Commodity Risk Assets Hit Bullish Note

Daily Analysis - 12/10/2015

Commodities Experience One of the Best Recent Weeks With Currencies and Metals Reflecting the Gains

The strong rise in risk appetite Friday saw commodity markets post strong gains in a recovery following the previous week’s declines. Risk on conditions saw the US Dollar and the Yen remaining subdued as the AUD and the NZD posted weekly highs on fading bets that the Fed will not be hiking rates in October.

Canada Mixed on Jobs

The monthly jobs report from Canada last week saw the unemployment rate tick higher than expected to 7.10%, up from 7.00% previously. This figure starkly contrasted with forecasts, missing estimates expecting the Canadian unemployment rate to decline to 6.90% over the month. On the monthly employment change, the Canadian economy added 12,100 new jobs, outperforming the median estimates of 10,500. The economy on the whole continues to add a stable and sustainable number of jobs despite reports of layoffs from the energy patch on account of falling crude oil prices. The gains in WTI has helped the Canadian dollar to also gain against the Greenback with any protracted rally in crude oil benchmarks anticipated to add to the tailwinds lifting the Loonie. The USDCAD currency pair fell -1.56% for the week, breaking below the 1.30 psychological round number support level.

Commodity Relief Rally

The commodity markets posted strong gains last week across the board, coming off a slump just a week ago. Gold prices closed at $1156 before touching a 5-week high of $1160 per troy ounce while crude oil finally managed to break out from its range to close at $49.49 per barrel, just one tick below the $50 handle. It was the same story across the various commodity markets which tumbled a week ago, putting pressure on mining giants such as Glencore, a trader dual-listed on the London and Hong Kong Stock Exchanges, with shares rebounding nearly 35.00% from a week ago. The rally in Glencore came after the company reported that it was scaling back production and investments in key areas in a bid to put a floor in place for commodity prices. Other metals that posted strong gains included Copper which closed 3.30% higher.

US Equities Hold Onto Gains

US equity benchmarks, which came under strong pressure few short weeks ago, managed to continue recovering with the S&P 500 and Dow Jones up an average of 3.00%. The gains in stocks come after the downturn in the commodity markets saw many energy companies market capitalization shrink in value alongside the Volkswagen scandal which dragged down the automakers in general. The equity markets gained largely thanks to dovish FOMC meeting minutes released last week. As was expected, the Federal Reserve is still strongly concerned by the lack of inflation, in-line with the sentiments expressed by most central bankers in advanced economies. The gains in the equity markets come as the quarterly earnings are likely to take center stage in the coming weeks. Bellwether miner Alcoa has already given pause for concern after posting a substantial slide in revenues.

Markets Look to Slow Newsday

Japanese and Canadian markets are closed today on account of holidays and the European trading session is absent any major economic releases that would be considered strong fundamental catalysts. The lack of data and low liquidity is likely to see the markets range sideways over the near-term. The only notable events for today includes speeches from FOMC members, Dennis Lockhart, Evans and Brainard alongside Bank of Canada Governor Stephen Poloz's speech. From the UK, the consumer board's leading index data is due later today. EURUSD closed last week on a positive note but is likely to struggle near the 1.1455 level of resistance in light of the technicals. In the event EURUSD manages to close above this resistance on the weekly chart, it could provide the impetus a strong rally thereafter, provided 1.1455 holds as a support level.