Provided by CPM Group, Vol. 2, No.32 - August 8, 2010 |
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Welcome to the Weekly Market Views report from DGCX, providing you with a snapshot of what׳s happening in the energy, precious metal and currency futures markets.
Please note that the observations and views expressed in this newsletter do not reflect the views of DGCX and are solely the view of the writer (CPM Group). |
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| Commodities Overview | Currencies Overview | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commodities prices took a clearer direction last week, following a brief period of price consolidation. A surge in investor buying, perhaps atypical of this time of the year, helped push most commodities prices to multi-week and multi-month highs. Although fundamentals remain supportive of commodities in general, it was more an investor rush to purchase these assets and not be left out of a rallying market than a major shift in supply and demand dynamics that influenced investor activity. As usual, as markets turn direction, investors follow. A weakening U.S. dollar also should not be left out of the equation. This week market participants are likely to filter through which commodities they would like to remain in and which ones they would like to take profits on. It should not be surprising if investors sentiment shifts broadly and commodities prices follow the same pattern. Gold prices may extend their rally early this week, with silver prices following suit. Once price targets are reached, however, gold and silver could succumb to profit-taking. Crude oil prices meanwhile may trade sideways, pushed and pulled by exogenous factors and by market participants whose views over economic prospects shift often and dramatically. |
Investors are rebalancing their portfolios based on a less monochromatic view of the world economy. They have swung from being massively bearish on U.S. financial and economic prospects in the middle of 2009 to being massively negative on European debt conditions in the second quarter of 2010 to having a more equivocating view of economic prospects. Europe is doing better than many thought it would. The United States and China are slowing down as had been expected. While some worry this is the beginning of a new recession, the consensus in the mainstream market appears to be that it is instead an inter-cyclical slow down, following the post recession recovery. Investors are seeking to balance their assets globally, which means that they are not favoring any one currency over others. One can view the glass as half empty or half full. You can say that investors are seeking to spread their assets across geographic regions and currencies because they expect better returns in most countries in the next few quarters. Or, one can say that investors are equally uninspired by economic prospects in the major industrialized nations, and so are diversifying their risks to minimize their pain. The result for currency exchange rates is the same. |
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DGCX Prices & Daily Volumes |
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ADV (5,045)
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Economic Indicators
Source: Bloomberg Data |
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| COMMODITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Crude Oil | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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WTI oil may trade on either side of $80, but a weakening U.S. dollar could keep prices above this level. Crude oil managed to trade above $80 for most of last week, rallying on Monday 2 August amid a broad increase in most commodity and equity values. This was followed by a sell-off on 6 August in line with a drop in equities. A weaker dollar and concerns that storms in the Gulf of Mexico may disrupt North American supplies helped support prices above $80 last week. Crude oil stocks in the United States fell slightly for the week ending 30 July to 358 million barrels, but remain well above their seasonal averages according to the EIA. Gasoline stocks meanwhile rose for the sixth straight week. If the North American gasoline surplus weighs on crack spreads, a measure of refiner profitability, refiners may eventually ease refinery runs. This could soften refiners’ demand for crude oil and keep prices from moving upward too forcefully in the near term. |
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| Gold | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gold prices may head higher early this week, continuing the rally which began at the end of July. Prices may test $1,220 - $1,230 before profit-taking sets in. A price decline from these levels could push gold back toward $1,200, with $1,180 as a stronger base. Gold has received support over the past several days from a weakening U.S. dollar. Investors also have been buying gold, chasing prices higher. An upward momentum in prices and a weakening dollar may provide a boost to gold early this week, but they all will likely have difficulty breaking resistance levels. August is typically a period of reduced investor activity and fabrication demand. Investors will keep looking for buying opportunities, however, which should lend support to prices. The long liquidation during July, as gold prices trended lower, is likely over. Investors may begin to rebuild their long positions, although the bulk of the rebuilding may not be done until later this month or September. Combined ETF gold holdings were 65.59 million ounces on 5 August, down 113,631 ounces from the end of the previous week, but up 17,261 ounces from the previous day. |
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| Silver | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Silver may move toward $19 before easing later in the week. After rising 2.1% on Monday 2 August, silver consolidated for the remainder of the week, settling at $18.36 on Friday. Silver has benefited from healthy investor interest recently. Combined exchange traded fund silver holdings remain at high levels. Economic conditions in the United Stated have spurred increased purchases of safe haven metals such as gold and silver. A softening U.S. dollar also has helped support the price of silver. Silver most likely will not fall below $18.00 over the next few days. Any price declines this week would likely spur increased purchases of the physical metal by consumers, especially in India ahead of the wedding and festival seasons. Firm investor interest also may prevent silver from declining too far. Seasonal weakness in the silver market as well as reduced trading activity in the Northern Hemisphere during this time of year could weigh on the price of the metal beyond this week. |
