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December 05, 2011

Commodities firm on European optimism, US data

Theres a material chance of a recession in Europe. In light of looser monetary policy, a pretty weak growth outlook next year and some particularly tight fiscal policy, the decline in euro has been pretty consistent. Michael Turner, a fixed-income and currency strategist at Royal Bank of Canada in Sydney Although we have not seen many price-related cuts in capacity as yet, we believe that if prices continue to trade around their present levels, in China we will see closures over the coming one to two months, Goldman analysts Max Layton and Allison Nathan on aluminium Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers. Digging under the surface, the drop in the unemployment rate is nothing but a statistical mirage. The official unemployment rate is 8.6%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6. While the "official" unemployment rate is an unacceptable 8.6%, U-6 is much higher at 15.6%. Falling unemployment rate would normally be considered a good thing, but not if it is happening because 1,793,000 people stopped looking for work. Things are much worse than the reported numbers would have you believe. The entire economic picture is on very thin ice given the clear slowdown in the global economy. Mike "Mish" Shedlock on the US job Report CommoditiesMostly up on European optimism, US data U.S. Jobless Rate Unexpectedly Declines to 8.6% US Employment climbed by 120,000 workers in November Average hourly earnings for all US employees in the private sector fell by 2 cents to $23.18 Stocks Advance as Italy Moves to Reduce Debt Italy bond yields fall in wake of austerity plan China says economic growth to slow slightly Merkel Heads to Paris as EU Leaders Seek Debt Strategy Europes PMI composite data trails the forecast U.K. Economic Growth Forecasts Cut by EEF as Manufacturers See Stagnation U.S. Senate Passes Iran Oil Sanctions as EU Blacklist Grows Oil Rises a Second Day on Iran Tension, European Debt Meetings Euro Strengthens Before This Weeks Europe Summit; Yen Weakens Angolan Oil Minister Says Crude Market Adequately Supplied Gold Traders Trim Bets on Price Rise, CFTC Data Shows Silver Traders Trim Bets on Price Rise, CFTC Data Shows Crude Oil Traders Increase Bets on Price Rise, CFTC Data Shows Copper Traders Reduce Bets on Price Decline, CFTC Data Shows Most of the commodities closed higher Friday as the buying momentum coming on swap rate reduction by the US Fed and five Central Banks continued. US job report and European optimism also supported the commodities. US job report was good, but not great. The unemployment rate dropped sharply to 8.6%, however that was mainly on the reduction in employment pool size. The rally in the US equities fizzled out towards the end.
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sharekhan Today the commodities are showing mixed trend ahead of major events this week. We have got policy decisions of the ECB, the BoE, RBA, Bank of Canada and Bank of New Zealand. On the ninth of this month we have yet another meeting of the EU officials, and on 13th we have the Fed policy decision. Commodities have rallied sharply after the Central Bankers move to slash the interest rate on Dollar swaps. Bulk of the move has been due to furious short covering. Commodities are likely to range-trade in a wide range ahead of the key events lined up all the way up to 13th. We continue to hold bearish view on commodities in medium-term, as the supporting steps of the Central Banks are unlikely to lead to any major changes in the global supplydemand scenario and European sovereign debt issues. Such steps can only make the scenario for the banks somewhat comfortable, however debt crisis couldnt be done away with saddling the nations and individuals with even more debts. Asia WatchChina services growth eases in November: HSBC China's services sector activity in November grew at its slowest pace in three months as the expansion in new orders eased, a survey by HSBC showed Monday. The seasonally adjusted Business Activity Index printed at 52.5 last month, higher than the 50-level that separates expansion from contraction, but lower than the 54.1 reading recorded in October. The data came on the heels of China's manufacturing purchasing managers' index for November, which showed a contraction in November. As a result, the HSBC Composite Output Index also fell to 48.9 in November from 52.6 in the preceding month. The HSBC services data is consistent with an official Chinese gauge of PMI for the non-manufacturing sector released Saturday, which showed a sharp deceleration in November for a 49.7 reading, indicating a contraction, from 57.7 in October.

