Commodity Round UP
Bullion
Gold ticked down on Thursday, amid a relatively steady dollar, as cautious investors awaited the release of monthly retail and consumer data at week's end for greater clarity on the current strength of the U.S. economy.
The precious metal is coming off an exemplary first half of 2016, when it soared 25%, posting its strongest first two quarters of a year in three decades. Following Thursday's session, Gold remains near two-year highs from early-July.
Earlier on Thursday, figures from the World Gold Council revealed that consumer demand for the yellow metal soared to 1,064 tons over the first half of 2016, touching all-time highs.
Notably, investment, not jewelry, served as the main driver for demand for the second consecutive quarter, according to the Council. The trend is unprecedented.
The dollar stayed mostly unchanged in Thursday's session, despite upbeat data concerning weekly jobless claims, which came on the heels of a robust monthly employment report for July. Last week, initial jobless claims in the U.S. fell by 1,000 to 266,000, lingering near historic lows.
The four-week moving average, meanwhile, inched up by 3,500 to 262,750, demonstrating little change from recent reports.
Investors also reacted to optimistic quarterly results from Macy’s Inc (NYSE:M) and Kohl’s Corporation (NYSE:KSS) on Thursday ahead of the release of monthly retail sales data by the U.S. Census Bureau. Shares in Macy's soared as much as 15%, after the major department store reported a lower than expected decline in same-store sales in the second quarter and outlined a plan to close 100 stores in a massive turnaround initiative.
On Friday, the Census Bureau is expected to report an increase of 0.4% in retail sales last month, following a gain of 0.6% in June. Additionally, the University of Michigan could report a slight uptick in consumer sentiment in July in the wake of a sharp decline of 3.5 points a month earlier.
In February, the National Retail Federation estimated that retail sales (excluding automobile, gas and restaurant purchases) will rise 3.1% for 2016. Over the last decade, the 10-year average came in at annual growth of 2.7%.
The Federal Reserve continues to closely monitor incoming economic data, as it weighs a decision in September on the timing of its next interest rate hike. Last month, the Federal Open Market Committee (FOMC) reiterated that it will tighten monetary policy gradually if the economy demonstrates improvement in the coming months.
Any rate hikes by the Fed this year are viewed as bearish for Gold, which struggles to compete with high-yield bearing assets in rising rate environments.
Energy
Oil prices rose over 3 percent on Thursday after comments from the Saudi oil minister about possible action to stabilize prices triggered a round of buying and the International Energy Agency forecast crude markets would tighten in the second half of 2016. Saudi Energy Minister Khalid al-Falih said OPEC members and non-members would discuss the market situation, including any action that may be required to stabilize prices, during an informal meeting on Sept. 26-28 in Algeria.
The comments by the minister of the world's top oil exporter triggered fund buying and some algorithmic trades, giving a boost to prices, traders and brokers said. However, most traders remain skeptical of the outcome, expecting a repeat of the Doha meeting in April when talks fell through after Saudi Arabia backed out, citing Iran's refusal to join in a so-called production freeze.
The IEA, which advises large developed economies on energy policy, forecast a healthy draw in global oil stocks in the next few months that would help ease a glut that has persisted since 2014 on the back of rising OPEC and non-OPEC supply. "Oil's drop ... has put the 'glut' back into the headlines even though our balances show essentially no oversupply during the second half of the year," the Paris-based IEA said in its monthly report.
Global demand growth is expected to decline from 1.4 million barrels per day in 2016 to 1.2 million bpd in 2017, the IEA said, after a revision to the global economic outlook.
Still, the overall takeaway from the IEA's report has been more bullish than bearish.
An increase in Saudi Arabia's output to a record 10.67 million bpd in July was due to seasonal demand during summer and in part to meet higher demand from customers, the Saudi oil minister said.
Analysts at brokerage Bernstein said in a note they expect high inventories, especially of refined fuel, to spur further refinery run cuts in the next few months.
"This expected diminishing product inventory overhang will lead to a sustained tightening of oil market fundamentals and oil prices should be well above current levels," they said.
