Week Ahead: S&P 500 Extends Losses, Oil Awaits Inventory Numbers

Last week was dominated by politics, from the attempt to recuperate from the North Korea tensions, Charlottesville, and terror in Europe.

The S&P 500 extended a second-week of losses at 2.07-percent, its worst two-day fall since February 2016. It appears that even after seven months of no cohesive agenda, investors are still holding onto to the notion of reflation under President Donald Trump. The market narrative attributes most of last week’s losses to a reduced likelihood of Trump executing his agenda after receiving backlash to his Charlottesville moral equivalency statement.
Monetary Policy

The FOMC minutes from the July meeting revealed key topics among the policy makers: is the inflation impotency temporary or a long-term problem, and what are the implications for the interest rate path? The end result is that the Fed raised rates twice this year, with a possible third on the way. That doesn’t change the economic trajectory.

Investors are keenly aware that any uncertainty expressed by the Fed will compound political hesitation.
Broad-Base Expansion In The EU, But Monetary Policy Uncertain

While economic data has been strengthening in Europe, confirming repeated reports of the non-US market’s advantages—economically, politically and from a valuation perspective—ambiguity across the EU is creating significant potential for market volatility.

The European growth rate is catching up with the US at almost 2.5 percent. Germany was not the only country pushing Europe’s growth; rather, it was joined by the Netherlands and even Italy—after recovering from the verge of a banking crisis. This broad-base expansion provides a more reliable trajectory of further expansion for the Eurozone.

The DAX has been trading in a short-term falling trend since June 20. On August 11, it bounced off the uptrend line since June 24, 2016, the day the Brexit vote results were revealed. The significance of this uptrend line is confirmed by the 200 dma (red) that is retracing it.

However, although the price found support it stopped short of overcoming the short-term downtrend line and has since turned back down. A further bearish indication was the dead-cross execution, when the 50 dma (green) crossed below the 100 dma (blue) on Friday.

The price is fluctuating, and is looking for an opening for the price to move into; either the short-term downtrend line – with a break above 12400.00 – or longer-term uptrend line – with a break below 11800.00.

Palladium has rallied to levels not seen in 16 years

Palladium touched its highest levels in more than 16 years Friday, as ongoing concerns about tight supplies and expectations for record demand put prices for the metal on track to score their largest yearly gain in seven years

On Friday, the most-active September palladium contract PAU7, -0.18% traded as high as $935.40 an ounce—the highest intraday level since February 2001, according to FactSet data. It settled at $927.10 an ounce, up 95 cents, or 0.1%, on Friday—marking its highest settlement in more than 16 years.

The metal has gained around 3.6% for the week, adding to a year-to-date rise of roughly 35%—which would be the largest yearly advance since 2010.

“Due to the high demand and limited availability of palladium, there is market deficit of over 1 million ounces,” said Mark O’Byrne, research director at Dublin-based GoldCore. “The apparent five-year-long market deficit has begun to affect the availability of aboveground stocks.”

That comes at a time when demand from the automotive industry, the biggest buyer of the metal, has climbed 4% for the year, he said.

“Much of palladium’s increased demand is thanks to increased demand for SUV vehicles, which have to abide by tightening emission legislation from the [European Union], said O’Byrne. “The latest announcement in the UK regarding a ban on diesel engines will also help to boost demand as consumers shift from diesel to petrol engines.”

Russian nickel and palladium producer Norilsk Nickel said earlier this week that it expects consumption of palladium to each an all-time high of 10.8 million ounces this year.

Overall, the outlook for demand “suggests that there is little letup for the tight supply conditions the palladium market is currently experiencing,” O’Byrne said.

Gold flat as dollar hits nearly 2-week highs

Gold prices edged lower on Tuesday, pressured by a rebound in the dollar, after U.S. job openings topped forecasts, pointing to an improving labor market, lifting expectations the Federal Reserve will keep to its plan to raise rates at least once more this year.

Gold futures for December delivery on the Comex division of the New York Mercantile Exchange fell $3.04, or 0.23%, to $1,261.74 a troy ounce.

Gold struggled to hold onto gains, as the dollar hit a nearly two-week high, after U.S. job openings, a measure of labor demand, increased 461,000 to a seasonally adjusted 6.2 million, the highest level since the series started in December 2000, the Labor Department said on Tuesday.

