Friday February 17th 2017

2017 – What’s next?

Friday February 17^th2017

Overview

Lately traders have gone back and forth assessing the prospects for President Donald Trump’s economics plans and the timing of U.S. interest-rate increases. Trump’s plans last week to unveil a “phenomenal” tax policy spurred a rally in stocks, the dollar and emerging-market assets. Signs the gains were too furious emerged, with the relative strength index (RSI) of the MSCI’s broadest global equity gauge signaling to some traders a correction is due, while odds for a U.S. rate hike in March remain well under 50 percent even after an increase this week. Stanley Fischer, the Federal Reserve vice chairman, said the U.S. economy is close to fulfilling the central bank’s employment and inflation goals, signaling the Fed could increase rates three times this year. His views echoed Janet Yellen’s comments to Congress this week. Incoming data bears him out: January housing starts beat expectations, the Philadelphia Fed manufacturing index soared to the highest since 1984, and jobless claims reflected a vibrant labor market.

The EUR/USD lately is being very difficult to predict as it experiences pretty wide movements without any apparent fundamental reason. The noise could be attributed to what lies ahead for Europe and the single currency Union. A lot of uncertainty make traders nervous and unable to pick a clear direction on the Euro. Everything would point out to Dollar strength from the good U.S. economic data, the latest FED’s comments on interest rate to the rounds of European political elections (respectively Holland, France, Germany). Yet, so far, every attempt for the EUR/USD to go further down failed and we are now back trading around the 1,0650 level. The technical picture is bearish as well and points to more potential Euro weakness. At the moment, the range to look at would be 1,0530 area on the downside (if we go through here next level will be 1,04) and the 1,0820 on the upside (if we managed to go above here we could see the 1,10 pretty soon).

The oil market settled itself comfortable with Brent and WTI trading within a $5 per barrel price range this year, in what has become the longest and most range-bound period since a price slump began in mid-2014. The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia plan to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017, and estimates suggest compliance by OPEC is around 90 percent. Despite the headlines though, the massive inventory glut in both oil and gasoline continues to thwart any upward momentum," said Stephen Innes, senior trader at OANDA in Singapore.

Metals

The base metals complex has been trending upwards since the beginning of 2017 confirming, so far, the change in direction started after Trump election. The reasons behind is, again, the so called “Trump trade” (higher infrastructure spending and higher inflation expected fueled by stronger global growth) and a series of strong supply disruption which are affecting the majority of the base metals. China is giving positive economic signals (except for its high public/private debt) and funds are aggressively buying all the commodities. They need to find alternatives to bonds (dumped by higher inflation expectations) and US equities (already very high). Looking at the fundamentals for each metal, yesterday we had the 2016 supply and demand statistic from the WBMS (World Bureau of Metal Statistics) which can be summarized as follows:

Aluminium: the aluminium market deficit was at 985,000 tonnes in 2016 following a deficit of 659,000 tonnes in 2015. Global demand for primary aluminium in 2016 was 58.74 million tonnes, up 748,000 tonnes from the previous year, while production in 2016 rose 421,000 tonnes year-on-year.

Copper: the copper market was in a surplus of 58,000 tonnes in 2016, down from a 141,000 tonne surplus in 2015. World copper mine production was 20.66 million tonnes in 2016, 6.9% higher than a year ago. Global refined production rose 2.1% year-on-year to 23.46 million tonnes, with China’s contribution increasing significantly by 476,000 tonnes, and Spain’s by 14,000 tonnes. Global copper consumption in 2016 was 23.40 million tonnes, compared with 22.83 million tonnes in 2015.

Nickel: the global nickel market was in deficit in 2016, with apparent demand exceeding production by 51,500 tonnes. The market had been in a surplus of 73,500 tonnes in 2015. Global nickel production in 2016 of 1.8276 million tonnes was down 271,000 tonnes on the 2015 total, according to WBMS data, while apparent demand was 1.8791 million tonnes, a year-on-year increase of 129,000 tonnes.

Lead and Zinc: The deficit in the global lead market grew to 167,000 tonnes in 2016 from 14,000 tonnes in 2015. World refined lead production, from both primary and secondary sources, was 11,123,100 tonnes last year, up by 9.1% from the 2015 total.

The global zinc market swung to a deficit of 177,000 tonnes last year from a surplus of 100,000 tonnes in 2015. Although global refined zinc consumption fell in 2016, production dropped 2.2%. The deficit in the global lead market grew to 167,000 tonnes in 2016 from 14,000 tonnes in 2015.

Tin: The global tin market was in a deficit of 36,000 tonnes in 2016. Global tin demand of 388,400 tonnes last year was 5.4% higher than the 2015 total. Last year, Japanese consumption fell 2.4% to 26,100 tonnes, while apparent demand in China rose 9%.

Trading ideas

Despite the strong fundamental driven rally, technicals can still help assessing right moment to buy or sell avoiding silly mistakes. So, having in mind the fundamental picture described above, below we find some technical levels:

Aluminium: very strong in the near term. To buy the first good level lies around 1800/1790$, after that we have the 1680$. To sell the first resistance lies at 1920$ and then we have a strong area at 1937/1950$.

Copper: the very first level to buy should be around 5880$, after that we have the 5750$. Sellers should be looking at the 6050$ area and then the 6200/6250$.

Lead is looking rather weak in today’s session. First good level to buy could be around 2220$, next we have the 2150/2150$ area. To sell we will be looking at the 2400$ first and 2500$ next.

Nickel is looking very strong at the moment due to the Indonesia and Philippine supply issues and could extend gains next week to 11500/11600$ first and to 11900/12000$ in case we manage to get more grip. Buyers could step in at 10800$ first and then 10500$ next.

Zinc is quite weak today even though the supply picture is yet bullish. Technically it has a dangerous double top that many are looking at. First good level to buy are the 2740$, next we have the 2660$. Sellers need to wait the 2900$ or a re-test of the 2980$ (the double top).

Tin is a bit more complicated as WBMS painted a bullish picture but we need also to keep in mind the drop of the export tax from China. First good level to sell is around 20000/20400$. Buyer could step in at 18900$ first or 18300$ next.

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