Gold 31401/Silver 42392 / Crude Oil 3266 / Copper 317.30 /Soyabean 3805/
MCX/ COMEX
Bullions
Gold retreats from 2-year high, as markets react to Brexit victory
Gold retreated from 27-month highs but remained supported as a safe-haven asset on Friday, as leading central banks rushed to soothe global markets following a surprising decision by voters in the U.K. to approve a referendum that paves the way for a British departure from the European Union.
On the Comex division Gold closed at $1,319.75, up $56.55 or 4.48% on the session. At session-highs, the front month contract for Gold surged nearly $100 an ounce to $1,362.45, its highest level since March, 2014 after major broadcasting networks called for a resounding victory by the Leave campaign. Had the precious metal held onto the gains, Gold would have posted its strongest one-day session since the Financial Crisis?
In London, U.K. Prime Minister David Cameron announced intentions to step down by October after U.K. voters decided to leave the EU by a 52-48% margin. Hours earlier as a Leave vote became increasingly likely, the Pound fell as much as 10% against the U.S. dollar to an intraday low of 1.3231, its lowest level in three decades. While top global central bankers convened in Basel to execute an emergency contingency plan, Bank of England governor Mark Carney said the Bank has set aside £250 billion of additional liquidity and will act if necessary to help support the British economy.
"Inevitably, there will be a period of uncertainty and adjustment following this result," Carney said on Friday morning. "There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold."
"It will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world, some market and economic volatility can be expected as this process unfolds. But we are well prepared for this…The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward."
As investors exited from their positions in the Pound and euro area financial stocks, they engaged in a flight to safety to Gold, low-risk government bonds and safe-haven currencies such as the Japanese Yen, Swiss Franc and the U.S. Dollar. At one point, USD/JPY plunged to 99.02, its lowest level since November, 2013, before rallying to 102.28 (down 3.66%). In Tokyo, Bank of Japan governor Haruhiko Kuroda said the Finance Ministry will monitor currency fluctuations more carefully, while the BOJ had swap lines in place to offer liquidity, if needed.
Meanwhile, EUR/CHF fell to a 10-month low at 1.0623, before paring the losses when the Swiss National Bank (SNB) confirmed that it intervened in foreign exchange markets and sold the safe-haven Franc to help stabilize the currency. Earlier, the Swiss Franc staged its strongest one-day rally since the SNB removed its currency peg to the euro last January.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 2.5% to a three-month high at 96.70, before falling back to 95.59 in U.S. afternoon trading. The index posted its strongest one-day move in more than five years.
On Friday morning, the Federal Reserve said that it is carefully monitoring market developments in cooperation with other central banks, in the wake of the results of the U.K. referendum. It came days after Fed chair Janet Yellen told lawmakers on Capitol Hill that a U.K. departure from the EU could have serious repercussions for financial markets worldwide.
"The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy," the U.S. central bank said in a statement.
Last week, the Federal Open Market Committee (FOMC) said the potential of a victory by the Leave campaign played a role in its decision to leave interest rates unchanged at its June monetary policy meeting. The FOMC has held the target range of its benchmark Federal Funds Rate at a level between 0.25 and 0.50% in each of its four meetings this year.
The CME Group’s Fed Watch tool responded to Friday's market developments by taking a September rate hike off the table. The CME Group also said there is a 20.9% probability the FOMC could raise the Fed Funds Rate to 0.50-0.75% in December, down from 42.6% one day earlier. In addition, the CME Group said there is a 10.5% chance the FOMC could lower rates to the zero-bound range in September. Last December, the FOMC halted a seven-year zero interest rate policy by raising short-term rates for the first time in nearly a decade.
Investors who are bullish on Gold are in favor of a gradual tightening of monetary policy by the Fed. Gold, which is not attached to interest rates, struggles to compete with high-yield bearing assets in rising rate environments.
Energy
U.S. crude tumbles 4%, as markets assess resounding Brexit victory
Crude futures closed near one-month lows amid extreme volatility, as markets reacted to a surprising decision by voters in Britain to approve a referendum that could trigger the U.K.'s departure from the European Union.
On the New York Mercantile Exchange, WTI crude traded between $46.75 and $50.44 a barrel before closing at $47.64, down 2.47 or 4.93% on the session. On the Intercontinental Exchange (ICE), Brent crude for August delivery wavered between $47.55 and $51.19 a barrel, before settling at $48.38, down $2.53 or 4.97% on the day. After rallying slightly in the U.S. morning session, crude settled near session-lows as selling pressure intensified in the final minutes before the close. The U.S. crude settlement was delayed slightly following the late swing in prices, Reuters reported.
