Futures Price Chart Natural Gas Prices Soar The price of Natural Gas has rallied over the past week. On Wednesday the EU announced their plans to phase out importing Russian Crude Oil and other energy imports within 6 months. The Natural Gas Prices are soaring amidst fears that it will be difficult to replace the Russian supply effectively. Jun ‘22 Natural Gas Price Chart Read next: Gold (XAUUSD) Prices Fall As U.S Yields Rise, Wheat Prices Facing Pressure, Palladium Prices In Recovery! - Commodities Today.  Sources: finance.yahoo.com
Energy price caps could be a game changer for European utilities | Part II | ING Economics

Gas Price Has Increased As The Transportation Had Been Limited Because Of The Ukrainian War, NYMEX WTI Went Below $100 Yesterday, But The End Fuel Crisis And Supply Chain Issues May Be Far From Now | ING Economics

ING Economics ING Economics 11.05.2022 15:01
Your daily roundup of commodities news and ING views Gas storage tank Energy Oil sold off with risk assets on Monday, but it failed to follow equities higher yesterday. Instead, downward pressure on the market continued, which saw NYMEX WTI settle below US$100/bbl. Growth concerns continue to weigh on commodities, and a stronger USD only adds further downward pressure to the complex. This weakness has continued in early trading this morning after the API reported that US crude oil inventories increased by 1.62MMbbls - the market was expecting a small draw. In addition, API numbers also showed an increase in refined product inventories. Gasoline and distillate fuel oil inventories increased by 823Mbbls and 662Mbbls respectively. If today’s EIA report shows similar numbers, it would be the first weekly increase for US gasoline inventories since late March and the first for distillates since early April. However, the middle distillate market is still very tight and so we would expect US heating oil cracks to remain well supported. In fact, middle distillate cracks around the world should remain well supported, given the tightness in the market and concerns over Russian gasoil exports. The EIA released its latest Short Term Energy Outlook yesterday. The report cut expectations for US oil production growth for 2022 from around 833Mbbls/d to 731Mbbls/d, which implies US oil output averaging 11.91MMbbls/d this year. However, for 2023, supply is expected to grow by 940Mbbls/d (largely unchanged from last month), which would see US output hitting a record 12.85MMbbls/d. Obviously, the biggest concern for the global oil market is around supply in the short to medium term, given the uncertainty over Russian supply. And the downward revisions to 2022 output estimates will do little to ease these concerns. European natural gas prices showed some strength yesterday. TTF rallied by more than 5%, settling close to EUR99/MWh. This strength came after Ukraine’s gas grid operator (GTSOU) declared force majeure on the transit of Russian gas through Sokhranivka, which accounts for about a third of Russian gas transited via Ukraine. GTSOU has said that it is not possible to continue operations through Sokhranivka due to Russia's military aggression in the region. GTSOU said that gas can be rerouted through Sudzha (another entry point), Gazprom has reportedly said that this is not technically possible. Dutch gas network operator, Gasunie has said that it has contracted a second FSRU (floating storage and regasification unit) for the next 5 years, which would allow it to regas LNG imports at Eemshaven in the north of Groningen. The FSRU is expected to arrive in the third quarter of this year, and along with another FSRU already contracted, would provide a total of 8bcm of regasification capacity at Eemshaven. This regasification capacity would exceed the roughly 6bcm of natural gas that the Netherlands imports from Russia every year. The big question though is if there is enough LNG supply to fully use this capacity, particularly with Germany also securing 4 FSRUs, with an annual capacity of as much as 29bcm. Some of this capacity in Germany is also expected to come into operation ahead of the next winter.   Metals Base metals continued to decline in London amid fragile market sentiment. Copper initially rallied but was unable to hold onto these gains at the close. Shanghai is going into the hardest phase of lockdowns, weighing heavily on sentiment as local authorities vow to bring the Covid wave under control at the community level by the end of this week. Meanwhile, the China Car Passenger Association (CAPM) confirmed that retail passenger vehicle sales plunged by 36% in April, its biggest monthly decline since March 2020. LME aluminium prices continue to fall and have largely ignored a steep decline in on-warrant stocks and a large number of cancelled warrants from Asia, signalling further declines. As of Tuesday, on-warrant stocks have fallen to a record low of 294kt, whilst total closing stocks dropped to 560kt - the lowest since 2005. Antaike has reported that China’s aluminium demand fell 5.5% YoY to 3.3mt last month (the biggest decline since March 2020), primarily impacted by the closure of auto producers due to Covid-related lockdowns. In contrast, the impact on Chinese supply has been rather limited so far, with operating capacity rising to 40.31mt by the end of April. As we also pointed out yesterday, Antaike also believes that the recent Covid outbreak has had a larger impact on demand than the early 2020 lockdowns. Agriculture Data from Brazil’s sugar industry group, UNICA show that sugar production in Center-South Brazil increased to 934kt over the 2nd half of April 2022 compared to only around 127kt over the first half of April as more mills started operations; although it is still significantly lower than the 1.52mt of sugar produced over the same period last season. Sugar cane crushing was down around 20% YoY to 23.8mt over the period with the sugar mix falling to 37.2% compared to 44.5% a year ago. Cumulative sugar production so far this season in CS-Brazil is down around 51% YoY to 1.1mt, reflecting a slow start to the crushing season. High energy prices continue to be supportive for ethanol production with mills allocating more cane towards biofuel supply. TagsSugar Russia-Ukraine Natural gas EIA Covid-19 China   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
COT Week 22 Charts: Energy Speculator Positions Mixed led by Heating Oil, Gasoline

