Source: AFP News

Oil prices have traded between $70 and $80 for most of the past year as the global economy recovered from last year’s recession, but developed countries struggled to regain strong growth. U.S. crude and fuel inventories have remained high, suggesting the demand for fuel remains sluggish.

Source: Associated Press

The one bright note was the private sector created more jobs than expected during the month with 67,000 new positions filled. The net result however, was still negative adding further to worries that increasing unemployment could derail any recovery.

Source: Reuters

The US$ is stronger in the O/N trading session. Currently it is higher against 11 of the 16 most actively traded currencies in a ‘subdued’ trading range in the O/N session.

We had a plethora of data to digest yesterday ahead of this mornings highly anticipated employment report. It will either be a snooze, non-event heading into this long North American weekend or the results will force traders to react like ‘elephants in a china shop’. In his communiqué yesterday, Trichet met market expectations, again announcing that emergency lending facilities would be extended into next year. Somewhat of a surprise was the EU’s policy maker’s small upward revision to next year’s views. They now expect to come inside a range of +0.5% to +2.3% (up from +0.2% to 2.2%). Could they not have made it any wider! The inflation outlook was also revised up a tad to a range of +1.2-2.2%. It’s worth noting and not surprising that they again identified risks to the downside and flagged renewed tensions in financial markets. Policy makers have no intention ‘to signal any change in rates and remains apart from experiments elsewhere with respect to providing rate guidance’.



The dreaded weekly claims reports potentially points to a downside risk to this morning employment print. Analysts note that initial claims (+472k vs. +475k) remains ‘stubbornly elevated and at a level inconsistent with any expectation for meaningful job growth’ and supportive of renewed private job losses. Digging deeper, continuing claims fell by -23k to +4.456m (2nd consecutive week of declines). Up to date, the average has been hovering around the +4.5m mark as claims push further into extended (+894k) and emergency (+4.1m) categories. Since bottoming at the end of the 1st Q, extended benefits have surged higher by +531.6%. Not to be out done, emergency benefits have seen a similar fate and rallied +50%. With unemployment assistance being extended until the end of Nov. has caused the massive surge in both categories.

And finally, US pending home sales unexpectedly jumped yesterday (+5.2% vs. -1%). Any other day and the market would have paid more heed, but, a day before NFP where market participants try to batten down the hatches, there was no excitement. Technically this is the first ‘bullish’ news we have had to digest in the US housing market for some time. Analysts have been quick to explain the huge monthly jump away, the growth is coming off the lowest base ever (June was all-time record low). On level terms, the July data is only ‘ever so slightly better’ and remains insufficient to counter mounting stockpiles of unsold and shadow inventories. So, it’s back to our doomsday housing scenario. 



The USD$ is lower against the EUR +0.05% and higher against GBP -0.01%, CHF -0.17% and JPY -0.10%. The commodity currencies are weaker this morning, CAD -0.18% and AUD -0.15%. The loonie pared some of its euphoric rise, a day after its largest gain in three-months, on concern that US job losses will stall the global economic recovery. Next week’s BOC call is a spilt vote amongst analysts. Fact, futures are pricing in a +40% chance of the BOC tightening. It’s probably one of the toughest calls over the last decade. A string of disappointing Canadian data and a darkening global outlook have weighed heavily on the market’s conviction for a Sept. hike. Last month, the CAD happened to post one of its worst performing months in over a year, falling -3.5% vs. the dollar. The dollar has now capped a triple top at 1.0675 and will prove a formidable support level for the currency again. Canada is not immune to weaker data reported south of its borders. It is only natural that growth and interest rate sensitive currencies would experience some volatile moves on changing risk attitudes. A shortened holiday week will continue to keep the market on its toes.

The AUD fell in the O/N session vs. all its major trading partners ahead of this mornings NFP report. The market anticipates further job cuts this month which is dampening the demand for higher-yielding growth currencies. Investors continue to speculate that the RBA will keep interest rates unchanged next week. The currency has underperformed against all of its major trading partners and is expected to do so until there is a new Government formed. The commodity rich currency is not isolated, as other growth sensitive currencies are suffering the same fate. Government data has also happened to put a lid on the recent rally. Net result traders are adding to their bets that the RBA will leave interest rates unchanged for the next 12-months. Interest rate differentials play a big part of the currency’s attractiveness (0.9100).

