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Initial jobless claims came through less than expected (320,000 versus 335,000), and lower than July’s figure of 333,000.
Yields on Treasury 10-year notes shot up to 2.82%; the highest level since 2011. Then we had numbers on manufacturing which has been the weak spot in the US. Industrial production is unchanged and factory production declined 0.1%. Total TIC flows showed foreigners have been net sellers of US portfolio assets, which include Treasury notes, bonds and equities in June, for a total $66.9 billion; making this the biggest outflow of US assets since 2007.
Japan and China, the biggest buyers of US Treasuries sold a combined total of $41 billion of Treasuries. US indices, Dow, S&P 500 and Nasdaq corrected over 1.5% on signs the consumer spending is not as robust as the numbers we saw last week. Retail giants such as Walmart and Macy’s cut earnings for the year as consumers are cautious on their spending.
Where does this leave us?
It is clear investors are positioning themselves before the Fed releases FOMC minutes next week. We are still not seeing flows in the emerging markets space. Since the Fed announcement on 22 May, investors have pulled out of the Asian assets space and we see a drag in Asian currencies except for the yen and yuan. The yen is the best performer in the Asian currencies space, up 6.2%, with the rupee the worst performer, down 10% (from 22 May).
We are seeing more activity in the commodity space with the bulls firmly in charged. Gold jumped, hitting $1369 close to our next level of resistance of $1370. Momentum is apparent and there could be a retest of $1370 in today’s trading. If it breaches $1370 the next level is $1380, with immediate support at $1355.
An interesting report from World Gold Council yesterday showed demand for jewellery rose 37% in Q2 to 575.5 metric tons, the highest level in five years, but total demand has fallen to the lowest level in four years. This is mainly due to a slowdown in central bank purchases in Q2.
Copper on Comex continues to trade on a bullish trend. Our resistance and support level of $320 and $340 remains intact. In China, production on refined copper fell in July to the lowest level in five months on smelter maintenance and tight supplies. The slowdown in China has dampened industrial demand for the metal, and recovery in the US and eurozone should see demand for the metal.
Crude prices stayed high as traders are not taking any chances with the escalating unrest in Egypt, although supply in the Suez Canal has not been disrupted. Libyan supply is all closed except for one; due to protests. Brent prices have more momentum than WTI due to fundamental factors. Our levels hold with resistance at $110 and immediate support at $108; a break above. WTI has strong resistance around $108 and support at $105.