Commodities got slammed across the board on Thursday, as double dip fears mounted. There is evidence to suggest that there may be more downside to come.
Commodities - Energy
Crude Oil Plummets on Double Dip FearsCrude Oil (WTI) $73.18 +$0.23 +0.32%
A batch of weak U.S. economic reports sent crude oil screeching lower on Thursday. Prices slid through $75.50 support and never looked back. A measure of expected oil volatility increased to 41.22%, as traders anticipate large swings going forward, though that is below the 47% registered in May and early June.
A batch of weak U.S. economic reports sent crude oil screeching lower on Thursday. Prices slid through $75.50 support and never looked back. A measure of expected oil volatility increased to 41.22%, as traders anticipate large swings going forward, though that is below the 47% registered in May and early June.
The double dip thesis is gaining traction, and that naturally bodes poorly for economic-sensitive commodities such as crude oil. It mattered little that the dollar was slammed on the day, as that was merely a consequence of Thursday’s disappointing economic data. All eyes are now on the June U.S. nonfarm payrolls figures set to be released early on Friday. Though the headline number is expected to show a net 130K payroll decrease due to census worker adjustments, the private payrolls component is anticipated to increase 110K, which is greater than the 41K increase in the prior month and the 13K ADP estimate from earlier in the week.
Despite the recent slide, crude oil prices are still notably above the sub-$70 levels of May, even though the global economic outlook has deteriorated significantly since then. Granted, the Gulf of Mexico production outlook has also deteriorated, which is undoubtedly bullish for oil, but any loss in output from the GOM in the medium term would be dwarfed by potential demand contraction from a second global economic slowdown or recession. Therefore, we would be wary of initiating long positions at current prices, for further turmoil in broad financial markets will likely lead to oil testing levels near $70 and below.
Gold Falls The Most Since FebruaryGold $1206.00 +$7.05 +0.59%
Gold is rebounding after falling the most since February in Thursday’s session. Prices broke through the steep upward trendline that extended back to March, resolving the bearish rising wedge pattern that had developed on the charts. As we have been suggesting, strong performing risk assets tend to buckle under the pressure of broad financial turmoil, regardless of their underlying fundamentals. This is because as other assets fall, the asset in question becomes relatively more expensive. The urge to raise cash and lock in profits becomes overwhelming in an environment of market distress, which in this case, overwhelmed gold’s status as a safe haven. While prices could bounce a bit on bargain buying, we see prices eventually making a push toward the $1166 horizontal support area
Silver $17.93 +$0.15 +0.84%As we suggested in yesterday’s update, silver fell precipitously to settle under $18 on Thursday. Like gold, we see further downside. Horizontal support near $17.20 is the first level to watch.
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