Crude is lower in the O/N session ($74.67 -35c). Crude prices yesterday advanced, paring earlier losses, after a rig in the Gulf of Mexico was struck by an explosion, reinforcing concern that US regulations will reduce output in the region. Stronger economic growth data happened to provide a leg up for the ‘black-stuff’ earlier this week. Aiding the commodity was the weekly EIA report revealing an unexpected decline in supplies of distillate fuels. Distillates (heating oil and diesel), fell -739k barrels to +175.2m. The market had been expecting the inventory to increase by +1.15m barrels. Inventories of crude itself advanced +3.42m barrels to +361.7m Supplies were forecast to climb by +1.2m. On the face of it, the weekly report should have been market bearish, but investors happily ignored the data as they found solace in Chinese and US manufacturing data showing new signs of growth. How long is this sustainable? Perhaps NFP will bring even more surprises? In reality, oil hovers just above this month’s low, on concerns that weaker economic data will push the US into a double-dip recession. The market should be wary that the underlying situation has not changed, the fundamentals remain very weak, demand does not look good and stockpiles of crude and products remain at a record high. Speculators remain better sellers on up-ticks in the short term.

Gold prices continue to advance on its record high print recorded earlier this year as investors seek to protect their wealth. The uncertainty of recent data has had investors contemplating boosting their demand for the commodity as a safe heaven. Last month, bullion appreciated +5.2% alone. The market would not be that surprised to see some sort of technical pull back supported by profit taking selling if investors embraced more risk. Consumers are trying to put there cash somewhere more solid on mounting evidence of a US economic slowdown. Speculators again are supporting the various safe heaven assets on pullbacks, avoiding risky assets due to uncertainties in the markets. With a genuine fear for global growth, by default, should boost the demand for the metal as a protector of wealth in the grand scheme of things. With treasury yields expected to remain close to their lows, could promote a quickening inflation rate, which would promote pushing commodity prices even higher. The opportunity costs of holding gold are low due to falling interest rates ($1,254 +60c).

The Nikkei closed at 9,114 up +51. The DAX index in Europe was at 6,093 up +10; the FTSE (UK) currently is 5,376 up +5. The early call for the open of key US indices is lower. The US 10-year backed up 4bp yesterday (2.61%) and is little changed in the O/N session. Treasuries fell a second consecutive day as a surprise pending home re-sales print coupled with a drop in the initial jobless claims data reduced, temporarily at least, the relative safety of government debt. The curve had become too rich and the overbought asset class was due for some sort of correction. Again the curve 2’s/10’s spread has widened 2bp to +211bp after flattening sub +200bp a matter of days ago. Treasuries also after the government announced the sizes of the $67b three debt sales next week (3’s, 10’s and long bonds). Despite product becoming expensive on the curve, NFP uncertainty has debt better bid on pullbacks.

SPY – SP500 Exchange Traded Fund – 60 Minute Chart

The market is currently in a down trend which means bounces get sold. But if you take a look at the buying volume ratio at the bottom of the chart you will notice that in an uptrend buying surges are the beginning of a rally, and during a downtrend buying surges are the end of a rally. I also want to mention that a lot of volume traded at this current level which you can see on the volume by price bars on the chart. This means there will be a lot of sellers to overcome before breaking to the upside.

The situation the market is at now makes things difficult to tell if this bounce will get sold, or if its just the starting of a rally. There are several arguments for each side but the one which I think has the most influence is the buying volume. It was very strong on this current bounce. It feels more like a rally but we will not know for sure for a couple days…

That being said, if the SP500 moves up Thursday then I would consider the market to be in an uptrend and exiting any short positions is a smart play. But if this bounce is sold and the market drops, then the 3% rally on Wednesday could all be given back and then some.

GLD Gold Exchange Traded Fund – 60 Minute Chart

Gold has continued to grind its way up to the previous top. Problem is the volume has been very light and that tells me there is not much demand for gold at these elevated prices. While we are still long gold it is crucial to have your protective stop in place so we lock in as much profit as possible for when the sharp selling spike happens.

