Commodity

Commodity (100)

Monday, 06 April 2015 05:41

Is China On Tight Ropewalk?

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Yesterday Manufacturing Index released by China Federation of Logistics and Purchasing (CFLP) has shown fall in New Export Orders, Stocks of Finished Goods, Backlogs of Orders, Imports and Stocks of Major Inputs. Overall the index fell to 51.0 for December from earlier 51.3.The economy has shown growth rate of 7.6% in last year that is the lowest rate in last 14 years. During the period of 2000 to 2009 the growth rate has remained above 10% average.

Slowing economic growth has posed a challenge to the new Chinese president Xi Jinping to manage reforms that he committed at the Communist Party Central Committee Third Plenum in November. It includes loosening the one-child policy, increasing property rights for farmers and encouraging private investment in more industries.

China equity market fell off last year on weak economic performance. Shanghai Composite Index was the worst performer at Asian markets. Chinese investors are liquidity sensitive so tight monetary policy may keep stock prices down. Heightening Government debt and real estate prices are also putting threat on economy. Further, high interest rate has increased funding cost that may hamper the industrial growth. Investment has increased in properties that might gain good amount to Chinese government. It can provide monetary support to strengthen market condition.

If world second largest economy will fall in financial crisis, we may find other commodity driven economies into the same condition.

 

Crude oil prices fell on the expectation of further tapering announcement by Fed in the next meeting. Yesterday the commodity fell by 4.10% from the high of $98.97 to $95.34. In December meet fed cut the asset purchase pace by $10 billion and reduced bond purchase to $75 billion. Signs of strengthening economy may encourage Fed to taper more.

Strong USD against its major peers reduce crude oil price at US market while depreciation in other global currencies make crude oil costly to import. DXY rebounded from 80.0 on 30th December and reached to 80.63 on 2nd January. Expansion in Manufacturing and fall in Jobless claims backed USD after last week positive results of consumer confidence and home sales.

Crude oil crossed $100 on 27th December, after two months, and made the high of $100.75 due to falling inventory at US. Crude oil inventory shrank by 10.6 million barrels on December 6, the second lowest after 2nd January's withdrawals, and fell on continuous basis. Today Energy Information Administration will release inventory data which is expected to show fall of 2.3 million barrels. During the holiday week the production might have lowered inventory more than expected.

If today inventory falls below expectation we may see hike in crude oil prices. The commodity may gain near to 1.5-2% after surprising result.

At MCX crude oil fell by 0.50% and with the low of ‚¹5961. Natural Gas is trading near to ‚¹269.90 up by 0.15%. Brent Crude is up by 0.13% after opening at $107.88. Gasoline is up by 0.14% while Natural Gas is down by 0.60%.

 

Monday, 06 April 2015 05:39

Gold Gains As Low Prices Spur Physical Demand

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Gold rallied after a long fall that dragged prices to the level of $1182.57 on 31st December. Low Gold and Silver prices spurred physical demand in the market. High demand from Asian market pushed prices to the high of $1238 on 3rd January. Investors were encouraged to take long position as the level of $1200 is acting as strong resistance.

In 2013, at the beginning the metal was trading above $1600 but gradually the price fell as chances of stimulus rollback gained on strengthening US economy. Finally by the end of Dec, 13 Gold lost by 27%.

In New Year again U.S. has shown positive indications as economic results are beating analysts expectations. Last week consumer confidence and home sales have shown improvement and yesterday Manufacturing PMI came to 57.0 and Jobless claims fell to 339k. Fed may taper the remaining $75 billion bond purchase if the economy affirm growth by consecutive strong results.

It is for sure that further tapering will put Gold on sideway but the metal may find support from physical buyers at low prices.

At MCX the metal gained by 0.80% and trading near to ‚¹29200 and Silver is up by 0.25%. Gold oz gained 0.70% at $1234.20 while Silver is flat at $20.09. Platinum spot is up by 0.45% at $1409.63 and Palladium is flat at $731.15 at Euro Markets.