Many analysts say they see oil prices trading within a range for the next few weeks.
"As long as oil holds $40, we should be at the bottom," Phil Flynn, senior energy analyst at Price Futures Group said.
"The failure to follow through on bear market closes suggest we are near the low.
U.S. natural gas futures sank to a two-month low in North America trade on Thursday, after data showed that natural gas supplies in storage in the U.S. rose more than forecast last week.
The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. rose by 29 billion cubic feet in the week ended August 5, more than forecasts for an increase of 25 billion.
That compared with a surprise drop of 6 billion cubic feet in the preceding week, 65 billion a year earlier and a five-year average of 53 billion cubic feet. Total U.S. natural gas storage stood at 3.317 trillion cubic feet, 10.9% higher than levels at this time a year ago and 13.3% above the five-year average for this time of year.
A day earlier, prices sank 5.4 cents, or 2.07%, as traders reacted to milder weather and the reality that higher summer demand for the commodity is coming to an end. Demand for natural gas tends to rise in the summer months as warmer temperatures increase the need for gas-fired electricity to power air conditioning.
Natural gas futures have been under pressure in recent days amid speculation that August heat won’t prevent stockpiles from reaching a record before the winter. Unless intense summer heat boosts demand from power plants, stockpiles will test physical storage limits of 4.3 trillion cubic feet at the end of October.
Base Metals
Base metals were in consolidation mode on Thursday morning on the LME – yesterday’s short-lived rally saw nickel, zinc and tin climbing to fresh 2016 highs.
“The fact base metals prices can spike higher shows there is buying interest around, but the fact the higher levels are not held, also shows there are overhead sell-orders
“This shows there is two-way business, but the thin trading conditions are leading to more volatility, as buy and sell orders are mismatch
“However the sharp falls after yesterday’s rallies suggest the timing is not right for a sustainable rally, but it was a warning of how markets can fly away when speculative money comes in with a rush,” he added.
In the metals, copper recently traded at $4,825, $4 higher. Volumes are thin – only around 2,000 lots have changed hands on Select so far.
In yesterday's warehouse data, copper stocks were down a net 900 tonnes to 203,925 tonnes and cancelled warrants increased 650 tonnes to 54,950 tonnes.
Aluminum at $1,650 edged $3 higher. Both stocks and cancelled warrants were down 8,075 tonnes to 2,240,425 tonnes and 960,325 tonnes respectively.
Nickel at $10,760 was $100 lower. The metal surged to a one-year high in the previous session, above $11,000. Stocks were down 900 tonnes to 369,492 tonnes and cancelled warrants fell 2,244 tonnes to 111,222 tonnes.
Zinc was last at $2,279, down $7 after climbing to its highest since May 2015 yesterday, despite a 30,000 tonnes rise in LME stocks – a move that was centred on New Orleans, where around 80 percent of the world’s available LME zinc stocks are in storage.
Today, stocks were down 625 tonnes to 458,450 tonnes and cancelled warrants edged 25 tonnes lower to 21,325 tonnes.
“Although the sharp rise in the price of zinc is justified, given the emerging high supply deficit, its scale now seems excessive in our view, especially since the upswing is driven partly by speculation. We therefore believe there is correction potential in the short term,”
Meanwhile, zinc’s tom/next spread is tightening – it was last at $1.50. In the nearby spreads, cash/August was last at a backwardation of $2 and cash/September at $2.20.
Lead at $1,822 edged $3 higher. Both stocks and cancelled warrants were down 425 tonnes to 187,675 tonnes and 69,175 tonnes respectively.
