Traders Own

Gold bullion traded for London delivery rose back through $1400 for the fifth day running on Wednesday morning, rising as the US Dollar slipped following weaker-than-expected jobs data.

Gold priced in the Euro ticked higher to €1075 per ounce, but was unchanged for the week so far in terms of Pounds Sterling below £914.

Silver prices rose back above $22.60 per ounce.

"The [gold] market has quite rightly shrugged this off," says David Govett at brokers Marex Spectron of yesterday's decision by the Indian government to ban credit-paid imports of gold bullion.

"If India wants gold, it will buy gold!"

"As a result of these measures," agrees the Business Standard in an editorial, "gold demand and import will come down...[but] smuggling of the precious metalis likely to go up."

Reuters says retail distributors in the world's largest gold-consuming nation are "braced for higher premiums" over and above the international benchmark price for gold, typically quoted for London settlement.

"Supplies will get more scarce," the newswire quotes Mayank Khemka of the Khemka Group. "There won't be any [gold bullion] imports for the next two-three days until clarity comes."

Speaking for the world's leading gold-mining companies, "We recognize the short-term needs for such measures," The Times of India quotes Aram Shishmanian, CEO of market development organization the World Gold Council.

"But we are proposing to work with [the Reserve Bank of India]," he explains, "so that in the long term gold could be monetized as a financial asset" rather than as a physical consumer commodity dragging on India's trade balance.

April saw net imports of gold bullion to China – the world's #2 consumer nation – fall 41% from March's record high, new data showed today.

The net reading of 80 tonnes "is a surprise" said one dealer, but others cited a backlog of paperwork for gold importing banks who had already used their official quota in the first 3 months of the year.

The Shanghai Futures Exchange yesterday cut the amount of money gold and silver traders must keep on deposit against their positions from 7% to 4% by value.

For Western money managers, meantime, "Gold is a beneficiary of negative real interest rates," says a research note from asset managers Blackrock, noting that May saw the sixth month running of outflows from exchange-traded gold trusts, knocking nearly one-third of gold ETF assets from the start of this year to $96 billion worldwide.

Even so, "Many invest in gold as a long-term holding due to its diversifying properties," Blackrock adds. Because gold bullion "has historically shown little to no correlation with other major asset classes, including commodities."

Commodity prices meantime ticked higher Wednesday morning, as did major government bonds, while the US Dollar slipped following news of weaker-than-expected growth in US hiring.

The private-sector ADP report – released ahead of Friday's closely-watched official Non-Farm Payrolls report – missed forecasts of 165,000 net new jobs by a fifth.

Ten-year US Treasury yields fell to 2.12%, a 1-week low.

Two US Federal Reserve presidents said separately on Tuesday that reducing the central bank's huge monetary stimulus is beginning to look "appropriate".

"Gold continues to move sideways within a small range," says the latest technical analysis from bullion bank Scotia Mocatta, pegging support at $1373 and resistance at $1422.

"Consolidation is ongoing," agrees Axel Rudolph at Commerzbank, "but the overall trend remains bearish" with support pegged lower at $1338.

On the supply side, the world's largest gold mine, the giant Grasberg mine in Indonesia, will be shut for 3 months as the government investigates a collapse which killed 28 miners in May.

Majority owned by Freeport-McMoRan Copper & Gold Inc, Grasberg had been scheduled to produce some 65 tonnes of gold this year – more than 2.4% of global output – after falling to 28 tonnes due to strikes in 2012.

The shutdown will likely bloock 125,000 tonnes of copper production too.

Meanwhile in Brussels on Wednesday, Latvia was welcomed by the European Commission as the 18th member of the Euro currency union, joining on New Year's Day 2014.

Anti-Euro parties won more than 50% of the vote in last weekend's elections in Latvian capital Riga, the BBC says.

Approving Latvia's accession to the 330-million citizen Eurozone, the European Central Bank today warned of the "important risk to financial stability" posed by the reliance of "a significant part" of the country's banking sector on foreign investors' deposits.

