KASB Securities Limited and Economics Research- Commodities Corner

Karachi, July 09, 2012 (PPI-OT): Risky asset sell-off as jobs growth falters again

Labor markets stats disappoint for a third month running

According to KASB Securities Limited,

• Non-farm payrolls came out on Friday leading to a risk-off theme, with numbers falling towards the lower end of the spectrum (80k). While QE-III notion was not immediately stoked, it did signal increasingly frustrating times in the labor market and served as a contrast to data earlier in the week which had hinted at the possibility of an upside surprise in the making.

• With regards to QE-III, this week’s calendar will yield an intriguing piece of information: the FOMC minutes due on Wednesday should provide insight into behind-the-door scenes and allow investors to assess how actively the FOMC members are planning to pursue that option.

Leading to a liquidation in risky assets

• Spot gold saw some strength intra-day however quickly sold off the gains and moved in lockstep with risky assets and the commodities complex in general (CRB Index -2.2%). Equities were also pushed lower as soaring Italian and Spanish bond yields added to a deterioration in investor sentiment (Dow Jones -0.9%, Euro Stoxx50 -2.2%).

• The Euro fell to a two-year low against the greenback as the interest rate cut from the ECB hampered the currency’s progress and a flight towards safe-haven USD and US Treasuries was preferred.

Payrolls augment torment for oil

• Non-farm payrolls added to the weight of pressure on oil products which were already reeling from supply side risks from a strike in Norway and simmering geopolitical tensions in Iran. Both grades were in the red (Brent -2.5%, WTI -3.2%).

• However, progress is expected to be made in Norway where negotiations have commenced to end a strike which has seen output curtailed by 13%.

Source: Bloomberg, Reuters

Key events/data releases

• Sentix Investor Confidence

• Bank of Canada (BOC) Business Outlook Survey

Gold Spot

Technical Strategy: Sell on Strength

Gold witnessed a significant decline to close below its 30-DMA and 50-DMA. The Stochastic Oscillator has now generated a Sell signal, while the RSI too has generated a Sell signal even before it could become overbought thus leaving the overbought/oversold cycle incomplete. On the other hand the MACD maintains its uptrend as well as Buy signal. Hence gold could witness correction in the short term as it consolidates within the triangulation. The first support is at US$1,573.74 and second support is at US$1,563.99. The first resistance is at US$1,593.45 and the second resistance is at US$1,602.25.

Silver Spot

Technical Strategy: Sell on Strength

Silver failed to hold ground and registered a lower high and a lower low to close in the red and below its channel’s resistance trend line (purple line). The Stochastic Oscillator has now generated a Sell signal while the RSI too has generated a Sell signal even before it could become overbought thus leaving the overbought/oversold cycle incomplete. On the other hand the MACD maintains its uptrend as well as Buy signal. The first support is at US$26.75 and second support at US$26.42. The first resistance is at US$27.50 and the second resistance is at US$27.83.

WTI Spot (Crude Oil)

Technical Strategy: Sell on Strength

WTI gave a significant gap down opening to close well in the red. The Stochastic Oscillator has now generated a Sell signal while the RSI too has shown weakness. On the other hand the MACD maintains its uptrend as well as Buy signal. WTI could witness correction in the short term however the medium term trend remains bullish. The first support is at US$83.59 and second support is at US$82.70. The first resistance is at US$85.32 and the second resistance is at US$86.21.