Global economy: No surprises

The global economy faces deflationary pressures as the vast credit expansion of the last 4 decades comes to an end.

$60 Trillion Global Credit

Commodity prices test their 2009 lows. Breach of support at 100 on the Dow Jones UBS Commodity Index would warn of further price falls.

Dow Jones UBS Commodity Index

The dramatic fall in bulk commodity prices confirms the end of China’s massive infrastructure boom.

Bulk Commodity Prices

Crude oil, through a combination of increased production and slack demand has fallen to around $60/barrel.

Crude Oil

Falling prices have had a sharp impact on global Resources and Energy stocks….

DJ Global Energy

But in the longer term, will act as a stimulus to the global economy. Already we can see an up-turn in the Harpex index of container vessel shipping rates, signaling an increase in international trade in finished goods.

Harpex

The latest OECD export statistics show who the likely beneficiaries will be. Primary producers like Brazil and Russia have suffered the most, while finished goods manufacturers like China and the European Union display growth in exports. The US experienced a drop in the first quarter of 2015, but should rebound provided the Dollar does not strengthen further.

OECD Exports

Australia and Japan offer a similar contrast.

OECD Exports

Oil-rich Norway (-5.8%,-13.3%) has also been hard hit. Primary producers are only likely to recover much later in the economic cycle.

Gold breaks key support level

A monthly chart of Gold shows the breach of support at $1200/ounce, offering a long-term target of $1000*. Another 13-week Twiggs Momentum peak below zero strengthens the signal. Retracement that respects the new resistance level at $1200 would confirm. Recovery above 1200 is unlikely.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Crude Oil

Crude is also falling — in response to the rising Dollar as well as expanding supply. The long-term target for Brent crude is $60*.

Brent Crude

* Target calculation: 90 – ( 120 – 90 ) = 60

…And $50/barrel for Nymex Light Crude. Follow-through below $75 would confirm the down-trend.

Nymex Crude

* Target calculation: 80 – ( 110 – 80 ) = 50

Commodities

Copper is below its 2011 low of $6800/tonne, reflecting weak demand from China. Follow-through below $6600 would confirm a primary down-trend.

Copper

Dow Jones UBS Commodity Index has already broken support at 125, suggesting a test of its 2009 low at 100.

Dow Jones UBS Commodity Index

Crude and commodities test support

Nymex Light Crude is testing primary support at $92/barrel while 13-week Twiggs Momentum (below zero) warns of a down-trend. Brent Crude is also approaching primary support, at $99/barrel. Breach of support would confirm a down-trend.

Nymex WTI Crude

Commodity prices are falling as the Dollar strengthens. Dow Jones UBS Commodity Index is approaching primary support at 122, while 13-week Twiggs Momentum (below zero) again warns of a down-trend. Breach of primary support would confirm.

Dow Jones UBS Commodity Index

Aluminum alloy, however, continues its primary advance.

Alumina

And nickel is likely to follow, having broken resistance at 18500.

Nickel

Commodities weak except for crude

  • Chinese stocks test long-term support
  • Commodities weaken
  • Crude oil remains high

China’s Shanghai Composite Index continues to test long-term support. 13-Week Twiggs Momentum holding below zero suggests continuation of the primary down-trend.

Shanghai Composite Index

Commodity prices are weakening, with Dow Jones-UBS Commodity Index breaking support at 133 to warn of another test of long-term support at 122/124. Reversal of 13-week Twiggs Momentum below zero would strengthen the signal.

Dow Jones UBS Commodities Index

Crude oil remains strong. The chart below plots WTI Light Crude over the consumer price index. The ratio is well above the historical average and is acting as a significant hand-brake on the post-GFC recovery.

Nymex WTI Crude

Considering the holes made in GDP (the green line) by crude oil spikes over the last 40 years, you can understand why Janet Yellen is reluctant to raise interest rates despite falling unemployment.

Nymex WTI Crude

Enough to make Gazputin grin

  • Chinese stocks drift lower
  • Crude oil rising
  • Other commodities weak

China’s Shanghai Composite Index continues to drift lower on the long-term, monthly chart.

