This past week was rough for stock market bulls as commodities and the S&P 500 were hit with selling pressure. The move started with CME’s increases in margin requirement for silver contracts and gave investors a prominent reason to liquidation their longs. The selloff then spread to other commodities which saw gold broke 1,500 psychological level and crude oil broke $100 a barrel level. The market shift gave much pressure to commodity currencies including Aussie, Kiwi and Loonie and gave strong boost to the Japanese yen, and to a slightly less extent dollar. Next week traders will focus on gold, silver, and other commodities to see if all returns to normal.
Some dollar bulls may point to the recently released April Non-Farm Payrolls (printing a better-than-expected 244,000-net increase) as evidence for a better monetary policy outlook; but the increase in the jobless rate (to 9.0 percent) doesn’t fit the central bank’s mandate. The upcoming week will prove critical for establishing whether the greenback is in for a permanent recovery. Our first concern should be the euro’s troubles as it can lead to gains for its primary counterpart. However, looking to the end of the period, we also have April CPI which will play to the Fed’s other mandate.
In regards to crude oil, Production out of Saudi Arabia has made up for the shortfall created by the Libyan civil war, while the Organization of the Petroleum Exporting Countries is making noises about increasing quotas once they meet in June. Demand destruction — where rising commodity prices undermine economic growth, and results in weaker demand for those commodities — is another factor putting pressure on energy prices. Higher U.S. gasoline prices, coupled with the fact that the Japanese economy remains hobbled and has yet to reclaim its rightful fair share of the energy pie. There has been a record amount of length built up by non-commercial speculative money in crude, and we suspect that more of these long positions will be flushed out over the course of the month,
This Week’s Financial Main Events
Monday, May 9
US Economics
No Releases
Global Economic Data
New Zealand House Sales
German Current Accounts
Euro-Zone Sentix
Great Britain House Prices
Tuesday, May 10
US Economics
Export Prices ex-Ag
Import Price ex-oil
Wholesale Inventories
Global Economic Data
Australia Trade Balance
Australia Business Conditions
China Trade Balance
China Producer Price Index
China Industrial Production
China Import
China CPI
China Retail Sales
Swiss CPI
Wednesday, May 11
US Economics
MBA Mortgage Purchase Index
Trade Balance
Crude Oil Inventories
Treasury Budget
Global Economic Data
Australia Employment Change
German CPI
Japan Leading Index
Canada Merchandise Trade
Thursday, May 12
US Economics
Initial Claims
Continuing Claims
PPI
Core PPI
Retail Sales
Retail Sales ex-auto
Business Inventories
Global Economic Data
Great Britain GDP
Great Britain Industrial Production
Friday, May 13
US Economics
CPI
Core CPI
Michigan Sentiment
Global Economic Data
French GDP
German GDP
Swiss Producer and Import Prices
Euro-Zone GDP
EUR/USD
The greenback was the come-back asset of the week, with the dollar extending gains against the euro and most major currencies. The U.S. dollar’s recovery was aided by European Central Bank President Jean-Claude Trichet, whose comments on Thursday were notable for an absence of reference to an imminent rate hike. The ECB left the main refinancing rate at 1.25%, after hiking it by +25 bps in April, at the May meeting. Policymakers omitted the reference ‘strong vigilance’ for a second month and viewed the monetary policy stance ‘still accommodative’. The central bank pledged to ‘monitor very closely’ all developments with respect to upside risks to price stability. EUR/USD reversed after edging higher to 1.4938 last week and fell sharply to close at 1.4314. Initial bias remains on the downside for 1.4220 cluster support. But downside should be contained there and bring rise resumption.
Stop Loss: 1.4555
Take Profit: 1.4220
Gold
All eyes are on gold, as the yellow metal has just dipped below the psychologically important $1,500 level. Major high-profile speculators — including George Soros — now appear to be taking some of their bets off the table. Still, investors would be wise to avoid gold, even after the recent pullback. Gold today is as risky as tech stocks in 1999 and Miami condos in 2005, and the arguments supporting its rise are every bit as flimsy. Worldwide, there was a massive shift in the nature of gold demand from 2000 to 2010. During a decade in which luxury goods enjoyed an unprecedented boom, demand for gold jewellery was nearly cut in half. Meanwhile, gold for “investment” rose by a factor of 65 and is now significantly higher than gold for jewellery. It’s worth mentioning that the last time this happened was 1980 – the years the last gold bubble burst. Needless to add, our prediction calls for further decline.
Stop Loss: 1,513
Take Profit: 1,451
Crude Oil
Oil futures recovered some lost ground in early electronic trading on Monday, but analysts said prices could drop as low as $90 a barrel later this month on concerns about global growth and an unwinding of speculative positions. Benchmark light, sweet crude for June delivery gained $1.28 to $98.44 a barrel on the New York Mercantile Exchange during Asian trading hours. The gains followed sharp losses across commodity markets last week, with crude falling nearly 15%, to close the week at $97.18. Despite a stronger-than-expected U.S. jobs report Friday helping to soothe concerns about the strength of the global recovery, we anticipate a further softening in crude prices during the week. Don’t be surprised if we hit $90 by Thursday.
Stop Loss: 103.56
Take Profit: 90.10
Published by www.SolidityBrokers.com
