Friday August 12th 2016

US equities

Friday August 12^th  2016

Overview

All three U.S. stock benchmarks this week rose together to record highs for the first time in 16 years amid surprising earnings. European shares erased the slump that followed Britain’s secession vote. Oil managed to get off its recent lows, while Treasuries yield slumped. On top of that Gold is up around 27% ytd. Impressive even though something looks wrong.

Investors have piled into global equities amid better-than-estimated corporate earnings, improving economic data and optimism central banks will stay supportive of growth. The number of Americans filing applications for unemployment benefits was little changed last week, holding near four-decade lows that highlight a more robust labor market. Are we ready for a rate hike in September? Not so fast as today’s US core retail sales data pushed back again market expectations for the Federal Reserve to move on rates: number for July came out at -0.3% vs Exp. +0.2%. Also, the Producer price index (PPI), which measures the change in the price of goods sold by manufacturers, came out weak at -0.4% vs exp. +0.1%. Only yesterday, Fed fund futures had shown a 51.9% probability of a rate hike in December and around 30% probability for September. After the data, the odds no longer pass the 50% threshold until the June 2017 decision.

Currency wise, supported by a weaker than expected US data, EUR/USD is now trading around 1.1210 and upside movement is likely to continue in the short term. Good buy opportunity around the 1.0950 level and good sell opportunity around the 1.14 handle. At the moment we are a in the middle of 2016 price range (max at 1.1616; low at 1.0710).

Oil traders remain cautious on Friday even though prices are well supported on the prospect of talks by exporters about ways to prop up a market grappling with a supply overhang. Both price benchmarks rose more than 4 percent on Thursday after Saudi Arabia's energy minister Khalid al-Falih said that oil producers would discuss potential action to stabilize oil prices during a meeting next month in Algeria. Also, an outlook published by the International Energy Agency (IEA) that said it expected the supply and demand balance to tighten towards year-end also supported prices. Nevertheless oil prices remain around 12% below their last peak in June as full storage tanks and high productions weighs on the markets. Iran slashed its September official selling price for light crude to Asia by $1.30 a barrel, the latest sign that exporters are willing to accept discounts in return for market share. AB Bernstein said global oil production rose almost 0.8 million barrels per day (bpd) in July from the previous month, to 97.01 million bpd, while commercial inventories increased by 5.7 million barrels to 3.09 billion barrels in June.

Metals

On the base metals complex today was all about China. The National Bureau of Statistics (NBS) showed Chinese July industrial production rose 6% slightly below both forecast and June’s reading of 6.2%. Chinese July retail sales growth at 10.2% was below consensus of a 10.5% growth and June’s 10.6% rise. Chinese fixed asset investment growth also disappointed at 8.1% as the market was expecting an 8.9% increase. “Disappointing economic data from China is keeping base metal prices in check at the end of the week, with all of them losing ground moderately. Hopes of stimulus measures from the central bank and the government are probably preventing steeper price decline,” Commerzbank said.

What is more on late morning we also had the July’s data out of China of New Loans 464 billion yuan vs market expectations of 900B, Money supply (M2) at 10.2% vs exp. 11.1% and foreign direct investment at only +4.3% vs a market expectations of 5.3%. Despite the thin volumes on LME select all the complex was sent south to test their most immediate technical supports. Interesting is the comment from Ed Meir (INTL Fc Stone) << Growth in investment by state firms rose by almost 22% in the Jan-July period, but private investment has been the notable laggard and is barely registering -- up only 2.1% over the period.>>

Aluminium after a quick decline to 1640$ managed to climb its way back into the high of the high an now trading at 1656$ probably supported by the energy market and the continuous decline in the LME stocks. Overall it is in an uptrend price action which could continue in the short term: good selling opportunity at 1685/1700$ with stop losses above 1740$; good buy opportunity at 1590$ with stop losses below 1530$.

The copper market at the moment is going along with the bears who predicted a decline in the medium/short term due to low demand and ample supply. Today, after the Monday attempt, we tested again the support at 4760/4750$ which so far is holding but will probably not next week. Chart is rather bearish at the moment and weakness is likely to continue. Good sell opportunity around the 4950/5000$ with stops above 5030$; good buy opportunity around the 4630$ level with a tight stop loss.

Lead is literally doing nothing. A good technical canal shows good support at around 1700/1725$ and a good resistance around the 1950/1975$ mark.

Nickel after touching 11030$ per tonne on Tuesday is correcting notably and we are now testing the 10430$ support which so far held quite well. Philippines closed other 2 mines this week and, aside from China economy, the fundamental picture did not change. Technical chart shows the possibility of a deeper correction to the 10000/10200$ which would be a good buy opportunity, if we break through there we will be sent back to the 9500$ area. On the up side those 11000$ were clearly a sell opportunity even though the technical level was at 11200$.

Zinc is still very difficult to trade as it only goes up and when it retraces is always not enough. First good support at 2170$ then we have the 2080$. On the upside we have the 2330$ (stops above 2400$) which should play the role of a very good resistance. Fundamentals are still supporting this market, Glencore this week said in a note that Zinc production is down roughly 30% with respect of last year. So definitely a long but would not see nothing strange in a correction around 2100/2000$. Let us not forget that in January was around 1450$, around a 55% increase ytd.

Tin is another very difficult market to trade as it is very nervous and illiquid. Nevertheless even for this metal the direction is north but wouldn’t be surprise of a sharp correction. At the moment the first good level is at 18100$ then we have the 17500$ mark which is definitely a buy. As a sell opportunity the 18800/19000$ looks like a very good level on the weekly chart. Fundamentals still support the market as new uncertainty over China’s plants, due to environmental reasons, are making the market participants rather nervous:  Around 4,000 to 7,000 tonnes of refined tin production are expected to be affected in China due to month-long environmental checks, sources said on Thursday. We shall see.

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