As the Leave campaign took a resounding lead in the wee hours of Friday morning, both the international and U.S. benchmarks of crude tumbled more than 6%, falling to their lowest levels since mid-May. With the considerable losses, the front month contract for crude erased all of their gains from the last week when they surged more than $4 a barrel.
On Friday morning, U.K. Prime Minister David Cameron announced intentions to step down by October after polls showed that the Exit camp prevailed by a 52-48% margin. Leading up to the historic referendum, a host of major oil companies issued stark warnings on the dire implications of a UK departure.
Besides complicating the free travel arrangements by UK workers employed by euro area oil companies, oil executives have expressed concern on the impact of heightened trade barriers between the UK and other top countries in the the EU. Consequently, large sums of UK oil workers could require non-EU citizenship to work abroad, a development, which could increase operating costs for top energy companies.
Other industry insiders, such as former BP CEO John Browne, said in the final hours before polls closed that the cost of uncertainty from leaving could be so high that the U.K. may never recover.
In late-May, The Telegraph reported that North Sea Brent oil created an annual loss for U.K. taxpayers for the first time since the Treasury began maintaining an oil balance sheet in 1968. Leading economists also warned that a Brexit vote could tip the euro area into recession, dampening demand for oil.
Elsewhere, oil services firm Baker Hughes said in its weekly rig count report that U.S. oil rigs fell by seven to 330, marking its first decline in four weeks. The combined oil and gas rig count fell by three to 421.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 2.5% to a three-month high at 96.70, before falling back to 95.59 in U.S. afternoon trading. The index posted its strongest one-day move in more than five years.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.
Agri Commodity
Monsoon in India: IMD says deficiency plunges to 18%
More than 25% excess rainfall over normal on Wednesday has pulled down the overall deficiency in the quantum of monsoon rainfall to only 18% from 25% reported a week ago. With monsoon rains expected to advance further into parts of northern and western regions in the next couple of days, overall deficiency would fall further, an India Meteorological Department (IMD) official on Thursday said. The conditions are favourable for further advance of southwest monsoon into remaining parts of west Madhya Pradesh, west Uttar Pradesh, most parts of Haryana, Chandigarh, Delhi and Punjab and some parts of East Rajasthan during next three to four days,” IMD said its latest bulletin. The IMD has stated that the average quantum of rainfall during June 1–June 22 has been 85.5 mm against the normal range of 103.8 mm, thus making it 18% lower than the benchmark. (Source: FE)
Drought likely to cut sugar output by 50% in Maharashtra
Maharashtra, which contributes a third of the country’s sugar production, is expected to see a 50 per cent drop in its output during crushing season 2016-17 that begins in October. Preliminary estimates by the Maharashtra State Federation of Cooperative Sugar Factories are for state production of 4.5 million tonnes in 2016-17, against 8.4 mt in 2015- 16 and 10.5 mt in 2014-15. The fall is attributed to drought in cane growing districts. The Federation has projected a decline in cane production to 46 mt in 2016-17, against 74.3 mt in 2015-16. Of the 13.5 million hectares under the kharif crop in the state, sugarcane is grown on 10.25 mn ha. The sharp fall is attributed to severe drought in sugarcane-growing districts, leading to a decline in plantation. (Source: BS)
Sowing begins in Gujarat; farmers turn to cotton, tur
The South-West monsoon hit Gujarat on Wednesday with several parts of the State receiving showers. Sowing activity has already started with over 2,74,000 hectares covered till June 20 as against 13,44,900 hectares during the same period last year. Among the major crops sown in the kharif season (July to September) include cotton, groundnut and tur, besides others. So far, cotton has been sown on 175,500 hectares against 762,900 hectares reported last year. The groundnut area stood at 38,400 ha (370,900 ha). With the delayed onset of the monsoon, overall sowing started on a sluggish note. Normally the monsoon hits the State around June 15. According to farmer sources, among pulses, tur provided good returns as compared to other crops. So far, acreage of tur stands at around 15,200 ha against 19,200 ha last year. (Source: HBL)
China Sells 17,500 tonnes Cotton at State Reserve Auction
