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Crude Oil to Follow Stocks, Gold Outlook Clouded as NFP Approaches

Crude Oil to Follow Stocks, Gold Outlook Clouded as NFP Approaches

2011-07-08 10:40:00
Ilya Spivak, Head Strategist, APAC
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Commodities – Energy

Crude Oil Looks to US Jobs Data for Direction

WTI Crude Oil (NY Close): $98.67 // +2.02 // +2.09%

Needless to say, all eyes are now on the official set of US Employment figures, with traders encouraged by yesterday’s strong showing on preliminary ADP figures and hoping that a strong outcome will buoy the outlook for global economic performance in the second half of the year even as other key growth engines (China, Europe, Japan) appear to falter. Expectations call for an increase of 105,000 in June.

Interestingly, yesterday’s surge in risk appetite may have already seen markets price in a degree of good news, with upward pressure somewhat muted today if the outcome prints in line with expectations. However, with markets primed for a positive result after the ADP outcome, falling short of the consensus forecasts seems likely to be particularly damaging for the spectrum of sentiment-sensitive asset classes, including crude.

Prices are correcting a bit in Europe ahead of the key event risk, inching toward support at $97.51. A disappointing reading that takes the WTI contract below this juncture initially exposes the $96.00 figure once again. Alternatively, a break higher through near-term resistance at $99.38 opens the door for an advance to the June 9 high at $102.40.

Crude_Oil_to_Follow_Stocks_Gold_Outlook_Clouded_as_NFP_Approaches_body_Picture_3.png, Crude Oil to Follow Stocks, Gold Outlook Clouded as NFP Approaches

Commodities – Metals

Gold Torn Between Competing Forces Ahead of NFP

Spot Gold (NY Close): 1532.38 // +3.48 // +0.23%

Prices are pulling back from resistance at $1530.82 – the intersection of the 23.6% Fibonacci extension and the underside of a previously broken rising channel bottom – ahead of the US jobs report. Two conflicting forces are at work as the metal prepares for the data to cross the wires, casting a cloud over the near-term outlook for the yellow metal.

On one hand, an improvement in the US labor market against a backdrop of slowdown elsewhere reinforces expectations of a global recovery that is slow but continuous, trimming gold’s allure as a store of value in the event of runaway inflation or backslide into recession. On the other, a strong NFP figure is likely to weigh against the safe-haven US Dollar and push up assets denominated in the benchmark currency, including gold.

Gold’s overnight behavior suggests the latter of the two is the more important relationship over the near term. Indeed, prices are taking a step back along with the spectrum of risky assets as the greenback recovers some lost ground ahead of the release. Whether this continues to be the case in post-NFP volatility remains uncertain however, and caution is certainly warranted.

Crude_Oil_to_Follow_Stocks_Gold_Outlook_Clouded_as_NFP_Approaches_body_Picture_4.png, Crude Oil to Follow Stocks, Gold Outlook Clouded as NFP Approaches

Spot Silver (NY Close): $356.45 // +0.55 // +1.54%

Prices are stalling ahead of resistance at $36.64, the 50% Fibonacci extension level, ahead of the US jobs report. As with gold, the key question to be answered for the cheaper metal will be whether the direction of the US Dollar or the outcome’s implications for global growth are in the spotlight after the data crosses the wires. Near-term support lines up at $35.86. The gold/silver ration remains inversely correlated to the MSCI World Stock Index, suggesting silver will outperform in the event that a positive result boosts risk appetite.

Crude_Oil_to_Follow_Stocks_Gold_Outlook_Clouded_as_NFP_Approaches_body_Picture_5.png, Crude Oil to Follow Stocks, Gold Outlook Clouded as NFP Approaches

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