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Oil May Finally Break Support Amid Chinese Tightening Fears

Oil May Finally Break Support Amid Chinese Tightening Fears

2010-03-11 10:23:00
Ilya Spivak, Sr. Currency Strategist
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Commodities - Energy

Oil May Finally Break Support Amid Chinese Tightening Fears

Crude Oil (WTI)       $81.58       -$0.51      -0.62%
Prices remain wedged between resistance at $82.23 and a rising trend line established from the bottom in early February. The percent-change correlation between the WTI contract and the MSCI World Stock Index remains significant at 0.78, reflecting the strong influence of risk sentiment. Trading is mixed on European exchanges but US index futures are trading lower, pointing to a “risk off” day on Wall Street. China’s inflation figures look to be the catalyst for selling after a report showed that Consumer Prices rose 2.7 percent in the year to February, putting the annual inflation rate at a 16-month high and sparking fears that Beijing will step up efforts to clamp down on credit growth. Chine is the world’s second-largest crude consumer, so a material slow-down there would bode quite ill for prices. A break lower exposes $77.53. Weekly US Jobless Claims and Trade Balance figures headline the economic calendar going forward.

031110 1


Commodities - Metals

Gold, Silver Likely to Extend Losses on US Yield Outlook

Gold       $1107.45      -$0.96       -0.09%
Gold prices have taken out support at a rising trend line established from February’s swing low, with continued selling to see barriers emerging at the $1100 figure. Firming US yield expectations continue to weigh on prices. Curiously, gold seems to be developing a firming inverse correlation with the spread between yields on 3-year and 2-year US Treasuries, potentially hinting the market expects the jump in borrowing costs from financing the massive US deficit to filter through somewhere between 2012-13. A Credit Suisse gauge tracking the priced-in outlook for Fed rate hikes over the next 12 months has also jumped by just over 2 basis points for the second consecutive day, suggesting the yellow metal may remain under pressure.

Silver      $16.96      -$0.06       -0.37%
As yesterday, the outlook for silver is largely in line with its more expensive counterpart as traders push inflation-hedge assets lower amid firming US yield expectations. Prices dropped to support at $16.86, with a break beyond this boundary exposing $16.31.

031110 2


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