Losses in the precious metal were limited, however, as some Fed members suggested that the slowdown in inflation will continue to weigh on the Fed’s ability to raise rates even if the U.S. job market continues to improve.

“The current level of the policy rate is likely to remain appropriate over the near term,” Bullard said on Monday.

The producer price index and the consumer price index data due Thursday and Friday, is expected to provide market participants with fresh insight into the pace of inflation.

The slowdown in inflation, has weighed on the prospect of rate hikes later this year, pressuring both the dollar and bond yields while boosting demand for the precious metal.

Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion.

Other precious metal shrugged off dollar strength, as silver futures rose 0.90% to $16.397 while platinum futures rose by 0.30% to $974.60.

Silver Eyes Bullish Flag

Silver futures seem ready to take the next step to enter into a Bullish Flag Pattern. After moving into a Bullish Channel since July 10 and touching the lowest point, a quick reversal on the same day, confirmed the solidarity of the move in the daily chart and confirms the occurrence of an up move ahead. I sensed this pattern in advance and noted it in my analysis, but readers hardly wanted to believe this due to growing volatility in precious metals. No doubt, the Silver futures price dipped all of a sudden on July 10, 2017 after my appearance of my analysis but the reversal in a daily was evident enough to form a Bullish Hammer which confirmed my phenomenon of the beginning of an uptrend ahead.

On analysis of the movement of Silver futures price since the beginning of its uptrend, inside a “Bullish Channel” till August 1st, 2017, I find this bullish voyage still has a long way to go ahead. I find many supporting factors in the current scenario to make the continuity of this Bullish Voyage more prudent amid growing geopolitical concerns and investors’ hope to seek the safest heaven before their fellow beings.

Second solid factor seems to be the hopes of Bears which have been crushed and the Bears are forced to cover their shorts. Once the bullish move brings the price above the levels of $17.281, second phase of shorts covering will definitely be helping the Bulls to take the command in their hands, and finally the Silver futures price will able to make sustainable moves inside a “Bullish Flag Zone” to attain new heights.

Have a Nice Trading Time.

Disclosure: This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results. All trading carries risk. Only risk capital you are prepared to lose.

 

Dow’s 35 all-time-high closes in 2017 put it halfway toward a record number of records

The Dow Jones Industrial Average has been hitting a lot of records lately, including ending each of the past nine sessions at closing highs. But it is only about halfway to hitting a record number of records.

The blue-chip average DJIA, -0.15% has registered 35 record closes thus far in 2017, according to data from Bespoke Investment Group. Those gains have come amid improving corporate earnings, a strong labor market, and an environment marked by both low interest rates and low inflation. They also come in a bull market that has seen stocks rise in essentially uninterrupted fashion ever since the post-financial-crisis bottom of 2009; the Dow has posted new records in every calendar year since 2013.

The records in 2017 have largely come in two chunks: a 12-day stretch of records in February, and the current streak of nine.

While 35 record closes may sound like a lot, it would only make for the 16th-highest annual number, according to data going back to 1900. The total was topped as recently as 2014, which featured 38 record-high closes, a number that was itself down from the recent peak of 52 hit in 2013. The all-time-records record occurred in 1995, when the Dow saw 70 all-time-high closes — about one every three trading days. That occurred during the run-up to the dot-com-era peak.

Of course, those totals are for full calendar years, and 2017 still has nearly five months’ worth of trading left. “While nothing is guaranteed, there’s still plenty of room for this year to add to the total of new highs,” Bespoke observed in a note.

Looking solely at records registered between Jan. 1 and Aug. 7, the date of the most recent Dow record, 2017’s total looks more impressive. The last time the blue-chip average had this many records in the first eight months of the year was in 1997, when 39 highs were notched over the comparable period. The greatest number of records ever hit in this same time period was 49, which occurred in 1987.

As the Dow has rung up its 35 historically high closes, the S&P 500 SPX, -0.24% has registered 30 records, its highest total since 2014, while the Nasdaq Composite Index COMP, -0.21% has scored 44, the most since 1999, according to Dow Jones data. Years in which the S&P 500 hits a record feature an average of 29 all-time-high closes, according to the data. For the Nasdaq, the tech-heavy index, on average, hits 31 records in years when it posts a new closing high.