commodities buzz China says economic growth likely to slow slightly China's economic growth is likely to slow slightly in the coming year due to a weaker external environment, but the country's foreign trade is expected to maintain steady growth, Chinese Commerce Minister Chen Deming said Friday. Speaking at a banquet held by the American Chamber of Commerce in China, Chen said the trade imbalance between China and the U.S. is structural, according to a statement posted on the commerce ministry's website late Sunday. "The key is not to limit imports from China, but to loosen export controls against China and boost the export of hightechnology products to China," Chen said in the statement, adding China will continue to increase imports from the U.S. He pledged to continue improving the investment environment for U.S. enterprises and to protect their intellectual property rights. Chen also said he hoped U.S. policies concerning Chinese investment could be more transparent. He didn't elaborate. The Engineering Employers Federation cut its U.K. growth forecasts and said manufacturers expect the industry to stagnate in the first quarter. The EEF sees gross domestic product rising 1 percent in 2012 instead of the 2 percent forecast in September, with factory output growing 0.9 percent rather than 2.2 percent, Chief Economist Lee Hopley told reporters at a briefing in London on Dec. 2. A manufacturing survey published today showed companies predict flat output and a modest contraction in orders in the first quarter, Hopley said. Chancellor of the Exchequer George Osborne said last week British economic growth will be slower this year and next than previously forecast as the euro-area sovereign debt crisis undermines demand in the biggest market for U.K.

Europe WatchU.K. Economic Growth Forecasts Cut by EEF as Manufacturers See Stagnation Date 12/2/11 12/2/11 12/5/11 12/5/11 12/5/11 12/5/11 12/5/11 12/5/11 Country - Region Euro Zone Euro Zone Germany Euro Zone Euro Zone Euro Zone Euro Zone Euro Zone Data PPI (MoM) PPI (YoY) PMI Services PMI Composite PMI Services Sentix Investor Confidence Retail Sales (MoM) Retail Sales (YoY) Period Oct Oct Nov F Nov F Nov F Dec Oct Oct Survey 0.2% 5.6% 51.4 47.2 47.8 -21 0.1% -0.8% Actual 0.1% 5.5% 50.3 47 47.5 -24 0.4% -0.4% Prior 0.3% 5.8% 51.4 47.2 47.8 -21.2 -0.7% -1.5% -1.4% Revised

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Commodity Buzz

December 05, 2011

sharekhan exports. Manufacturing weakened from China to Europe last month as the turmoil darkened the outlook for the global economy. Merkel Heads to Paris as EU Leaders Seek Debt StrategyEuropean leaders will take another run at fixing the debt crisis this week after the failure of their fourth rescue blueprint sparked intensified concern the 17-nation euro area was on the brink of unraveling. German Chancellor Angela Merkel and French President Nicolas Sarkozy will hold talks in Paris today starting at 1:30 p.m. over lunch. With a European Union summit in Brussels looming Dec. 9, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt tomorrow to prod political leaders and the European Central Bank holds a policy meeting Dec. 8. Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules. Markets climbed last week as investors looked toward the latest plan to rescue the euro, betting that a new regime of budget rules at the summit may clear the way for more intervention from the ECB. In Rome, the Italian Cabinet proposed a 30 billion-euro ($40 billion) package of emergency economic measures to shore up the countrys finances. Italian Prime Minister Mario Monti is under pressure to reassure markets as a sell off of the countrys bonds sent borrowing costs surging last month. Italy bond yields fall in wake of austerity plan - Italian government bonds gained ground Monday, pulling the 10year yield down, a day after Prime Minister Mario Monti unveiled additional austerity measures. The yield on 10year government bonds declined 9 basis points to 6.47%. Yields fall as bond prices rise. A basis point is a hundredth of a percentage point. Monti's cabinet approved the package of additional economic measures totaling 30 billion euros