Mid-Week Technical Take:

In short, the market feels like its trying to reverse back up but at this time its still in a down trend and trading under a key resistance level. This means trading with the trend and selling the bounces is still the play. That being said today’s strong volume makes this bounce suspect. Keeping positions small and setting a protective stop should be done as a safety precaution. The next couple days will shed some light for sure…

As for gold, I am still bullish but expecting our protective stops to be triggered any day now, which means we get paid and can mark another successful trade down on the scoreboard.

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Chris Vermeulen

“The rate of layoffs is still uncomfortably high,” said Chris Low, chief economist at FTN Financial in New York. “This continues to feed the unemployment rolls. We see no reason to expect an acceleration in consumer spending.”

Source: Bloomberg

ECB President Jean-Claude Trichet said the eurozone recovery has been supported by global growth and reflected “temporary domestic factors”.

He added, however, that “uncertainty still prevails”.

“One the one hand, global trade may continue to perform more strongly than expected, thereby supporting euro area exports,” he said. “On the other hand, concerns remain relating to the emergence of renewed tensions in financial markets and to some uncertainty about growth prospects in other advanced economies.”

Source: BBC News

The US$ is weaker in the O/N trading session. Currently it is lower against 12 of the 16 most actively traded currencies in a ‘subdued’ trading range in the O/N session.

The word unemployment gives one a headache in the US. Yesterday’s ADP report disappointed with renewed job losses (-10k vs. +20k), showing a trend reversal that had been in place over the last quarter. We should have been well prepared for this after noticing jobless claims picking up steam since July. Even other recent indicators suggest that US employment will follow further in a lagged fashion. Bears will have us believe that the release will support the call for a ‘very’ mild private sector job growth in tomorrow’s NFP print. Already analysts have revised down private employment from +48k to ‘0’. Historically, ADP has always had issues in terms of translating into NFP swings. Digging deeper, the revisions were mild, with the previous month losing -5k to +37k. Most of the losses were recorded in the in the goods-producing sector (-40k, m/m), while the services sector happily added jobs (+30k). Within the goods-producing sub-sector, employment in manufacturing fell -6k (second consecutive monthly decline). The other main sub-sectors, construction and finance fell -33k and -5k respectively. It’s worth noting that medium and small-size businesses reduced their workforce by -5k and -6k each. On the services side, small businesses happened to add +15k jobs. Tomorrows NFP looks like it wants to throw the cat amongst the pigeons!

It’s surprising to see the US ISM report discounting the ADP private manufacturing job loss trend (-40k). Last month, manufacturing expanded at a faster pace than had been expected (56.3 vs. 53.2), as factories added workers and beefed up production. With the data gravitating further away from the ‘contraction’ median, the initial response by the market had investors believing the rebound in the ISM data negates some of the market concerns that the global economy will slow as governments withdraw stimulus measures. Digging deeper, the production sub-category index increased for the first time in 4-months, while the employment indicator happened to register its strongest print in 37-years. Analysts expect production to taper off on the back of future weaker bookings being recorded, while backlogs ease further. All eyes will become fixated on tomorrows NFP report.

The USD$ is lower against the EUR +0.10%, CHF +0.41% and JPY +0.45% and higher against GBP -0.43%.The commodity currencies are weaker this morning, CAD -0.13% and AUD -0.38%. Fact, 2/3rd of analysts expect Carney to hike next week. Fact, futures are pricing in a +40% chance of the BOC tightening. It’s probably one of the toughest calls over the last decade. A string of disappointing Canadian data and a darkening global outlook have weighed heavily on the market’s conviction for a Sept. hike. Yesterday, the loonie did an about face and aggressively appreciated against its largest trading partner as risk appetite once again emerged, pushing global bourses and commodity prices higher on the back of stronger manufacturing data out of China and the US. Last month, the CAD happened to post one of its worst performing months in over a year, falling -3.5% vs. the dollar. The dollar has now capped a triple top at 1.0675 and will prove a formidable support level for the currency again. Canada is not immune to weaker data reported south of its borders. It is only natural that growth and interest rate sensitive currencies would experience some volatile moves on changing risk attitudes. Expect dealers to tighten up their position heading into NFP tomorrow.