Dow ends at record for 8th straight day, powered by jobs report

U.S. stocks closed higher on Friday, with the Dow ending at a record for an eighth straight session following a read on the labor market that came in above expectations, a sign that current valuations may be supported by current economic activity.

The Dow Jones Industrial Average DJIA, +0.30% gained 66.71 points, or 0.3%, to 22,092.81, finishing at its highs of the session, which also represented an intraday record. The blue-chip average has risen for a nine straight trading days, its longest such streak since February. With the day’s record, it has now posted 34 record closes thus far this year.

The S&P 500 SPX, +0.19% rose 4.67 points, or 0.2%, to 2,476.83, while the Nasdaq Composite Index COMP, +0.18% climbed 11.22 points, or 0.2%, at 6,351.56. All three indexes dipped into slightly negative territory within the first hour of trading, but subsequently rebounded, ending near their highs of the session.

“There are some concerns that we’re fully valued, but we’re of the thesis that markets will continue to grind higher until the end of the year,” said Jeff Zipper, managing director of investments at U.S. Bank Private Client Wealth Management. “Corporate earnings show that both the top line and the bottom line are coming in nicely, which justifies where we’re trading.”

 The report is seen as crucial for the Federal Reserve as it decides whether to raise interest rates one more time this year. After a string of lackluster economic readings recently, investors are starting to doubt further monetary tightening is in the cards in the short term, especially absent signs of rising inflation. Those doubts have helped send the dollar sharply lower.

However, the buck was enjoying a bit of a resurgence, with the ICE U.S. Dollar DXY, +0.75% a measure of the buck against a basket of a half-dozen currencies, up 0.7%.

“The number came in above consensus, but in the ballpark we were expecting, so we’re taking it in stride,” Zipper said. “There were no big surprises, and net-net, I think the Federal Reserve remains on track for one more interest rate hike this year after this.”

For the week, the Dow rose 1.2%, its second straight weekly rise, as well as its fourth positive week of the past five. The S&P rose 0.2% on the week, while the Nasdaq ended lower by 0.4%. The S&P is less than half a percentage point away from its own record, while the Nasdaq is less than 2 percentage points below its own

Gold prices hold up well, weaker dollar helps

Base metals prices on the London Metal Exchange are broadly weaker this morning, Tuesday August 1, with losses averaging 0.4%. Copper and aluminium are little changed, with three-month copper prices at $6,378 per tonne, while the rest are down between 0.4% and 0.6%.

Volume has been average with 5,294 lots traded as of 06:17 BST.

This comes after a day of general gains on Monday, led by a 0.5% rally in zinc, copper closed up 0.4% and aluminium prices closed up 0.3%, while lead and tin were up 0.1% and nickel bucked the trend with a 0.5% decline.

Precious metals are firmer this morning with the PGMs up an average of 0.6%, while silver prices are up 0.2% and gold prices are up 0.1% at $1,270.10 per oz. This comes after a generally strong day for precious metals on Monday when prices closed up an average of 0.4%.

On the Shanghai Futures Exchange (SHFE), most of the base metals are weaker led by 1.2% and 1.1% losses in tin and nickel, respectively, with lead and zinc prices both off 0.2%, while copper is up 0.1% at 50,390 yuan ($7,500) per tonne and aluminium has bucked the trend with a 0.7% gain. Spot copper prices in Changjiang are down 0.2% at 50,050-50,250 yuan per tonne and the LME/Shanghai copper arb ratio is at 7.90.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange are up 3.3% at 573 yuan per tonne. On the SHFE, steel rebar prices are up 1.4%, while gold prices are unchanged and silver prices are up 0.3%.

In international markets, spot Brent crude oil prices are up 0.3% at $52.76 per barrel, the yield on US ten-year treasuries is firmer at 2.3% and the German ten-year bund yield is little changed at 0.54%.

Equities were mixed on Monday with the Euro Stoxx 50 closing down 0.5% but the Dow closed up 0.3%, although the S&P 500 and Nasdaq composite closed off 0.1% and 0.4%, respectively. Asian markets are firmer though with the ASX 200 up 0.9%, the Hang Seng and Kospi are up 0.8%, the CSI 300 is up 0.7% and the Nikkei is up 0.3%.