Shanghai Composite Index

Apart from crude oil, commodity prices have fared little better. But crude plays such a dominant role in most commodity indices that they appear more buoyant. Dow Jones-UBS Commodity Index rallied to 140 before retracing for another test of primary support. Oscillation of 13-week Twiggs Momentum around zero, however, does not suggest a significant trend.

Dow Jones UBS Commodities Index

Crude oil is doing a lot better, heading for another test of $110/barrel on the back of supply threats from geo-political tensions. The ascending triangle is very large, but breakout would suggest a long-term target of the 2008 high at $145*.

Brent Crude and Nymex Crude

* Target calculation: 110 + ( 110 – 75 ) = 145

…Enough to make even Gazputin grin.

Vladimir Putin

Read more at Bloomberg, June 2013: Gazprom’s Demise Could Topple Putin

Crude and commodities rising

Nymex Light Crude is headed for a test of resistance at $105/barrel*. Recovery of 13-week Momentum above zero indicates a primary up-trend. Breakout above $105 would confirm, offering a target of $112*. Brent crude, however, continues to range between $104 and $112/barrel.

Brent Crude and Nymex Crude

* Target calculation: 105 + ( 105 – 98 ) = 112

The Dow Jones-UBS Commodity Index respected its new support level at 134, confirming a primary up-trend. The signal reinforces earlier recovery of 13-week Twiggs Momentum above zero. Target for the advance is 143. Reversal below 134 is now unlikely, but would warn of a bull trap.

Dow Jones UBS Commodities Index

* Target calculation: 134 + ( 134 – 125 ) = 143

Commodities retrace

The Dow Jones-UBS Commodity Index is retracing to test its new support level at 134. Respect would confirm the primary up-trend, signaled by the earlier breakout and recovery of 13-week Twiggs Momentum above zero. But a falling Shanghai Composite Index warns of weakening demand. Reversal below 134 would suggest a bull trap.

Dow Jones UBS Commodities Index

* Target calculation: 128 + ( 128 – 122 ) = 134

Crude and commodities signal recovery

The Dow Jones-UBS Commodity Index followed through above resistance at 128, after breaking its descending trendline, completing a double bottom reversal with a target of 134*. Breakout above 134 would confirm a primary up-trend.

Dow Jones UBS Commodities Index

* Target calculation: 128 + ( 128 – 122 ) = 134

Nymex Light Crude followed, completing a large double bottom reversal, with a target of $110/barrel*. Recovery of 13-week Momentum above zero indicates a primary up-trend. Brent crude continues to range between $106 and $112/barrel.

Brent Crude and Nymex Crude

* Target calculation: 100 + ( 100 – 90 ) = 110

Rising commodity prices suggest that the global economy is recovering, but copper (widely considered a bellwether for the global economy) has yet to follow. Bullish divergence on 13-week Twiggs Momentum favors an upward breakout. Breakout above $7500/tonne (and the descending trendline) would signal a primary up-trend.

Copper

Commodities follow Shanghai Composite

Copper prices, bellwether for the global economy, have been consolidating in a narrow band for almost a year. Breakout above $7500/tonne (and the descending trendline) would indicate a primary up-trend. Reversal below support at $6800/tonne, however, would offer a target of $6000. Narrow oscillation of 13-week Twiggs Momentum around zero reflects the current indecision.

Copper

The monthly chart below illustrates how the Shanghai Composite Index tends to lead broad commodity prices by up to 12 months. The Dow Jones-UBS Commodity Index is testing its descending trendline, but another decline on the Shanghai Index would likely cause further weakness. Recovery above 135 is unlikely at present, but would suggest a primary up-trend.