COT Week 22 Charts: Energy Speculator Positions Mixed led by Heating Oil, Gasoline

Invest Macro Invest Macro 04.06.2022 21:33
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday May 31st and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. Energy market speculator bets were mixed this week as three out of the six energy markets we cover had higher positioning this week while three markets also had lower contracts. Leading the gains for energy were Heating Oil (6,319 contracts), Gasoline (1,265 contracts) and Natural Gas (1,202 contracts). Meanwhile, leading the declines in speculator bets this week were WTI Crude Oil (-1,785 contracts) and Brent Crude Oil (-1,583 contracts) with Bloomberg Commodity Index (-1,048 contracts) also registering lower bets on the week. Strength scores (3-Year range of Speculator positions, from 0 to 100 where above 80 is extreme bullish and below 20 is extreme bearish) show that the Bloomberg Commodity Index is above its midpoint for the past 3 years while all the other markets are below the 50 percent level. Strength score trends (or move index, that show 6-week changes in strength scores) shows that heating oil, natural gas and WTI crude have had rising scores over the past six weeks. Data Snapshot of Commodity Market Traders | Columns Legend May-31-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index WTI Crude 1,787,928 9 332,976 10 -373,761 91 40,785 72 Gold 513,722 18 172,589 5 -200,056 95 27,467 32 Silver 147,301 14 13,997 15 -23,861 99 9,864 6 Copper 189,923 19 -18,025 29 15,425 70 2,600 40 Palladium 6,538 1 -3,133 4 3,221 95 -88 39 Platinum 67,964 35 2,363 7 -6,501 96 4,138 20 Natural Gas 1,115,815 7 -110,368 45 59,679 50 50,689 100 Brent 181,699 25 -40,872 43 38,941 58 1,931 35 Heating Oil 248,966 15 121 43 -17,967 52 17,846 60 Soybeans 753,373 34 186,078 71 -158,757 34 -27,321 25 Corn 1,564,217 32 404,200 82 -353,348 22 -50,852 14 Coffee 214,170 8 43,015 76 -45,757 28 2,742 17 Sugar 848,463 11 201,680 78 -240,752 23 39,072 56 Wheat 331,136 11 22,309 48 -18,647 33 -3,662 91   WTI Crude Oil Futures: The WTI Crude Oil Futures large speculator standing this week recorded a net position of 332,976 contracts in the data reported through Tuesday. This was a weekly fall of -1,785 contracts from the previous week which had a total of 334,761 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 9.9 percent. The commercials are Bullish-Extreme with a score of 91.0 percent and the small traders (not shown in chart) are Bullish with a score of 72.5 percent. WTI Crude Oil Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 23.6 34.8 5.0 – Percent of Open Interest Shorts: 5.0 55.7 2.7 – Net Position: 332,976 -373,761 40,785 – Gross Longs: 421,683 622,867 89,200 – Gross Shorts: 88,707 996,628 48,415 – Long to Short Ratio: 4.8 to 1 0.6 to 1 1.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 9.9 91.0 72.5 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 8.9 -8.7 -3.9   Brent Crude Oil Futures: The Brent Crude Oil Futures large speculator standing this week recorded a net position of -40,872 contracts in the data reported through Tuesday. This was a weekly lowering of -1,583 contracts from the previous week which had a total of -39,289 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 42.6 percent. The commercials are Bullish with a score of 58.0 percent and the small traders (not shown in chart) are Bearish with a score of 35.3 percent. Brent Crude Oil Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 14.7 54.0 4.2 – Percent of Open Interest Shorts: 37.2 32.6 3.2 – Net Position: -40,872 38,941 1,931 – Gross Longs: 26,712 98,147 7,700 – Gross Shorts: 67,584 59,206 5,769 – Long to Short Ratio: 0.4 to 1 1.7 to 1 1.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 42.6 58.0 35.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -1.3 2.1 -6.9   Natural Gas Futures: The Natural Gas Futures large speculator standing this week recorded a net position of -110,368 contracts in the data reported through Tuesday. This was a weekly gain of 1,202 contracts from the previous week which had a total of -111,570 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 45.5 percent. The commercials are Bearish with a score of 49.6 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 100.0 percent. Natural Gas Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 20.5 37.4 6.8 – Percent of Open Interest Shorts: 30.4 32.0 2.3 – Net Position: -110,368 59,679 50,689 – Gross Longs: 228,487 417,276 75,815 – Gross Shorts: 338,855 357,597 25,126 – Long to Short Ratio: 0.7 to 1 1.2 to 1 3.0 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 45.5 49.6 100.0 – Strength Index Reading (3 Year Range): Bearish Bearish Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 5.9 -7.1 6.6   Gasoline Blendstock Futures: The Gasoline Blendstock Futures large speculator standing this week recorded a net position of 33,690 contracts in the data reported through Tuesday. This was a weekly advance of 1,265 contracts from the previous week which had a total of 32,425 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 4.4 percent. The commercials are Bullish-Extreme with a score of 91.0 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 94.9 percent. Nasdaq Mini Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 24.7 53.9 7.7 – Percent of Open Interest Shorts: 13.8 68.9 3.7 – Net Position: 33,690 -46,032 12,342 – Gross Longs: 76,089 165,784 23,735 – Gross Shorts: 42,399 211,816 11,393 – Long to Short Ratio: 1.8 to 1 0.8 to 1 2.1 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 4.4 91.0 94.9 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -9.0 4.9 26.7   #2 Heating Oil NY-Harbor Futures: The #2 Heating Oil NY-Harbor Futures large speculator standing this week recorded a net position of 121 contracts in the data reported through Tuesday. This was a weekly advance of 6,319 contracts from the previous week which had a total of -6,198 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 42.6 percent. The commercials are Bullish with a score of 52.1 percent and the small traders (not shown in chart) are Bullish with a score of 60.2 percent. Heating Oil Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 17.4 49.7 16.7 – Percent of Open Interest Shorts: 17.4 56.9 9.5 – Net Position: 121 -17,967 17,846 – Gross Longs: 43,360 123,782 41,618 – Gross Shorts: 43,239 141,749 23,772 – Long to Short Ratio: 1.0 to 1 0.9 to 1 1.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 42.6 52.1 60.2 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 13.5 -7.4 -7.8   Bloomberg Commodity Index Futures: The Bloomberg Commodity Index Futures large speculator standing this week recorded a net position of -10,561 contracts in the data reported through Tuesday. This was a weekly reduction of -1,048 contracts from the previous week which had a total of -9,513 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 67.1 percent. The commercials are Bearish with a score of 31.9 percent and the small traders (not shown in chart) are Bearish with a score of 38.5 percent. Bloomberg Index Futures Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 63.6 28.5 1.9 – Percent of Open Interest Shorts: 93.7 0.0 0.4 – Net Position: -10,561 10,027 534 – Gross Longs: 22,382 10,027 679 – Gross Shorts: 32,943 0 145 – Long to Short Ratio: 0.7 to 1 inf to 1 4.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 67.1 31.9 38.5 – Strength Index Reading (3 Year Range): Bullish Bearish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -6.8 7.7 -7.6   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
The Commodities Feed: Another week passes with no EU ban | ING Economics

