Provided by CPM Group, Vol. I, No. 17, 18 Oct 2009
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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 continue to benefit from growing optimism about global economic trends and conditions. Gold, silver, and oil all have benefited from this. Other commodities also have done well, as investors, some fabricators, and others have built inventories. The inventory building largely ended when the prices of many commodities, including base metals, rose sharply in the second quarter. This has left commodities vulnerable to a sell-off and a drop in prices. Any drop in prices is likely to be met with renewed buying for inventories and on expectations of stronger demand for commodities over the next several quarters. Some of the inventory buyers of the first half have not ended their program entirely, but rather curtailed the buying when prices rose. Should prices fall significantly lower, they should be expected to resume buying for both current demand and longer term inventory building. Additionally, other entities have shown interest in long term inventories of many commodities. Many funds, disenchanted with the leveraged commodities-indexed products that hurt their asset base during the second half of 2008, now are seeking to rebuild their commodities investment exposure through unleveraged direct buying of physical commodities.
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The U.S. dollar continued to sell off against most major currencies last week. The ICE dollar index fell to 75.45 points on 15 October, which was the lowest level so far this year. Growing optimism over the state of the global economy has been encouraging many investors to part from some of their dollar-denominated assets and diversify into higher yielding assets. Also, expectations that the U.S. government is likely to keep interest rates low for an extended period of time have been weighing on the U.S. dollar. The availability of the U.S. dollar at low rates has been encouraging many investors to indulge in carry-trade strategies, further weakening the U.S. dollar. Investors have been borrowing U.S. dollars, selling them, and investing the proceeds in higher yielding bonds in other currencies, generating a positive return. Most investors and bankers engaging in carry trades hedge the currency risk, locking in a profit. The U.S. and European governments are not likely to intervene if the dollar continues to be weaker. In the short term the U.S. dollar is expected to remain choppy and has a potential to decline further against major currencies. Fundamentals point toward a rising U.S. dollar in the longer term, but currency rates often disregard economic fundamentals. |
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DGCX Prices & Daily Volumes |
Market
(as at Oct 16, 2009) |
Current Week close |
% Change |
Change |
Weekly High |
Weekly Low |
Gold ($/ounce) |
$ 1054.10
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0.26
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▲ |
$ 1071.70
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$ 1047.50
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Silver ($/ounce) |
$ 17.430 |
-1.69 |
▼ |
$ 18.100 |
$ 17.320 |
Euro ($/Euro) |
$ 1.489 |
1.27 |
▲ |
$ 1.496 |
$ 1.468 |
GBP ($/GBP) |
$ 1.635 |
3.29 |
▲ |
$ 1.637 |
$ 1.570 |
INR ($/100 INR) |
$ 2.156 |
0.09 |
▲ |
$ 2.180 |
$ 2.144 |
JPY ($/100 Yen) |
$ 1.101 |
-1.17 |
▼ |
$ 1.125 |
$ 1.098 |
WTI ($/b) |
$ 78.53 |
9.42 |
▲ |
$ 78.65 |
$ 72.15 |
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ADV (4,279)
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Economic Indicators
Indicator |
Change |
Value |
Change |
% Change |
CRB Index |
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276.10
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13.55
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5.2%
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U.S. Dollar Index |
▼ |
75.61 |
-0.82 |
-1.1% |
T-Bills
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▼ |
0.06%
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-0.01% |
0.0% |
DJIA |
▲ |
9,996
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130.97 |
1.3% |
FTSE Global All-Cap
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▲ |
328.00 |
4.89 |
1.5% |
Source: Bloomberg Data |
COMMODITIES |
Crude Oil |
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WTI oil prices broke above the psychological resistance level of $75 last week to settle at $78.63 on Friday 16 October. The move higher was inspired by accelerating gains in the equity markets, a weakening U.S. dollar, and broad-based strength across the commodity markets. According to the 13 October commitment of traders report for Nymex-traded light, sweet oil, money managers and other traders increased their net long positions by 21,823 contracts or 9.3% from the previous week. Although some profit-taking could emerge early this week, oil prices seem likely to approach $80 if market sentiment remains positive and investors continue to increase their long exposure. However, these upward moves would have little foundation in improving fundamentals as real demand remains anemic. Colder than average temperatures in the northern parts of North America also have sparked support for prices, but may not be enough to move oil prices sharply higher. |
Gold |