Dow Jones UBS Commodities Index

Rising interest rates drive gold through support

The yield on ten-year Treasury Notes followed through above 2.75, indicating a fresh primary advance, with a target of 3.50 percent*. Breakout above 3.00 percent would confirm. Completion of a 13-week Twiggs Momentum trough above zero (recovery above say 30%) would strengthen the signal. Reversal below the rising trendline is unlikely, but would warn of another test of 2.50.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

Dollar Index

Rising interest rates would strengthen the dollar. The Dollar Index rallied off support at 79 on the monthly chart, suggesting a test of 84. Breach of the rising trendline, however, still warns of trend weakness, and 13-week Twiggs Momentum respect of the zero line (from below) would strengthen the signal.

Dollar Index

* Target calculation: 79 – ( 84 – 79 ) = 74 or 84 + ( 84 – 79 ) = 89

Gold

Rising interest rates and a stronger dollar weaken gold. Spot gold broke support at $1250/ounce, signaling a primary down-trend. A 63-day Twiggs Momentum peak below zero strengthens the signal. Follow-through below the next support level, the June low of $1200, would confirm. Recovery above $1260 is unlikely, but would warn of a bear trap.

Spot Gold

* Target calculation: 1250 – ( 1350 – 1250 ) = 1150

Crude Oil

Nymex crude is undergoing a strong correction. 13-Week Twiggs Momentum crossing to below zero warns of reversal to a primary down-trend; a peak below the zero line would strengthen the signal. Expect strong support at $85/$86 per barrel. Respect of support would mean that Nymex remains in a primary (albeit weak) up-trend. Diverging Brent crude reflects both a strengthening European recovery and continued supply threats in the Middle East.

Brent Crude and Nymex Crude

Commodity Prices

Copper prices, bellwether for the global economy, respected resistance at $7400/$7500 per tonne and are heading for another test of the 2011 lows at $6800/tonne. Downward breakout would signal a primary down-trend, as would completion of a 13-week Twiggs Momentum peak below zero. Recovery above the descending trendline would be a bullish sign for the global economy, while breach of support at $6800 would be bearish.

Copper

China is a primary driver of commodity prices and a strengthening Shanghai Composite Index has slowed the fall in commodity prices. Dow Jones-UBS Commodity Index broke primary support at 124, but is consolidating in a narrow range below the former support level. Recovery above 124 would be a bullish sign, while follow-through below 122 would indicate a decline to 114*. Completion of a 13-week Twiggs Momentum peak below zero would also suggest a continuing down-trend.

Dow Jones UBS Commodities Index

* Target calculation: 124 – ( 134 – 124 ) = 114

Gold tests key support as the dollar rises

The yield on ten-year Treasury Notes rallied off support at 2.50 percent. Follow-through above 2.75 would indicate a fresh primary advance, with a target of 3.50 percent*. A 13-week Twiggs Momentum trough above zero would strengthen the signal. Respect of resistance is unlikely, but would warn of another test of 2.50.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

Dollar Index

Rising interest rates would strengthen the dollar. The Dollar Index respected support at 79, suggesting a rally to resistance at 84. Breach of the rising trendline, however, still warns of trend weakness, and 13-week Twiggs Momentum respect of the zero line (from below) would strengthen the warning.

Dollar Index

* Target calculation: 79 – ( 84 – 79 ) = 74

Gold

Rising interest rates and a stronger dollar would weaken gold. Spot gold is testing primary support at $1250/ounce. A 13-week Twiggs Momentum peak below zero warns of a primary down-trend; breach of $1250 would strengthen the signal, while follow-through below the June low of $1200 would confirm. Respect of support at $1250 is less likely, but would indicate another test of $1350.

Spot Gold

* Target calculation: 1250 – ( 1350 – 1250 ) = 1150

Silver is similarly testing support at $20.50/ounce. Breach would signal a decline to $18/ounce. Completion of a 13-week Twiggs Momentum peak below zero would warn of a primary down-trend.

Spot Silver

Crude Oil

Nymex crude is undergoing a strong correction. 13-Week Twiggs Momentum crossing to below zero warns of reversal to a primary down-trend. Breach of primary support at $86/barrel would confirm. Until then, however, Nymex remains in a primary up-trend. Diverging Brent crude reflects both a strengthening European recovery and continued supply threats in the Middle East.

