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Equities Consolidate after Sharp Fall; US Inflation in Focus Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Mon Feb 12 18 01:44 ET

Stock markets consolidate after the massive selloff last week. US dollar softens recovering to the highest in more than two weeks last Friday. Treasuries were mixed with yields hovering around 4-year highs. Traders also take time to digest the budget deal which would boost spending by US$300B over the next two years. The deal allows temporary financing of the government through to March 23 and suspends the debt ceiling for a year. According to Budget Director Mick Mulvaney, the additional spending could raise the deficit to about US$1.2 trillion in 2019. This could in turn cause a "spike" in interest rates. in the commodity sector, crude oil prices recovered with both benchmarks gaining over +1% at the time of writing this report. Over the past week, the front-month WTUI crude oil contract slumped -9.55% and closed below US$60/bbl. The Brent contract fell -8.44% and settled at US$ 62.79/bbl. Gold has lost the appeal as safe haven asset and declined despite selloff of equities. The benchmark Comex gold contract was down -1.54% last week. Concerning others in the precious metal complex, the Comex silver contract dropped -1.21%. The Nymex platinum and palladium contracts declined -3.8% and -7.78% respectively. Last week's greenback recovery had weighted on USD-denominated assets.

This week begin in a quiet note. In European session, Switzerland would release its inflation data. Headline CPI probably stayed unchanged +0.8% y/y in January. However, inflation probably contracted -0.2% from a month ago, following a flat reading in December. In the US, the monthly Federal budget might show a surplus of US4 51B in January, following a deficit of 23B in the prior month. For the week ahead, the focus is on US inflation report due Wednesday. Headline CPI probably moderated to +1.9% y/y in January from +2.1% in the prior month. Core inflation might have eased to +1.7% from +1.8%. Also due Wednesday would be retail sales which might have increased +0.2% m/m in January, down from +0.4% in December. Excluding auto, retail sales probably gained +0.5% m/, after adding +0.4% in December.

As the BOE meeting last week has intensified speculations of a rate hike in May, the UK CPI (due Tuesday) is under the spotlight. Headline CPI probably eased to +2.9% y/y in January, form +3% a month ago. Core CPI might have picked up to +2.6% y/y from +2.5% in December. Last week, BOE indicated at the meeting that it is "appropriate to set monetary policy so that inflation returns sustainably to its target at a more conventional horizon". It added that "monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report". Friday comes UK's retail sales which probably grew +0.6% m/m in January, following a disappointing -1.5% contraction in December.

Commitments of Traders:

Speculators were mixed over the energy complex in the week ended February 6. Net LENGTH for crude oil futures jumped +4 539 contracts from a week ago to 739 097. NET LENGTH of heating oil declined -7 321 contracts to 47 784 while net LENGTH for gasoline gained +247 contracts to 88 328. Net SHORT for natural gas jumped +35 342 contracts to 53 531 for the week.

Speculators were bearish over the precious metal complex last week. Net LENGTH for gold slumped another week, declining -16 385 contracts, to 190 877, while that for silver futures plummeted -15 882 contracts to 16 540. For PGMs, net LENGTH for platinum fell -1 574 contracts to 41 819 while that for palladium fell -4 204 contracts to 19 527.


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