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CURRENCIES |
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| Euro / Dollar DEUR (US $ quoted in cents per Euro) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The euro may move toward $1.35 this week. The euro spiked higher last week as investor sentiment toward economic conditions in Europe improved. Manufacturing orders in Germany rose 3.2% in June from the previous month and a Spanish bond auction’s results were seen as positive. Over the past several weeks investor concerns over economic prospects for the United States have risen. This has provided the impetus for a move toward euro denominated assets. Equity values in Europe experienced strong rallies last week. Monetary policy for the euro zone meanwhile was left unchanged, with suggestions that the European Central Bank (ECB) may further reduce its liquidity programs. The ECB president also suggested that economic activity was likely to be mixed over the next several months. |
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| Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The rupee could head toward 218 cents per 100 rupees this week. The recent increase in interest rates coupled with cooling inflation, and firm economic activity have provided support to the rupee. Last week an official from the Reserve Bank of India stated that the central bank has taken sufficient action to ease inflationary pressures in India, implying that further increases in interest rates are unlikely. Investor sentiment toward developing economies has been improving in recent weeks. Prospects for growth are expected to be stronger than in industrialized nations. Through July of this year foreign institutional investment flows into India were a net $18.25 billion, almost triple the $6.67 billion in inflows during the same period last year. |
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| Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The pound may move higher this week, but a move above $1.60 may not be sustainable. The pound surged to its highest level in 10 months, to $1.59 early last week, on better than expected manufacturing data, strengthening conditions in the euro zone, and increased concerns over economic prospects for the United States. Although the recent softening in the outlook for economic growth in the United States may lend support to the pound, investors may remain cautious regarding the strength of the United Kingdom’s own economic recovery. This cautiousness may keep the pound from rising too far above $1.60 in the near term. The pound should be supported above $1.56, however, by the recent measures to shore up the government’s fiscal policy. |
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| Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The yen may trade around 116 cents this week. The currency surged from 115 cents early last week to above 117 cents by Friday. Concerns over a slower pace of economic recovery in the United States have prompted investors to buy Japanese government bonds. Last week the yield on the benchmark 10-year government bond touched a low not seen since August 2003. Demand for the yen is reported to be strong from Chinese investors. There also has been speculation that the Federal Reserve may announce further economic stimulus measures this week, which could send the dollar lower. If the yen rally accelerates, the Bank of Japan will be pressured to temper any such increase. However, Japanese monetary officials may let the currency markets dictate the yen’s direction a while longer. |
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Further Information |
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CPM Group is a leading independent commodities market research and consulting firm. CPM focuses on various commodities markets from precious metals to soft commodities. In its twenty three years as an independent company, CPM has consistently delivered unique, market-leading research and services to clients ranging from individual investors to leading international organizations worldwide. For more information and additional research please contact Adam Crown at +1 (212) 785 - 8324 or acrown@cpmgroup.com or visit www.cpmgroup.com. |
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Copyright CPM Group 2009. The views expressed within are solely those of CPM Group. Such information has not been verified by the DGCX, nor does DGCX make any representations as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group or DGCX cannot be held liable for errors or omissions. CPM Group or DGCX are not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here. This report is distributed weekly by DGCX to provide market participants with information and statistics related to specific commodities and currencies. CPM Group, a commodities consulting company, produces this report for DGCX. Visit www.cpmgroup.com for additional information. Reference herein to “DGCX” shall mean the Dubai Gold & Commodities Exchange DMCC. This publication is for information only and does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. Neither DGCX nor its affiliates, associates, representatives, directors or employees, shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this publication. DGCX shall not be responsible for any errors or omissions contained in this publication. All information, descriptions, examples and calculations contained in this publication are for guidance purposes only and should not be treated as definitive. No part of this publication may be redistributed or reproduced without written permission from DGCX. Those wishing either to trade futures and options contracts on DGCX, or to offer and sell them to others should establish their regulatory position before doing so. DGCX is regulated by the Emirates Securities and Commodities Authority (ESCA). ESCA is a member of the International Organisation of Securities Commissions (IOSCO). |
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FTSE Mondo Visione Exchanges Index:
Dubai Gold & Commodities Exchange Weekly Market Views - August 8, 2010
Date 08/08/2010
