1st April 2011
Macro overview

Focus on the Risk markets (Equities, commodities & USD) and Non-Farm Payrolls.

Today sees the release of the monthly US employment situation report. The build up to the number over the last two weeks has seen a steady move lower in the USD and the continuation of this trend may be pivotal on the release of this report. The headline Non-Farm payrolls number is expected at 190K, with the unemployment rate expected to remain steady at 8.9%.

Thoughts from the trading floor

Wednesday’s strong ADP number bodes well for the Non Farm Payrolls today, with last month’s ADP numbers correctly guessing the NFP number.

Risk markets have turned strong despite recent volatility. The continued weakness observed in the USD against most of its major high yielding currency pairs over the last 2 weeks has seen this tight relationship with equities return somewhat and so today’s reaction to the numbers may have a ‘tell’. The USD against low yielders should reflect recent developments of hawkish central banks. A good number should see the USD rally against them and a bad number sell-off. Last month, equities had an inverse relationship to the Euro currency after the kneejerk.

Interestingly last month, equities had a decent move lower (on the back of in line on the headline and a lower unemployment rate). A great deal of expectation had been built into the numbers at the time. However, the unemployment rate number seems to be driven by participants falling out of the labour force and thus the market may ignore it once the detailed breakdown of the report is out of the way.

We have started to see an interesting new dynamic emerge for the markets over the last 2 weeks. Increasingly hawkish FOMC voting members have started to cause broad based market reactions. There has been talk that the Fed may start to outline an exit strategy at the next FOMC meeting at the end of this month and it seems that any prospect of QE3 is quickly diminishing. Therefore a very strong number may be met with selling in equities after an initial move higher, and cause a sharp break down in bonds also. The inverse is may be true if the numbers are particularly weak.

Bull View

It is likely that the current trend higher in risk and lower in the USD will dominate markets. Perversely, a slightly weaker than expected NFP number may be required for risk bulls going into next week.

Bear View

The bears will see these moves over the last week as a potential sign markets are looking to turn and the NFP number may provide this catalyst. A weak close may signal a decent sell-off next week for equities regardless of a strong or weak number.

Futex View

We favour the bears. We see the markets primed for a short-term correction having rallied into the end of March on very thin volumes. Although we may need to wait until Monday for this to occur, especially if the numbers are particularly strong.

2^nd March 2011

Commodity Overview
Focus on Oil

The Crude Oil market erupted last week under extreme volatility. The Libyan crisis and the capped oil production and distribution caused the market to spike higher. It topped at $103.41 for front month WTI under exceptionally poor liquidity conditions before retracing back below the $100 handle. 

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures have experienced serious volatility over the past few trading sessions. The market has seen a break down in technical trading as fear gripped investors. The market spiked higher hitting £103.41 under extremely dire liquidity. The market has broadly entered a choppy trading range of $96.17 to $99.96, with a pivot point around $98.48. If captured by buyers or sellers, this could give a short-term direction to the market. Bulls will be looking to hold onto the current high prices, with resistance levels at $99.96, $101.00 and $103.41. Sellers will be looking to squeeze the market back down; a break below $94.98 could lead to snap selling back into the low $90 region. Please note that trading is expected to remain volatile. Traders should anticipate the overshooting of key levels and large momentum drives over the next week.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 519k barrels last week. This compares to the analyst estimate for the DOE number of 822K barrels. The API gasoline dropped -4898K, as similar to the estimate for the DOE number of -2798K. With not a lot of deviation between the DOE estimates and the API number, we expect the DOE release today to show a number inside of its expected range and to produce a subdued reaction.

As fighting in Libya continues, as much as 850,000 barrels a day of the country’s output has been shut down according to the International Energy Agency. Oil prices continue to rise as the unrest threatens to spread to other Middle Eastern countries. Iran, OPEC’s second largest producer, might be in danger next as protesters continued to clash with security forces in Tehran yesterday. Saudi Arabia’s Oil Chief, commented this week that the Kingdom is ‘ready to supply incremental changes in demand’ to cover any supply shortages from Libya.

Bull View

Bulls once again rode on the back of fear in the oil market to smash higher. It is all very well buyers making gains in the short term, but for a sustainable uptrend the market needs to build a strong value area foundation above the $100 mark.

Bear View

Bears were non-existent in holding back the market and rightly so with such bullish fundamental conditions. Sellers will look to creep back into the market if the Libyan crisis cools, rejecting some high prints in the market.

Futex View　

We are still bullish on the oil market. Conditions continue to be volatile which heightens both risk and opportunity. This situation is expected to remain in such a manner until the Middle Eastern tensions ease.

2^nd February 2011

Commodity Overview
Focus on Oil

Fear gripped the Crude Oil market last week, with extreme political and social unrest in Egypt driving prices higher in several volatile trading sessions. Investors became particularly troubled by the possible long-term disruption to oil flows through the Suez Canal. Such pressure caused Brent Crude Futures to probe back through the significant $100 mark.

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures completely reversed the previous damaging sell-off. Buying pressure came in force and drove the market back through every resistance level with ease, producing a $7.5 bounce in a straight line. Momentum indicators snapped back into positive territory highlighting showing the keen new buying interest. Bulls have aggressively regained control and have shown the fragility in the previous bearish pressure in the market. Buyers will aim to consolidate the aggressive move and hold onto their gains. They should look to build a stable base above $90.50 or at the very least hold onto strong support at $88.45. Ultimately, bulls will aim to break above $93.46 - the significant daily double top. Sellers will hope the recent rally will retrace as quickly as it advanced. A break below $88.45 would be a significant victory for the bears and could be a genuine trigger for further losses back down to the mid $80 trading range.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 3770K barrels last week. This compares to the analyst estimate for the DOE number of 4836K barrels. The API gasoline rose 667K, as similar to the estimate for the DOE number of 2404K. With not a lot of deviation between the DOE estimates and the API number and the current focus on the Egyptian crisis, we expect the number today will produce a restrained reaction.

Brent Crude Futures traded above $100 for the first time in over two years on Monday. The surge came largely on the back of Middle East insecurity, potentially causing disruption to the Suez Canal. However, this temporary rally in the market could be short lived. Only around 4.5% of total global oil supplies flow through the Suez and its neighbouring pipeline Sumed. Short-term transport disruption would have no impact on underlying oil output but could shift oil prices around the region. Traders will be keeping a keen eye on the oil prices over the next few days and assess whether the current move is over-exaggerated or if it really does reflect underlying fundamentals.

Bull View

Bulls have succeeded in reversing the previous week’s sell off.  With momentum back on their side and the current dire fundamental situation in the Middle East, buyers will be looking for the market to follow-through in the next several trading days.

Bear View

Bears have once again lost their foothold in the market. Many sellers may feel that their positions were unlucky to be caught out by such an aggressive reaction to fundamental news. They may feel that the move is an overreaction and that the market is in an obvious place to fade the recent rally.

Futex View　

We are still bullish on the oil market. However, with recent political unrest in the Middle East, we believe the market is set for some extremely volatile trading sessions.

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