China sold a total of 17,500 tonnes of cotton from state reserves at an auction on Wednesday, according to a statement posted on a cotton industry website. The amount sold represents 97 percent of the total amount of cotton available at Wednesday's auction, and was sold at an average price of 12,230 yuan ($1,859.57) per tonne, according to the cncotton.com website. A total of 23,200 tonnes was sold at an auction on Tuesday, more than 99 percent of the cotton available, at an average price of 12,202 yuan per tonne, according to the website. This month's auctions follow similar sales in May, when China sold off more cotton in one week than in all of 2015 as the world's top textile producer was hit by a supply shortage. Despite this, global cotton prices remain subdued due to healthy US crop yields. (Source: Reuters)
Monsoon to cover country by June-end
The southwest monsoon, after making a delayed entry, has made steady progress and is set to cover the entire country by the end of this month, barring a few pockets in west Rajasthan, west Haryana and Kutch bordering Pakistan, senior meteorologists said. It reached Gujarat on Wednesday and covered parts of south Gujarat and Saurashtra region. This should augur well for the sowing of kharif crops; sowing pace had dropped below last year's level mainly due to the delayed onset of the monsoon. The rains would also fill up the major reservoirs, where the levels according to the previous update had dropped to only 15 per cent of full capacity. The situation was particularly bad in the water reservoirs of central and western India. (Source: FE)
More than enough sugar in the country to meet domestic requirement
There is more than enough sugar in the country to meet the domestic requirement. Even in coming sugar season 2016-17, there would be no shortage of domestically produced sugar in India. During the current Sugar Season 2015-16, India had started with a carryover stock of 9 million MT of sugar. The production of sugar has been estimated at about 25.1 million MT in the current sugar season while demand about 25.5 million MT. Exports being low, the stock position at the close of the current sugar season (Sept. 2016) will stand at 7 million MT which will be carried forward for the next sugar season 2016-17. Thus with the closing stock of about 7-7.5 million tonnes, and the estimated production of about 23 - 24 million tonnes, during 2016-17, the total availability of sugar during 2016-17 season will be over 31 million tonnes, against the domestic demand of about 26 million tonnes. (Source: PIB)
SEBI may allow trade in commodity options soon
Hedgers and punters in commodity futures could soon get to trade options in gold, silver, and Soyabean and guar seed once SEBI approves the launch of the new products in around three-four months, three persons aware of the development told ET. Also, portfolio management services (PMS) could be approved by the regulator in due course, they added. The matter was discussed at a commodity derivatives advisory committee (CDAC) meeting on new products and participants held in SEBI office in Mumbai on Monday. SEBI officials, commodity exchange chiefs and heads of commodity brokerages were among those present at the meeting. For a non-farm product on which an option can be launched, one of the criteria being discussed is that its average daily turnover be around Rs 5,000 crore. For a farm product, the ADT could be Rs 200 crore. All four commodities cited above meet this criterion. Gold and silver are traded on MCX, the country's largest and only listed commodity bourse. Soyabean and guar seed are traded on the country's premier farm bourse NCDEX. (Source: ET)
Technical Levels.
Gold
Gold has a support at 31200 and resistance at 31750,
Three consecutive close + weekly close above 31750 will take it to 32000---32200 and then to 32450+ marks in days to come. Else it could test its support level of 31200.
Further downside panic can be seen if weekly close below 31200 mark.
Silver
Silver has support at 42000 and resistance at 43000,
Three consecutive + weekly close above 43000 will take it to 43500-43800 and then to 44000 mark in days to come else could test its support level of 42000.
Further downside panic can be seen if closes below 41200. Fresh selling can be initiated below 42000.
Crude oil
Crude oil has support at 3220 and resistance at 3320.
Two consecutive close + weekly close below 3220 will take it to 3180---3150 and then to 3100 else could test resistance level of 3320.
Further upside rally can be seen if closes above 3320.
Copper
Copper has support at 312.50 and resistance at 322.30,
Close below 312.50 will take it to 309—306 mark in days to come else could test its resistance level of 322.30.
Above 322.30 will take to 325--328 mark. More and more upside rally will see only weekly close below 328.
Further panic will see only if weekly close below 306 mark.
Soya Bean
Soyabean has support at 3770 and resistance at 3860,
Close above 3860 will see further upside rally till 3920 and then to 3980---4050 mark again else it could test its support level of 3770 again.
Fresh selling can initiate only close below 3770 mark
Three consecutive closes + weekly close below 3770 will take to 3720---3650 mark in days to come
Economic Data
U.S Flash Service PMI – 07:15 P.M