Agri commodity
North-West, Eastern India drenched; Met forecasts more rains
Tuesday’s depression over East India and adjoining Bangladesh intensified into a deep depression (just one step below cyclone status) on Wednesday and is in the process of moving entirely into mainland India. It will do a round of the rain-deficient North-Eastern States of India before bouncing back into Gangetic West Bengal-Odisha-Chhattisgarheast Madhya Pradesh belt over the next few days. It may let out some steam in the process and weaken, but will bring heavy to very rain over North-East India, East India and adjoining Central India during this period. Meanwhile, a hyperactive low-pressure area located to the North-West India relented after the comparably stronger deep depression established dominance over the monsoon scheme of things. (Source: HBL)
Sugar output in 2016-17 may be lower due to drought: Govt
Sugar production during the ensuing season of 2016-17 could be lower compared with the current year's estimated output of 252 lakh mt due to drought that hit Maharashtra and Karnataka, Lok Sabha was informed on Tuesday. MoS for Consumer Affairs, Food and Public Distribution C R Chaudhary, however, said there is sufficient sugar stock available in the current season to meet demand of 255 lakh mt and the government has already taken steps to prevent a price rise of the commodity. "Due to drought in the states of Maharashtra and Karnataka there is possibility of decrease of in sugar production in the country during the ensuing sugar season 2016-17 as compared to estimated production of 252 lakh mt in the current season," Chaudhary said in a written reply in Lok Sabha. (Source: FE)
Govt for suspending futures trade in sugar
The food ministry has recommended suspending the futures trade in sugar and imposing stock holding limits on mills in view of rising prices as the festival season approaches. Sugar traders and wholesalers already face stock holding limits. The NCDEX, an exchange where sugar futures are traded, has increased the buying margin to 45 per cent. Food ministry sources said sugar production was expected to decline in the season starting October and “a need was felt to increase supply to the open market to control retail prices”. (Source: BS)
Guarseed reverses down from major hurdle
The guarseed contract on the NCDEX encountered a key resistance at ₹3,900 a quintal in late July as well as in the previous week and started to decline. On Tuesday, the contract extended its decline and tumbled 3.6 per cent decisively breaching its 21-day moving average and a key immediate support at ₹3,620. This fall has breached 38.2 per cent Fibonacci retracement level of the prior uptrend that started from the June low at ₹2,979. The uptrend is loosing its bullish momentum now. The relative strength index in the daily and weekly chart have entered the neutral region from the bullish zone implying weakness. Moreover, the daily price rate of change indicator has entered the negative territory indicating selling interest. The daily moving average convergence divergence indicator has signalled a sell. Since recording a July high at 3,980, the contract has been on a short-term downtrend, forming lower troughs and peaks. (Source: HBL)
Technical Levels
Gold
Support at 31150 and Resistance at 31350---31500
Close below 31150 will take to 31000---30900 and then to 30600 mark else it could test its resistance level of 31350---31500 again.
Further upside rally will see only above 31500.
Trade with levels only
Silver
Support at 46000 and Resistance at 46700---47250
Close below 46000 will take to 45700---45400.
Further downside panic will see only weekly close below 45400 mark else it could test its resistance level of 46700---47250 again.
Trade with levels only
Crude oil
Support at 2880---2850 and Resistance at 2970
Fresh buying can initiate only close above 2970 else it could test its support level of 2880---2850 again. Further downside panic will see only close below 2850 mark.
Trade with levels only
Copper
Support at 321 and Resistance at 324---325.50
Close above 325.50 will take to 329---332 mark else it could test its support level of 321 again Further downside panic will see only close below 321
Trade with levels only
Soyabean
Support at 3530---3450 and resistance 3600
Below 3530 it can touch 3500—3480 mark or else could test its resistance level of 3600.
Further upside rally only close above 3600
Trade with levels only
Economic Data
China Industrial Production y/y – 07:30
German Prelim GDP q/q– 11:30 P.M
French Prelim Non-Farm Payrolls q/q – 12:15 P.M
Britain Flash GDP q/q – 02:30 P.M
U.S Core Retail Sales m/m – 06:00 P.M
U.S PPI m/m – 06:00 P.M
U.S Retail Sales m/m – 06:00 P.M
U.S Core PPI m/m – 06:00 P.M
U.S Prelim UoM Consumer Sentiment– 07:30 P.M
U.S Prelim UoM Inflation Expectations – 07:30 P.M
Technical Pick
Sell Natural Gas below 169 Stop loss 174 Target 165--161