commodities buzz ($40.2 billion) on Sunday, news reports said. The prime minister is expected to present the plan to Italy's Parliament later Monday. Service industries in the U.S. probably grew in November at the fastest pace in six months, a sign the economy is accelerating in the final months of 2011, economists said before a report today. The Institute for Supply Managements index of nonmanufacturing industries, which account for about 90 percent of the economy, rose to 53.8 last month from 52.9, according to the median projection of 67 economists surveyed by Bloomberg News. Factory orders fell in October, another report may show. The services data may indicate the economic expansion is spreading at year-end after reports last week showed manufacturing picked up, consumer pessimism waned and unemployment dropped. At the same time, risks remain that Europes debt crisis and slower global growth will prompt U.S. companies to cut back. U.S. Exports Led by Caterpillar May Rise in 2012 - U.S. exports, a driver of expansion in the worlds largest economy, will grow next year even as a sovereign-debt crisis pushes Europe into recession. The euro areas share of overseas sales for American-made goods has dwindled to 13 percent from 19 percent at the peak in the early 1990s, according to Joseph Carson of Alliance Bernstein LP. A trade shock that cuts all euro-zone imports by 10 percent in the next 12 months would trim U.S. economic output by only 0.2 percent, UBS AG estimates. Total U.S. exports -- responsible for almost half of growth since the 18-month recession ended in June 2009 -- reached a record $180.4 billion in September, even as Europes woes were escalating. Americas push into faster-growing emerging markets such as China is helping to sustain demand for goods from Caterpillar Inc. (CAT) machinery to Apple Inc. iPhones.

US WatchService Industries in U.S. Probably Expanded at Fastest Pace in Six Months Date 12/2/11 12/2/11 12/2/11 12/2/11 12/2/11 12/2/11 12/2/11 12/5/11 12/5/11 Country - Region US US US US US US US US US Data Change in Non Farm Payrolls Change in Private Payrolls Change in Mfg payrolls Unemployment rate Avg Hourly Earrings (MoM) all emp Avg Hourly Earrings (YoY) all emp Avg Weekly Earrings (MoM) all emp ISM Non Mfg Composite Factory Orders
Commodities Buzz

Period Nov Nov Nov Nov Nov Nov Nov Nov Oct 3 3

Survey 125K 150K 9K 9% 0.2% 2% 34.3 53.8 -0.3%

Actual 120K 140K 2K 8.6% 0.1% 1.8% 34.3

Prior 80K 104K 5K 9% 0.2% 1.8% 34.3 52.9 0.3%

Revised 100K 117K 6K 0.3% 1.9%

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December 05, 2011

sharekhan Market watchU.S. Bonds Fall as Italys Austerity Plan Saps Demand for Safer Securities Treasuries fell, extending last weeks decline, as Italy unveiled an austerity plan to cut the euro-regions secondbiggest debt and economists said a report today would show U.S. service industries expanded. Longer-maturity bonds led losses as German Chancellor Angela Merkel and French President Nicolas Sarkozy prepared to meet before a European Union summit in Brussels this week. European stocks and U.S. equity futures rose amid optimism the manufacturing report will signal the worlds largest economy will avoid slipping into another recession. Base metals summary All the base metals except aluminium closed higher Friday as the complex posted a sharp weekly gain. Movements are mostly range-bound after the sharp covering rally seen on Wednesday. As such the complex is likely to extend its decline in medium-term, however in short-term we can see the complex extending the gains on European optimism and Central banks intervention. AluminimDown 0.69% LME 3-month aluminium closed with a loss of $15 at $2130. The light metal was up 6.92% last week. Downside could be limited in the light metal as the prices become unprofitable for most of the smelters. Support is at Rs 107.40. Resistance is at Rs 110.60. CopperUp 1.28% LME 3-month copper closed with a gain of $100 at $7890. The red metal was up 9.12% last week. Hedge-fund managers and other large speculators decreased their net-short position in New York copper futures in the week ended Nov. 29, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 3,308 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions fell by 914 contracts, or 22 percent, from a week earlier. Miners, producers and other commercial users were net-long 9,606 contracts, down 33 contracts from the previous week. Copper can test the resistance around Rs 430 in the nearterm. Support is at Rs 404.50/ Rs 400.50. Resistance is at Rs 413.60. NickelUp 5.91%