The AUD fell in the O/N session from its three-week high after a government report showed the trade surplus shrank in July more than the market had been anticipating (1.89b vs. 3.11b). The currency happened to depreciate against all of its 16 major trading partners as the countrys export data also fell to its lowest level in 7-months. On the whole, concerns that global growth is slowing has damped investor appetite for higher-yielding assets again. Ping-pong is like a new form of trading strategy! Back and forth with risk appetite. The currency has underperformed against all of its major trading partners and is expected to do so until there is a new Government formed. The commodity rich currency is not isolated, as other growth sensitive currencies are suffering the same fate. Government data has also happened to put a lid on the recent rally. Net result traders are adding to their bets that the RBA will leave interest rates unchanged for the next 12-months. Interest rate differentials play a big part of the currency’s attractiveness. Perhaps all this will change with tomorrows NFP print (0.9088).

Crude is higher in the O/N session ($74.01 up +10c). Crude prices advanced yesterday after manufacturing data in both the US and China (the world’s biggest energy-consuming countries) accelerated at a faster pace than expected this month. The commodity happened to maintain its gain after the weekly EIA report revealed an unexpected decline in supplies of distillate fuels. Distillates (heating oil and diesel), fell -739k barrels to +175.2m. The market had been expecting the inventory to increase by +1.15m barrels. Inventories of crude itself advanced +3.42m barrels to +361.7m Supplies were forecast to climb by +1.2m. On the face of it, the weekly report build is market bearish, but investors happily ignored the data as they found solace from the manufacturing data showing new signs of growth. How long is this sustainable? Perhaps NFP will bring even more surprises? In reality, oil hovers just above this month’s low, on concerns that weaker economic data will push the US into a double-dip recession. The market should be wary that the underlying situation has not changed, the fundamentals remain very weak, demand does not look good and stockpiles of crude and products remain at a record high. Speculators remain better sellers on up-ticks in the short term.

Gold prices happened to print a 2-month high earlier this week and yesterday price action was little changed despite global equities soaring on the back of stronger manufacturing reports. The uncertainty of recent data has had investors contemplating boosting their demand for the commodity as a safe heaven. For the month of Aug., bullion has appreciated just under +5%. All last week investors have sought sanctuary in the safer heaven asset classes on the back of weaker equity markets. The market would not be that surprised to see some sort of technical pull back supported by profit taking selling as investors embrace more risk on the back of stronger data. Investors are trying to put there cash somewhere more solid on mounting evidence of a US economic slowdown. Speculators again are supporting the various safe heaven assets on pullbacks, avoiding risky assets due to uncertainties in the markets. With a genuine fear for global growth, by default, should boost the demand for the metal as a protector of wealth in the grand scheme of things. With treasury yields expected to remain close to their lows, could promote a quickening inflation rate, which would promote pushing commodity prices even higher. The opportunity costs of holding gold are low due to falling interest rates ($1,250 +$1.50c).

The Nikkei closed at 9,062 up +136. The DAX index in Europe was at 6,066 down -17; the FTSE (UK) currently is 5,360 down -7. The early call for the open of key US indices is lower. The US 10-year backed up 7bp yesterday (2.57%) and is little changed in the O/N session. Treasuries plummeted for the first time in three days on the back of some surprising manufacturing data out China and the US. The curve had become too rich and the overbought asset class was due for some sort of correction. Yesterday’s ISM data provided the ammunition to widen the 2’s/10’s spread to +209bp. Treasuries also declined before the government announces today the sizes of three debt sales next week (3’s, 10’s and long bonds-market anticipates $67b). Despite product becoming expensive on the curve, NFP uncertainty has debt better bid on pullbacks.

“The labor market is really in peril as businesses are just being very cautious,” said David Semmens, an economist at Standard Chartered Bank in New York, the only economist surveyed to accurately forecast the loss in private jobs. Today’s figures “will drag down expectations for the Friday payrolls report. The stability surrounding the recovery is declining.”

Source: Bloomberg

The latest result will ease concern that growth is waning in China which is seen as a vital component in leading the global economy to recovery.

Source: BBC News