Brent Crude and Nymex Crude

Commodity Prices

China is a primary driver of commodity prices and a weakening Shanghai Composite Index is driving commodity prices lower. Dow Jones-UBS Commodity Index broke primary support at 124, offering a target of 114*. A 13-week Twiggs Momentum peak below zero also suggests a continuing down-trend.

Dow Jones UBS Commodities Index

* Target calculation: 124 – ( 134 – 124 ) = 114

Dollar bear trap?

The Dollar Index found support at 80. Recovery above 81 would suggest a bear trap. A peak close to zero on 13-week Twiggs Momentum, however, indicates a primary down-trend. Reversal below 80 would confirm the long-term target of 76.50*.

A falling dollar would boost gold prices.

Dollar Index

* Target calculation: 80.5 – ( 84.5 – 80.5 ) = 76.5

The yield on ten-year Treasury Notes threatens recovery above 2.70 percent, which would signal an advance to 3.40 percent. Failure of support at 2.60 is unlikely, but would warn of a correction to 2.40 percent.

Rising treasury yields would lift the dollar, while raising the opportunity cost of holding precious metals and exerting downward pressure on gold.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.60 ) = 3.40

Gold

Spot gold continues its correction toward primary support at $1200. Follow-through below $1250 would confirm, while recovery above $1300 would suggest a higher trough and primary up-trend. 13-Week Twiggs Momentum peaking below zero, however, would indicate continuation of the down-trend.

Spot Gold

Crude Oil

Nymex light crude is edging lower and likely to test medium-term support at $98/barrel. Brent crude is diverging, reflecting continuing tensions over Syria.

Brent Crude and Nymex Crude

Commodity Prices

China’s Shanghai Composite Index is testing medium-term support at 2150. Downward breakout would warn of another correction — a bearish sign for commodity prices. Dow Jones-UBS Commodity Index shows evidence of a higher trough, however, and recovery above 130 would signal a primary up-trend. Bullish divergence on 13-week Twiggs Momentum also suggests a reversal.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Commodity prices: bullish divergence

Commodity prices continue to display weakness, with a tall shadow on the latest Dow Jones-UBS Commodity Index weekly candle. But the Shanghai Composite Index is strengthening and bullish divergence on 13-week Twiggs Momentum suggests a reversal. Recovery above 130 would signal a primary up-trend.

Rising commodity prices would be good news for resources stocks.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Gold

Spot gold respected the declining trendline. Breach of short-term support at $1280 per ounce would indicate another test of primary support at $1200. A 13-week Twiggs Momentum (not shown) peak below zero would be a strong bear signal. Respect of support, followed by recovery above the recent high of $1330 is unlikely but would complete a small double-bottom, indicating the correction is over.

Spot Gold

Crude Oil

Nymex light crude followed through below $102/barrel after breaking support at $103, confirming a test of medium-term support at $98/barrel. The wider spread with Brent Crude reflects continuing tensions over Syria which threaten supply.

Brent Crude and Nymex Crude

Dollar Index

The Dollar Index is consolidating below its new resistance level of 80.50. Follow-through below 80 would confirm the primary down-trend. The 13-week Twiggs Momentum peak at zero also signals a down-trend. Recovery above 81 is unlikely, but would warn of a bear trap.

A falling dollar would boost gold prices.

Dollar Index

The yield on ten-year Treasury Notes is consolidating between 2.60 and 2.70 percent. Recovery above 2.70 would signal an advance to 3.40 percent. Failure of support, however, would warn of a test of 2.40 percent.

Rising treasury yields would raise the opportunity cost of holding precious metals, exerting downward pressure on prices.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.60 ) = 3.40

Dollar and Treasuries likely to lift Gold

Spot gold continues to test support at $1300/ounce. Failure of support would visit the primary level at $1200/ounce, while respect would test $1440. Breach of the downward trend channel indicates the primary trend is slowing, but recovery above $1440, and a primary up-trend, seem some way off — as does recovery of 13-week Twiggs Momentum above zero.