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Gold prices are expected to consolidate between $1040 and $1080 next week. Prices have been holding up well and there seems to be support around $1,040. Prices were supported last week by an uptick in demand, both from investors and Indian consumers. A weakening U.S. dollar also has helped support prices. Demand for gold in India picked up amid Dhanteras and Diwali, which typically are days when there is a surge in gold jewelry purchases. Demand in India for gold is expected to remain supportive going forward as the wedding season officially begins next month. Investors increased their gold holdings as concerns over financial markets and economic conditions continued. Combined ETF gold holdings reached a record 56.5 million ounces on 15 October, up 154,629 ounces from the end of the previous week. Market participants have been increasing their activity in the gold futures and options markets as well. After further consolidation, prices may try another run toward $1,080 and later $1,100. |
Silver |
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Silver prices may be pressured lower toward $16.50 this week as investors book profits, taking advantage of relatively high prices. Supply of silver, both from mine production and old scrap, has been increasing. Several new mines have begun production in major producing countries this year. This has more than offset any declines in silver output from some base metals mines. High silver prices also have been encouraging many individuals in North America, India, and the Middle East to sell their old silver scrap. The recent strength in silver prices most likely is emanating from strong investment and fabrication demand. Despite fairly high silver prices, consumers in India have been buying silver jewelry. There have been reports indicating healthy demand for silver during Dhanteras and Diwali. Many people have been substituting more expensive gold jewelry for silver jewelry and silverware. Investors and bargain buyers have been active participants in the silver market, given the ongoing economic and financial uncertainties. At the end of last week, combined ETF silver holdings were 422.3 million ounces, up slightly from 421.6 million ounces held on 9 October.
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CURRENCIES |
Euro / Dollar DEUR (US $ quoted in cents per Euro) |
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The euro continued strengthening against the U.S. dollar over the past couple of weeks, and may continue to do so this week. The euro has found resistance at $1.50, but may top this level this week. Although most economic data for the United States last week was better than expected, it did not support the dollar. Many market participants continue to short the dollar, in particular shorter term traders. Perceptions are that the eurozone is faring economically better than the United States., although it is not clear that this is the case. Monetary officials have reduced their voiced support for the U.S. dollar recently, which also may have had a weakening effect. Investors meanwhile have continued to invest in developing economy markets, reducing their dollar holdings. Longer term, however, the euro seems likely to weaken. |
Indian Rupee / Dollar DINR (US $ quoted in cents per 100 Indian Rupees) |
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The Indian rupee could move sideways, subsiding slightly toward 213 cents per 100 rupee later this week. The rupee had been expected to fall against the U.S. dollar over the past two weeks, but this did not happen. In fact the rupee surged to as high as 218 cents per 100 rupee on 15 October. Strong growth in the domestic equity markets has helped generate additional capital inflows from international investors. The rupee is up almost 3.4% from the beginning of the month, and up 13.2% from its record low of 190.7 cents per 100 rupee on 2 March. The strength in the rupee has been encouraging many importers and companies with currency exchange exposures to lock in their forward U.S. dollars at such low rates. |
Sterling Pound / Dollar DGBP (US $ quoted in cents per Pound) |
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The pound remained under pressure early last week, but rallied above $1.60 toward the end of the week. Unemployment figures in the United Kingdom were better than expected and the executive director of the Bank of England (BOE) stated that the quantitative easing program was working. There has been an increasing expectation that the BOE will stop its asset purchase program next month. Also, as the pound broke above $1.60 there was a surge in short-covering and technical buying, which helped push the pound higher. The pound may now hold firm above $1.60 this week, but may be weighed down if the third quarter gross domestic product figure for the United Kingdom, released this Friday, is weaker than expected. |
Japanese Yen / Dollar DJPY (US $ quoted in cents per 100 Yen) |
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The yen could continue to erode against the U.S. dollar this week, possibly moving toward 107 cents — 108 cents. Last week the yen was stronger during the early part of the week but then fell as the week progressed. The yen fell 1.2% last week, settling around 110 cents on 16 October. The Japanese government continues to be indecisive about its potential intervention in currency markets, adding to volatile yen trading patterns. The sharp increase in yen already has adversely affected Japan’s export industry. The economic environment in Japan is in no better shape than other developed nations. The Bank of Japan is expected to keep its interest rates unchanged and may even provide further monetary easing to boost domestic spending. All of this could put downward pressure on the yen in the near future.
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Further Information
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Tel: +971 (0)4 361 1616 Email: info@dgcx.ae |
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. |
Disclaimers
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.
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