 

Gold rally continues as low prices accelerated physical buying. Large bullion funds and investors dumped their holding on tapering that dragged Gold prices to the year low of $1181.40 on December 31st dropped metal prices by 26% last year, highest in last 13 years. But small investors are encouraged to buy haven asset at lower prices. The metal gained by 3.40% during last week and made the high of $1248.46 yesterday.

It is expected that physical buying from china has increased that had almost overtaken India from the largest gold importing country last year. India may lift strict import restriction on Gold that is inspiring smuggling activity. This may support Gold prices in near future. High prices are not expected to sustain in the present market as Fed meeting minutes and payroll data are in queue for this week.

Meeting minutes may show different views of committee members on tapering if they all are in favor of gradual stimulus cut then it may have negative impact on Gold. Payroll data on Friday is also likely to improve as seasonal demand during last month could have generated more employment in the market. Fear of further stimulus cut may bring down the Gold prices again near to the level of $1200.

Low inflation rate, strengthening USD against its major peers and Fed tapering may move precious metal to sideways.

 

Monday, 06 April 2015 05:31

Crude Oil May Gain On Inventory Release

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Crude oil prices dropped last week even after more than expected inventory fall. On 3rd January crude oil inventory fell by 7 million barrels from earlier 2.3m. There was no buying side pressure even after this big fall. It was like market had considered this drop as normal one after four consecutive falls.

The commodity first came down on strengthening USD and expectation of stimulus cut in coming Fed meetings and now the increase in supply rose concern. Libya is expected to resume crude oil production that may keep oil prices low.

Today evening American Petroleum Institute is going to release crude oil inventory data and tomorrow we have Energy Information Administration inventory release. Expansion in US Manufacturing Index and Factory Orders for last month may support high draw of inventory for last week.

At low prices we may see demand side pressure from industrial buyers that may keep WTI prices above $93.At Euro market WTI is trading at $93.92 up by0.51% and British benchmark crude oil Brent is at $107.30 up by0.56%. In Other energy products Natural Gas is up by 0.027% at $4.333 and Gasoline is up by 0.88% at $266.81 at 12:01 GMT.

 

Non Ferrous metals gained on World Bank forecast of strong economic growth in 2014. Global growth is expected to reach at 3.2%, developing countries will grow at the rate of 5.3% and high income countries are expected to grow at 2.2%

Global economic indicators show improvement. But one does not have to be especially astute to see there are dangers that lurk beneath the surface. The Euro Area is out of recession but per capita incomes are still declining in several countries. We expect developing country growth to rise above 5 percent in 2014, with some countries doing considerably better, with Angola at 8 percent, China 7.7 percent, and India at 6.2 percent. But it is important to avoid policy stasis so that the green shoots don't turn into brown stubble, said Kaushik Basu, Senior Vice President and Chief Economist at the World Bank.

Next week we are having China, France and German manufacturing PMIs. Emerging markets are expected to grow by 5.3% from earlier 4.8%. US and euro zone are expected to perform better during this year with the rate of 2.8% and 1.1% respectively. Forecast of better growth rate may accelerate expectation of positive manufacturing indices which may further support metal market.

We may see copper near to ‚¹465 and Nickel near to ‚¹910 during next week. We may see little fall in prices as investors may book profit at present high level. Ore export ban by Indonesia may keep Nickel boom in the market.

Falling inventory and prospective economic functioning indicate high demand and better prices in near future.

 

Monday, 06 April 2015 05:27

Steady Week Ahead For Gold

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Next week we are expecting steady movement in Gold. The metal is expected to trade between the range of $1236 to $1245. This week the precious metal fell near to 0.48% mainly on strengthening US economy.

During this week the US economic indicators have shown positive results. Core Retail Sales, Producer Price Index, Unemployment Claims and Philly Fed manufacturing Index beat the economists expectations.