commodities buzz

LME3-month nickel closed with a hefty gain of $990 at $17740. The alloying metal was up 4.66% on the week. Nickel has been a laggard in the current rally of the complex, hence further upside is possible that can extend to Rs 980 level, however the medium term view remains bearish. Support is at Rs 918/ Rs 878. ZincUp 0.34% LME 3-month zinc closed with a gain of $7 at $2052. The galvanizing metal rose 7.43% last week. A test of resistance at Rs 110 is possible in near-term. Support is at Rs 103.75/ Rs 100.70. LeadUp 0.23% LME 3-month lead closed with a gain of $2110. The battery metal was up 5.28% last week. Continuous improvement in the cancellations is supportive for the metal. Support is at Rs 104.70. Resistance is at Rs 108.85/ Rs 110.10. Precious metals summary The complex closed mixed as gold was slightly higher, while silver ended a tad lower. The complex closed higher on the week. Bullions are trading like any other risk asset, which means that safe haven appeal is not so strong at the current levels. Upside is likely to be limited in near-term. GoldUp 0.10% Spot gold closed with a gain of $1.79 at $1746.59. The yellow metal was up 3.74% on the week. Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Nov. 29, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 154,793 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 6,177 contracts, or 4 percent, from a week earlier. Miners, producers, jewelers and other commercial users were net-short 193,545 contracts, an increase of 1,132 contracts, or 1 percent, from the previous week.

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Commodity Buzz

December 05, 2011

sharekhan The news of Bank of Korea buying 15 tons of gold is supportive for the counter. Support is at Rs 29040/ Rs 28770. Resistance is at Rs 29255/ Rs 29450. SilverDown 0.48% Spot silver closed with a loss of $.16 at $32.59. The white metal was up 5.1% last week. Hedge-fund managers and other large speculators decreased their net-long position in New York silver futures in the week ended Nov. 29, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 12,094 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 530 contracts, or 4 percent, from a week earlier. Miners, producers, jewelers and other commercial users were netshort 20,688 contracts, down 1,043 contracts, or 5 percent, from the previous week. Support is at Rs 56400. Resistance is at Rs 58400. Energy complex The complex closed mixed as crude oil inched higher on Iran issues, while natural gas fell on mild weather forecast. Crude oil can rise to $105 level in near-term, however we think that the prices dont reflect real supply-demand scenario. Traders have pushed the counter sharply higher on Iran issue, while apparently the European recession and Chinas slowdown are yet to be discounted. Prices can fall sharply after $105 level is reached. Natural gas is likely to drift lower. Crude oilUp 0.75%

commodities buzz

Crude oil closed with a gain of $0.76 at $100.96. The counter was up nearly 4% last week. The U.S. Senate took aim at the Iranian central bank in an effort to choke off oil exports, while the European Union stopped short of targeting crude as it tightened sanctions intended to curb Irans nuclear program. The Senate bill, passed unanimously yesterday, would give the president the power starting July 1 to bar foreign financial institutions that do business with Irans central bank from having correspondent bank accounts in the U.S. If enacted, it could be much harder for foreign companies to pay for oil imports from Iran, the worlds third-largest crude exporter. The Obama administration opposes the legislation. While EU remains divided over calls to halt purchases of Iranian oil, ministers meeting last Thursday in Brussels added 180 Iranian officials and companies to their sanctions list and started work on measures against Irans oil exports, banks, transportation and the Revolutionary Guard Corps. Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, pumped about 3.6 million barrels of oil a day last month, a Bloomberg survey showed, and exported an average 2.58 million barrels a day in 2010, according to OPEC statistics. Support is at $100. Resistance is at $102. Natural gasDown 1.75% Natural gas closed with a loss of $0.064 at $3.584. The counter rose over 1% on the week. We suggest buying the dips as the market is very short on copper amid stronger than US data, thus there is a high possibility of a huge short-covering rally if the US weather turns supportive for the counter. Support is at Rs 179. Resistance is at Rs 186/ Rs 189.

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