KASB Securities Limited and Economics Research- Commodities Corner

Karachi, July 20, 2012 (PPI-OT): Fresh turmoil in MENA region reignites supply risks

Seventh heaven for oil

According to KASB Securities Limited,

• Investors jumped into oil markets as the buying spree extended for a 7th consecutive session on the back of turbulence in the MENA region. A bombing incident in Bulgaria which targeted Israeli nationals drew sharp rebuttal from the state and turned up the heat in the verbal battle with Iran.

• Moreover unrest in Syria where top officials of the President’s circle were targeted in an attack also raised concerns that supply disruptions were becoming inevitable. Earlier it was Brent that out-performed WTI given the nature of the risks, however towards the end of the session, the latter came out swinging more freely and secured 1st spot in the crude race (WTI +3.1%, Brent +2.5%).

• In the US a dearth of positive economic data worsened sentiments. Weak manufacturing activity (Philly Fed Index -12.9), a higher than expected jobless claims number (386k vs. 367k) and lower than estimated sales of existing homes (4.37 million vs. 4.64 million) was an unwelcome gift. However the key takeaways were simple; the longer the bad news persists, the higher the chances of QE-III.

Spanish bank aid package secures German blessings

• The German Chancellor won a parliamentary vote to approve EU aid for Spanish banks. Despite growing opposition over the rising costs of funding debt-laden European economies, trouble in Spanish banks would eventually have spelled disturbing times for Europe’s powerhouse (Germany).

• The final step of the process will be undertaken at a meeting of EU Finance Ministers later today where legalities will be completed and this should pave the way for disbursement of ~€100 billion. However before that, individual banks will be independently tested for levels of stress to determine their recapitalization needs and is expected to continue till late 2013. The funding will come from the Euro zone’s firewall (EFSF).

• In the precious metals complex, soft data patches in the US did not surprisingly have a major impact on gold which remained stuck in a tight range of US$20/oz even as market chants for QE-III grew louder.

• Possible explanation for this could be Euro weakness where the single currency hit fresh lows against the AUD and another trough against the GBP. However losses for the single currency were later trimmed following German approval.

Source: Bloomberg, Reuters

Key events/data releases

• Euro-group Meetings

Gold Spot

Technical Strategy: Sell on Strength

Gold witnessed a decent rise intraday however took resistance from the 30-DMA and 50- DMA to close well below it. The Stochastic Oscillator maintains its sell signal while the RSI is neutral. Moreover the MACD has assumed a downtrend in the process and maintains its Sell signal. The first support is at US$1,572.90 and second support is at US$1,565.55. The first resistance is at US$1,591.08 and the second resistance is at US$1,601.77.

Silver Spot

Technical Strategy: Sell on Strength

Silver witnessed a decent rise intraday but failed to hold ground to close marginally in the green. Moreover the 30-DMA created resistance for it. The Stochastic Oscillator maintains its Sell signal while the RSI is neutral. It would be prudent to wait for a closing above its channel resistance before going long. The first support is at US$26.96 and second support at US$26.67. The first resistance is at US$27.54 and the second resistance is at US$27.85.

WTI Spot (Crude Oil)

Technical Strategy: Buy on Weakness

WTI maintained its strong uptrend to close well into the green. Moreover it has filled the gap between US$89.34 and US$90.76. The Stochastic Oscillator is in a failure swing while the RSI continues to improve and maintains its Buy signal. The first support is at US$91.83 and second support is at US$91.00. The first resistance is at US$93.49 and the second resistance is at US$94.32.