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A successively gaining in force drop in risk appetite and building concern over the future of vegetation would send the energy market tumbling through the European and US sessions Tuesday. For the US-based WTI unpolished futures contract, the day’s performance was particularly ugly.

North American Commodity Update

Commodities – Energy

Crude Buffeted ~ the agency of Investor Worry, Chinese Growth Concerns

Crude Oil (LS NYMEX) – $75.69 // -$2.56 // -3.27%

A continually increasing drop in risk appetite and building concern over the future of expansion would send the energy market tumbling through the European and US sessions Tuesday. For the US-based WTI undressed futures contract, the day’s performance was particularly ugly. A 3.3 percent heave on the day would pull the commodity back from a abstract attempt at six-week highs. And, if there had not been a technical superiority set at $75.50/00, the highlights for performance could be seized of turned out far worse. Nonetheless, the decline was the largest seen subsequently to June 4th and the rising trend channel beginning with the not long ago May reversal was subsequently broken in the process. It wouldn’t exist difficult to whip up a follow through bearish session and trace a critical reversal given the proper circumstances. However, as it stands, the CBOE’s Oil Volatility Index is ~-house well of its highs from May and June (at 39.2 percent); season aggregate volume on NYMEX crude futures dropped to its lowest state of equality since January 7th (375,000 contracts) through yesterday and the one-week average on open interest slipped to a similar, historic softly (at 1.261 million contract). Together, these conditions suggest traders are holding back from major trend development.

On the other hand, volatility and bearish conviction may not exist difficult to provoke going forward given the correct circumstances. Today’s fundamental backdrop was defined by a severe drop in speculative confidence and discouraging housekeeping data. For traders, risk appetite was probably the greatest offender. In the forward hours, concern was stoked by news that an indicator that is used to forecast economic growth in China was revised much lower than was before stated. This leveraged persistent concerns that the best performing economy (and the emerging place of traffic it represents) would undermine the economic recovery and subsequently financial stability. This news aside, however, the true concern would develop around the European Union and the monetary trouble the region faces over the coming 48 hours when the a accurate, long-term ECB lending facility expires and forces banks to confer their hand when they reveal how much debt must be rolled completely. This could turn into another catalyst towards jumpstarting a true monetary crisis; but it all depends on the results of the resource and the market’s reaction.

While there was a fiscal and risk-based interest in the downgrade in the data used to calculate Chinese growth; this development further undermined the energy market as the rural parts is the second biggest energy consumer in the world. Should requisition wane in China, it will certainly dent the gap between accommodate with and consumption. Adding to these fundamental concerns we were also presented with a discouraging turn for Japanese unemployment and industrial production; while the US remarkable a surprisingly sharp drop in consumer confidence. This is front-extended mark demand from the third and first largest crude users in the world. From demand to supply updates, Tropical Storm Alex is expected to accelerate to a Hurricane in the Gulf of Mexico; but landfall proximate the Mexico/Texas boarder is expected to miss production areas. For a retiring bullish tinge on the day, the API crude oil inventory story for the week ending June 25th contracted 3.4 million barrels. This sets a determinate precedence for tomorrow’s DoE report.

Commodities – Metals

Gold Staves over Another Attempt at a Bearish Reversal as European Financial Clock Ticks Down

Spot Gold – $1,240.65 // $1.70 // 0.14%

It is something surprising that gold would not perform better today than what the commodity would put in for. Given its function as a safe port asset that represents a harbor from currency volatility and the reverberating effects of sovereign credit risk, a direct fundamental link would suggest the of great price metal would have responded dramatically to the sharp drop in expose to danger appetite across the markets Tuesday. A normal swing in the leading markets based on investor sentiment alone would not likely produce a individual-for-one rally for gold. What is needed is a unambiguous increase in fear linked to the normal performance of the credit and pecuniary markets. In essence, that is what we saw today. At the destroy utterly of today’s 3.1 percent plunge in the S&P 500 and 3.3 percent very little in WTI crude was concern over the health of the European financial markets in the coming days. The clock is ticking for the July 1st emission of breath of the 12-month Long-Term Refinancing Operation facility that the ECB implemented a year gone to ensure liquidity to the banking system. This will require banks to pay back 442 billion euros to the central bank in a relatively strained period for the markets. Naturally, this could leave banks’ coffers unfurnished; and they can either live with anemic reserves or roll despatch to the three-month facility that will be opened tomorrow. Should rightfully claim for temporary funds prove extraordinary, fear that the region is poorly holding it together could trigger a panic. Another concern based in Europe is the result of the EU stress tests. Today, three major German banks were reported to be favored with received a clean bill of health through the financial simulation according to unnamed sources. Yet, Germany is the largest and good in the highest degree positioned of the region’s banks; so troubles can expand for more strategically important members like Spain.

Looking at activity levels back the precious metal, the CBOE Gold Volatility Index rose moderately put ~ the day (to 24.07 percent); but the increase was nowhere narrow the intensity that we had seen back on May 6th and 20th. Clearly, in that place is hesitancy in the face of the financial uncertainties in the days to advance. From the futures market, net volume is still well off the levels seen this end May. On the other hand, open interest is still just away record highs (at 600,000 contracts). This level of interest vested against weak activity suggests the concept that this asset could subsist overpriced is starting to seep in. As it stands, the blemish market is testing a long-term rising trendline; and now a catholic level of support around $1,225 marks the line in the gravel for a stable bullish position.

Spot Silver – $18.49 // -$0.28 // -1.47%

It wasn’t uncompliant to ascertain which side of the market silver was tilted towards. Rather than siding through gold (which was more congestion based as it followed its principal guidelines), the more affordable precious metal took its cues from the traditional risk-based capital markets. Putting in for the first back-to-back deteriorate since June 3rd and 4th, silver is still contained to a general pace of congestion with a longer-term bullish bias.

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Written by John Kicklighter, Strategist
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