Spot Gold

The two-hourly chart shows breakout above resistance at $1330. Retracement that respects the new support level would signal a rally to test $1375, improving the chances of a bottom.

Spot Gold

Dollar Index

The Dollar Index broke primary support at 80.50, warning of a primary down-trend. Follow-through below 80 would confirm. A 13-week Twiggs Momentum peak at zero also suggests a down-trend. A falling dollar would boost gold prices. Recovery above 81 is unlikely, but would warn of a bear trap.

Dollar Index

The yield on ten-year Treasury Notes broke support at 2.70 percent, warning of another test of 2.40 percent. Penetration of the rising trendline would strengthen the signal. Falling treasury yields are also likely to lift precious metal prices (because of the lower opportunity cost).

10-Year Treasury Yields

Crude Oil

Nymex light crude broke support at $103/barrel and its rising trendline, warning that the up-trend is slowing. A test of medium-term support at $98/barrel is now likely. The wider spread with Brent Crude is an indication of tensions over Syria which threaten supply.

Brent Crude and Nymex Crude

Commodities

Commodity prices continue to fall, with the Dow Jones-UBS Commodity Index headed for another test of 124 despite a resilient Shanghai Composite Index. Recovery above 130 is unlikely, but would confirm the earlier double-bottom reversal and a primary up-trend.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Gold hesitates as the Dollar strengthens

Spot gold is testing support at $1380/ounce. Breach would indicate a test of the rising trendline and support at $1350. Penetration of the trendline would warn that the rally is slowing and another test of primary support at $1200 is likely. But respect of the trendline remains as likely, and would offer a target of $1500*.

Spot Gold

* Target calculation: 1425 + ( 1425 – 1350 ) = 1500

Dollar Index

The Dollar Index encountered resistance at 82.50. Narrow consolidation or a short retracement would suggest a breakout — and another test of the July high at 84.75. Recovery of 63-day Twiggs Momentum above zero favors this, but respect of resistance would again test primary support at 80.50.
Dollar Index

Crude Oil

Nymex WTI light crude retreated below its new support level at $108/barrel, suggesting a test of the rising trendline and support at $103. Brent crude, however is advancing on the back of rising Middle East tensions and falling Libyan production. Expect resistance at the 2013 high of $118/119. Breach of the rising trendline is most unlikely for both Nymex and Brent — expect the up-trend to continue.

Brent Crude and Nymex Crude

* Target calculation: 108 + ( 108 – 98 ) = 118

Commodities

The Shanghai Composite Index [green line] continues its gentle rise, helping to support commodity prices. But tall shadows on the last two candles indicate selling pressure on Dow Jones-UBS Commodity Index. Reversal below 130 would warn of another test of primary support at 124/125.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Commodities rise as the Dollar falls

Dollar Index

The Dollar Index is testing primary support at 80.50. Bearish divergence on weekly Twiggs Momentum warns of a primary down-trend and breach of support at 80.50 would confirm. Respect of support and recovery above 82, however, would indicate an up-swing to 84.50.
Dollar Index

Crude Oil

Nymex WTI light crude broke resistance at $108/barrel, as the Syrian conflict threatens to escalate. Expect an advance to $118/barrel*. Reversal below $108 is most unlikely, but would signal another test of the rising trendline. Brent crude similarly broke through $110, offering a target of $120.

Brent Crude and Nymex Crude

* Target calculation: 108 + ( 108 – 98 ) = 118

Commodities

Copper is headed for a test of $7500/tonne. Respect of resistance would indicate another test of long-term support at $6600/$6800. Upward breakout and penetration of the descending trendline would suggest the primary down-trend is ending, while breach of support at $6600 would signal continuation. Momentum oscillating mainly below zero still favors a down-trend.
Dow Jones UBS Commodities Index
The Shanghai Composite Index bear rally continues, causing a lift in commodity prices. Dow Jones-UBS Commodity Index completed a double-bottom reversal, with breakout above 130, offering a target of 135*. Penetration of the descending trendline also suggests the primary down-trend has ended.