The dollar index continues to sink, it set a fresh low for the year at 92.78 yesterday, it was recently quoted at 92.88 – more unrest in US president Donald Trump’s administration continues to weigh on the dollar. Conversely, the euro is strong at 1.1827, as are sterling at 1.3223, the yen at 110.20 and the Australian dollar at 0.8019. The yuan at 6.7185 is climbing; it is the strongest it has been since October 2016, while most of the other emerging currencies we follow are little changed-to-firmer, the exception being the rand, which at 13.1792 is weaker.

The economic agenda is busy – Chinese Caixin manufacturing PMI data came out strong at 51.1, after a previous reading of 50.4, while Japan’s manufacturing PMI dipped to 52.1 from 52.2 and the Bank of Japan’s core CPI held steady at 0.3%. Data out later includes manufacturing PMI out across Europe, EU flash GDP, with US data including personal income spending and PCE price index, final manufacturing PMI, ISM manufacturing PMI, ISM manufacturing prices, construction spending and total vehicle sales.

Copper prices are managing to generally hold on to most of its recent gains and the metal looks strong, while the other metals appear not to be convinced that they should be following copper’s lead. Nickel and tin prices have followed copper’s lead the most, but they are now consolidating, while lead and zinc have struggled to break higher and aluminium prices are struggling to even hold above nearby support.

Given we are in the summer slowdown, it is not that surprising that most of the metals are not gunning higher as it is a quiet time for consumers. This suggests that the buying in copper may be more to do with spec shorts covering. The funds trading Comex copper have become increasingly polarised in recent months. Option declaration tomorrow may be suppressing the likes of aluminium, we wait to see once declaration has passed whether the lids capping the metals are lifted. Given better Caixin PMI data we would have thought the metals would be more bullish this morning than they are.

Gold prices are holding up well, as they should be given the weaker dollar, the continuing dysfunction of Trump’s administration and potential for geopolitical issues to rise as North Korea seems to be pressing ahead with its missile agenda. Silver is following gold’s lead, while platinum is firmer and palladium is challenging recent high ground again. We wait to see what tonight’s US total vehicle sales data shows – a disappointing figure could weigh on the PGMs.

 

Silver price forecast and analysis for Q2 2016

Silver jumped 11 percent in the first quarter after falling 12 percent last year to its lowest since 2009. Its strong performance reflected a marked improvement in investment and speculative demand, largely triggered by the rally in gold. Since we expect gold to push higher in the second quarter, we see further upside in silver, with a three-month range of $15-18. But we believe downward pressure will re-emerge in the second half amid weaker industrial demand.

Silver enjoyed a positive shift in sentiment in the first quarter largely due to an impressive rally in gold prices, which itself was driven by a weaker dollar and a steep fall in US real interest rates amid renewed risk aversion and lower Fed tightening expectations. We expect sentiment to remain positively skewed in the second quarter, which should translate into further ETF and speculative demand, mainly because risk aversion should prevail amid a macroeconomic environment challenged by growing political uncertainty. Importantly, the gold-silver ratio, which averaged 79 in the first quarter, hit an extremely high historical level, making silver look relatively cheap compared to gold at current price levels. We believe the ratio could revert toward its longer-term (1980-today) average of 62, which would result in a considerable outperformance of silver relative to gold. Against this backdrop, silver could surprise to the upside and reach new year-to-date highs in the second quarter. Later in the year, however, we expect downward pressure to re-emerge for two reasons. First, the strong increase in monetary demand for silver in the early months of 2016 should not last, partly because of higher prices. Second, industrial demand, which accounts for 54 percent of total silver demand, is likely to fall further this year after falling 4.1 percent in 2015 on weaker industrial demand growth, especially from EM economies.

ETF investors bought 745 tonnes of silver in the first quarter of the year after selling 506 in 2015, 181 tonnes in 2014 and 82 tonnes in 2013. We think ETF buying could remain steady in the second quarter before reversing later this year due to profit-taking.

Money managers bought a record 6,249 tonnes on Comex in the first quarter after selling 943 tonnes in 2015. Although speculative positioning is overstretched, we believe buying interest will remain strong in the second quarter but could turn into strong selling in the second half