Gold Prices Struggle To Hold Monday’s Gains, Concerns Around NGAS Supplies Are Easing, Cotton - A Recession Sensitive Commodity

Rebecca Duthie Rebecca Duthie 28.06.2022 13:18
Summary: UK, US, Japan and Canada all ban Russian gold imports. NGAS domestic inventories are rising. Favourable weather conditions are causing more hope of solid Cotton yields in top growing regions. Read next: G7 Leaders Discussed A Price Cap On Russian Brent Crude Oil, China Eases Covid-19 Restrictions, Corn Prices Are Trading At 2 Week Lows  Gold prices trading at 2 week lows The price of gold is trading at almost 2 week lows on Tuesday, this comes in the wake of continuous elevated US treasury yields. The metal struggled to hold onto Monday’s gains that came in the wake of the UK, US, Japan and Canada all officially banning the imports of Russian gold, the move has been viewed by the markets as largely symbolic as Russia’s exports to the west have already dried up. Although gold is widely considered as a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion. Gold Aug ‘22 Futures Price Chart NGAS price recovery Natural Gas prices rose again, however they remain under pressure due to rising domestic inventories and milder temperatures which weighed on the demand for cooling. In addition, the most recent EIA report showed that US utilities injected more cubic feet of gas into underground storage than was expected. NGAS Jul ‘22 Futures Price Chart Cotton prices due to be impacted by a recession Cotton futures prices dropped to 9 month lows in the wake of growing recessionary concerns and increased prospects of a lower demand. Cotton is known to be a recession sensitive commodity, thus, cotton prices are set to be impacted by major banks’ rising interest rates in an attempt to fight inflation and the slowdown in both consumption and economic activity. In addition, favourable weather conditions are causing more hope of solid yields in top growing regions. Cotton Oct ‘22 Futures Price Chart Sources: finance.yahoo.com, tradingeconomics.com