Dow Jones UBS Commodities Index

* Target calculation: 130 + ( 130 – 125 ) = 135

Be cautious, however, as the Shanghai Composite faces resistance at 2150. Reversal below the rising trendline would warn of another primary down-swing; confirmed if support at 1950 is breached.
Dow Jones UBS Commodities Index

Gold tests $1350, Crude bullish

Gold found support at $1270/ounce before rallying to test $1350. Breakout would offer a target of $1430*, but reversal below $1270 is as likely and would signal a re-test of primary support at $1200.

Spot Gold

* Target calculation: 1350 + ( 1350 – 1270 ) = 1430

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Dollar Index

The Dollar Index remains in a downward trend channel, headed for a test of primary support at 80.50. Bearish divergence on weekly Twiggs Momentum warns of selling pressure. Respect of the upper channel would warn of a down-swing to 80.50. Upward breakout is less likely, but would suggest the correction is ending. Follow-through above 82.50 would strengthen the signal.
Dollar Index

Crude Oil

Nymex WTI light crude is consolidating below resistance at $108/barrel, while Brent crude consolidates below $110. Upward breakout is likely and would signal an advance to $118* and $120 respectively.

Brent Crude and Nymex Crude

* Target calculation: 108 + ( 108 – 98 ) = 118

Commodities

Copper respected support at $6600/ton and is rallying to test $7500 and the descending trendline. Upward breakout would suggest that a bottom is forming, while respect would warn of another test of $6600. Momentum oscillating below zero suggests continuation of the primary down-trend. Failure of support at $6600 would confirm.
Dow Jones UBS Commodities Index
A bear rally on Shanghai Composite Index [lime green] caused a lift in commodity prices. Dow Jones-UBS Commodity Index recovered above long-term support at 126, suggesting a rally to 130. Breakout is unlikely, but would offer a target of 136*. The primary trend is down and reversal below 124 would suggest a long-term decline to the 2009 low at 100*.

Dow Jones UBS Commodities Index

* Target calculation: 125 – ( 150 – 125 ) = 100; 130 + ( 130 – 124 ) = 136

Gold and commodities falling while Dollar weakens

Gold is drifting lower after breaking support at $1300/ounce. Penetration of support at $1270 would signal a re-test of primary support at $1200, but reversal above $1300 remains as likely and would indicate another test of $1350. Breakout above $1350 would target $1400.

Spot Gold

The above feed is from a new data supplier. Data is 10-minute delayed and time-stamped US Central Time (Chicago exchanges). After recent problems with data reliability we have cancelled the contract with our current supplier and will switch to the new source within a few days.

The Gold Bugs Index, representing un-hedged gold stocks, continues its sharp fall. Follow-through below 200 would indicate a test of the 2008 low at 160 — a bearish sign for the spot metal.

Spot Gold

Dollar Index

The Dollar Index is heading for a test of primary support at 80.50. Respect of the rising trendline would be a bullish sign, but bearish divergence (and reversal below zero) on weekly Twiggs Momentum warns of weakness. Breach of 80.50 would signal a primary down-trend.
Dollar Index

Crude Oil

Nymex WTI light crude twice respected resistance at $108/barrel. Reversal below last week’s low at $103 would warn of a test of $98, while respect would suggest another strong advance. Brent crude is likely to track its US counterpart closely.

Brent Crude and Nymex Crude

* Target calculation: 98 + ( 98 – 86 ) = 110

Commodities

Copper is testing long-term support at $6800/ton. Follow-through below $6600 would confirm another primary decline.
Dow Jones UBS Commodities Index
The Shanghai Composite Index is holding above its 2012 low  at 1950, but further weakness is likely and would drive commodity prices lower. Dow Jones-UBS Commodity Index breached long-term support at 125/126, offering a target of the 2009 low at 100*. Not good news for Australian resources stocks, even if the impact is cushioned by a falling Aussie Dollar.

Dow Jones UBS Commodities Index

* Target calculation: 125 – ( 150 – 125 ) = 100