The dollar index made the month high of 81.03 on 15th Jan against the basket of 10 major currencies on strengthening market condition and expectation of further stimulus cut in next Fed meet. Strong dollar will not only weaken precious metals but also affect other metals adversely. In next week we are expecting DXY to remain between the range of 80.87 to 81.03. Range bound movement in DXY may not volatile the gold prices.

Next week we are having only two major economic events from US those are Unemployment Claims and Existing Home Sales. We are expecting that number of people filing for unemployment claims may settle near to 330K and existing home sales may remain near to 4.92m which may not bring major change in DXY index.

Buyers and Sellers may also hold for the Fed move or any other clues regarding tapering before making big bets. Overall there are only few factors that can back dollar in next week and sideway Gold prices.

 

 

Gold rallied on inconsistent economic growth at US and Festival demand at China. The metal gained by 0.47% and made the month high above $1260 today at Singapore market.

The precious metal dropped to $1181.24 on 31st December highest since 1981 but regained on increase in haven asset demand. Investors are taking bullish bets as US economy has shown mix results for this month. There is less expectation of further stimulus cut in the Central Bank Meet on January 28-29.On the other side China, which has already crossed India in largest import of this metal, has seasonal demand of Gold due to the Spring Festival aka Lunar New Year that will begin from 31st January.

In SPDR, world largest gold backed exchange traded fund, holding rose by 7.49 tonnes to 797.05 tonnes on Friday. Fall in stock indices of US and Asia indicates that investors are exiting from equity market and investing in precious metals. Platinum climbed on chances for strikes in South Africa.

On the other side dollar has remained stable against the basket of 10 major currencies. Dollar index is above 81.0 and may strengthen little if this week Unemployment claims and Existing Home Sales result in positive numbers. Strong dollar is a negative sign for Gold and it may pull prices down in near time.

 

Monday, 06 April 2015 05:20

Natural Gas Down on Mild Weather Outlook

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Natural Gas continues downfall on third trading day after falling from the level near to $4.49 on 16th January. Natural Gas February future contract dropped by 1.20% and trading near to $4.27 at 12:50 GMT.

Due to mild weather condition the demand for heating fuel is decreasing. Energy Information Administration will release Natural Gas inventory on Thursday, 23rd January. For the week ended 11th January the inventory had fell to 257 billion cubic feet. This week due to changing weather condition we may see fall in the withdrawal of inventory.

Next week the temperature is expected to remain above normal. Traders may increase short position during this period. The commodity is expected to find support near to $4.0 if the price fall continues.

In other energy commodities WTI is down by 0.71% and trading near at $93.70, Brent is down by 0.12% and trading at $106.38 while Gasoline is up by 0.12% and trading at $262.63 at 12:50 GMT.

 

Gold eroded earlier gains as investors fear price hike may reduce demand. The metal plunged by $ 13 from the high of $1265.29 and fell by 0.14% today at 0709GMT.

Yesterday Gold prices reached to the level of $1259.96 on physical demand from China and uneven US economic results. But there was steep fall in early morning trading at East Asian markets. High prices do not attract physical buyers and at present market the prices are gaining mainly on physical demand. If prices rise above normal there is less possibility of small investors to buy more of precious metals.

On the other side Fed could cut bond buying pace further in the coming meeting on Jan 28-29. Mr. Ben S Bernanke, Fed Chairman, said in December news conference that Fed may cut stimulus by $10 billion in subsequent meetings if economy keeps strengthening. San Francisco Fed President John Williams said in an interview, Were likely to continue on a path of gradual, measured reductions in the pace of purchases, assuming the economy tracks as we expect it to. This month US economic indicators have not shown strong results that can back further stimulus cut. Mainly Non Farm Employment Change, one of the two important factors Fed is making stimulus decision on, disappointed economists in the beginning of this month.

Stimulus bets may keep Gold prices volatile but investors should remain careful in trading FOMC meet as there is high uncertainty for further tapering. Till the month end we are expecting Gold to remain under pressure.

 

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