Commodities Recover On ?Solid? GDP Figures
Today’s Spotlight Market
In addition to the rebound in commodity prices on Thursday, so-called commodity currencies also showed some strength with both the Australian and Canadian Dollars up nearly 1% vs. the U.S. Dollar and the Brazilian Real up close to 2%. Commodity and emerging market currencies have posted steep losses for most of 2015 as the apparent slowdown in China?s economic growth hurt demand for raw commodities which generated tremors throughout nations relying on commodity exports for a large portion of their GDP. ?
Fundamentals
Commodity markets rebounded on Thursday following gains in Asian, European and U.S.? equities as a relative sense of ?calm? seems to be returning to global markets. Improvements in U.S. economic growth was highlighted on Thursday, as the U.S. Commerce Department reported that 2nd quarter GDP came in at a seasonally adjusted annual rate of 3.7%, which was significantly higher than the 2.3% growth rate originally reported. While there are still concerns on how China?s economy is fairing, it does appear that the U.S. economy is sustaining its recovery. Most impressive was the rebound in commodities on Thursday, with Crude Oil up over 8%, Copper up nearly 4% and Lumber gaining 1.5% while the value of the U.S. Dollar up sharply vs. both the Euro and the Yen. Of course some of the gains in commodities can be attributed to short-covering by weak bears after many markets reached well oversold levels, technical traders are starting to see some signs of potential bottoming formations on many commodity charts. Economist are still divided on whether the Federal Reserve will finally begin to raise short-term rates at the next Federal Open Market Committee (FOMC) meeting, which is scheduled for mid-September, with traders stilling leaning towards the Fed waiting a bit longer prior to a rate increase, given the continued uncertainly in the global markets. However, in a counterintuitive way, a 25 basis point hike at the September FOMC meeting may actually be a bullish signal as it could be an indication of the Fed?s belief that U.S. economic growth is sustainable and finally remove the uncertainty on when the Fed would finally take action on interest rates and we are all learning how markets ultimately abhor uncertainly.
Technical Notes? – View Today’s Chart
Looking at the daily continuation chart for Crude Oil futures, we notice Thursday?s sharp rally is setting up a test of the 20-day moving average for the first time since late June as prices rebounded from oversold levels. After falling to a low near 20, the 14-day RSI has rebounded sharply and is now reading a more neutral 42.07. The August 19 high at 43.18 is seen as the next chart resistance level for the lead month October future, with support seen at the contract low of 37.75.
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