Metals face hard times | 04 Dezembro 2015

Forecast for the week November 30 - December 4:

XAU/USD:

Despite the fact that the quotes of precious metal having been dropping for six weeks in run, gold is still an overvalued asset. Investors are now focused on two key factors that have a downward pressure on the XAU/USD. Firstly, it is the low expectations on inflation in the G-7 economies except the United States, however, USA also expects only short-term improvement. The oil market is still in the hands of bears and it is a strong negative factor for inflation. Despite the current low cost of the "black gold", crude oil inventories in the US have been rising for the nine weeks in run, oil storage facilities in Europe and China are filled for almost 100%. The Baltic Dry index which reflects transport cost of dry cargo by sea, is at the lowest level for the last 30 years, which clearly points to decline in the global trade and accordingly stagnation of the world economy. Against this background, it is difficult to expect that investors will turn into optimists and will open long positions in the commodity market. On the contrary, we should expect the downtrend to continue. Secondly, now the United States encourage market participants with positive macroeconomic statistics, which allowed the dollar index basket (USDX) exceed the level of 100.00. Strengthening of the US currency has been usually playing against dynamics of the precious metal. This week we should open Sell positions with XAU/USD on growth of quotations to 1064/1075 and take profit around 1041.

XPT/USD and XPD/USD:

Despite the positive October's release on the durable goods orders from the USA as well as the overall correction in the commodity market in the first half of the last week, the platinum group metals had not demonstrated a strong rise in the past five days. Car industry in the US and China shows steady growth, which is a positive factor for platinum and palladium, but investors are now more focused on dynamics of the US dollar. Less than three weeks remain before the meeting of the US Federal Reserve, which can decide on a tighter monetary policy. The yield of two-years' US treasury bonds, which reflects expectations about the interest rate, is now in the five-year's High. If you look at dynamics of differential of yields of short- and long-term bonds, a year ago the value was 169.7 points, and in early 2015 it was 149.6. On November 27 spread is 126.6 points. Decline of the differential of yield of two-years' and ten-years' government bonds usually points to the future tightening of the monetary policy by FOMC. Thus, investors realize that the upward trend of the US currency will continue beyond which will affect the value of the platinum group metals, as cost of these metals is denominated in US dollars. In this regard, a two-week consolidation of platinum and palladium, should be viewed as set of short positions of large players and we expect continuation of the downward trend in December.This week we should open Sell positions with XPT/USD on growth of quotations to 845/868 and take profit around 810 and open Sell positions with XPD/USD on growth of quotations to 560/575 and take profit around 524.

S&P500:

This week is eventful because of release of important macro-economic statistics and decision that will be made on expected change of monetary policy by the FED. However, we'lls start the review from the negative information from China, where the Commission on Securities and Exchange began an investigation in respect of the largest brokers. This factor caused a rapid decline of the Shanghai Composite Index by 5.5%. The last Thursday and Friday, US investors had a holiday - Thanksgiving Day - and in this regard, we expected that on Monday trading on the NYSE will be opened in the the red zone. However, correction should be used on Monday to open a long position on 1 December for two reasons. Firstky, United States shows an increase of demand in the risky assets which will contribute to continuation of an upward trend. The previous week, Russell 2000 index of small-cap companies in the US was among leaders of growth. In contrast, safe sector of utilities has been among outsiders. This trend signals willingness of investors to build positions with the risky assets. Secondly, during the week we can expected moderately positive macroeconomic statistics, which will also facilitate inflow of capital to the stock market. Some traders may argue that if statistics are positive, the US Federal Reserve will raise the interest rate on December 16 and this is a negative factor for the stock market. Indeed, increase in rates is a negative factor for the stock market, but there is one point. FED will raise the rate by 0.25% as maximum, which is not such a critical level to bring the stock market down. In addition, after publication of the October release on the labor market on 6 November, the yield of 2-year treasuries surged, it did not raise demand in funding currencies (euro and yen). When investors heavily sell off their assets, there is a demand in the funding currencies - but here we has a reverse process, funding currencies fell. In this regard, we can conclude that market participants are not much concerned about possible tightening of monetary policy. Of course, they keep track of all the factors that influence the policy of the Fed, but in the current environment no one plans leaving the stock market. The most crucial day of the coming week is Friday, when release will be published on the labor market. On Thursday, on December 3, based on advance indicators we can understand what data will be released on the Non-Farm Payrolls. In this context, it is better to close long positions before publication of the data and not to take on additional risks. This week we open Buy positions with S&P500on drop to 2078/2065 and take profit around 2010