(c) BullionVault 2012

Once again today we’ve seen European markets making new multi-year highs in the morning session as they again edge incrementally higher for the third day in succession, with another new all-time high for the DAX, and a new multi-year high for the FTSE, but the resulting lack of conviction always results on a nervous slipping back as economic data once again disappoints.

 

Despite the poor economic data investors remain comforted by the fact that central banks remain ready in the back ground to catch any sign of a dropped ball, which means each dip continues to remain a shallow one.

 

Following on from yesterday’s disappointing data, we’ve seen a disappointing miss on US jobless claims which knocked stocks back off their intraday highs, while inflation data in the US also seemed to suggest that talk of potential Fed tapering continues to be somewhat premature.

 

The best performer on the London market is insurance group  Aviva (AV.) after reporting better than expected numbers for its first quarter. New business sales grew by 18% in the first three months of this year with Asia and the UK counteracting a difficult trading environment in Italy and Spain.

 

Falling copper, silver and gold prices continue to weigh on the mining sector with the biggest fallers being Fresnillo (FRES), Polymetal (POLY) and Evraz (EVZ).

 

The long rehabilitation and return to the public eye of ex-BP Tony Hayward Chief executive appears to be complete after he was announced as the new temporary Chairman of Glencore (GLEN) in the wake of previous Chairman John Bond’s departure.

 

Despite a trifecta of disappointing economic data US markets only opened slightly lower this morning after making new all-time highs yesterday. Weekly jobless claims jumped sharply to 360k, well above expectations of 330k, while housing starts dropped 16.5% and CPI decline 0.4%. The bright spot was building permits which jumped 14.3%, once again reinforcing the patchy nature of the US economic recovery.

 

Yesterday saw a disappointing Empire manufacturing number and it would appear that the latest Philadelphia Fed was similarly disappointing slipping into negative territory at -5.2 with new orders also going negative to the tune of -7.9

 

In earnings news retail heavyweight Wal-Mart saw Q1 earnings rise 1.1% though same store sales missed expectations. Profits came in at $1.14c a share above expectations of $1.09c; however the company lowered its guidance from $1.29c to $1.22c-$1.27c a share. 

 

Other retailers due to report include troubled retailer JC Penney who are expected to post losses of $0.86c a share. Nordstrom is also set to report its latest Q1 numbers after the bell with expectations of $0.76c a share.

 

PC maker Dell is expected to post its latest numbers for Q1 after the bell with the numbers expected to come in below last year’s equivalent profits, due to a slowdown in PC sales. EPS of $0.35c a share is the consensus number, below $0.43c a share a year ago.

 

Also in the tech sector Cisco Systems moved sharply higher after last night’s earnings announcement showed the company beating expectations on both profits and revenues.

 

The commodity currencies of Australian and New Zealand dollar continue to get clobbered along with commodity prices as copper and gold prices continue to come under pressure from a rebounding US dollar.

 

The disappointing US data has also seen the US dollar slide against the yen slipping below 102.00 for the first time in two days.

 

Amongst the better performers we’ve seen the Swiss franc and the pound gain against the euro and the US dollar.

 

In particular the euro has been hurt by soft inflation numbers from the euro area which is once again raising expectations of further easing from the ECB at the next policy meeting in June, though it has pushed higher against the US dollar as traders once more adjust their positions in line with Fed tapering expectations.

 

Gold prices continue to come under pressure and look set to test the $1,300 as more high profile investors pared back their holdings of the yellow metal. With inflation falling back across the globe a lot of investors are winding back their gold exposure and putting their cash to work in higher yielding and more risky assets like equities and peripheral sovereign bonds. Silver prices are also coming under increasing pressure near support at $22.

 

The copper price looks also set to post its fourth successive down day in a row, while oil prices are getting torn between speculation about further stimulus and a weak demand outlook after this afternoon’s disappointing economic data.

It’s been the defensive sectors that have helped the FTSE100 to multi year highs today driven by M&A speculation, with the cyclical growth stocks once again acting as the main drag as copper and oil prices slip back. The main losers are Antofagasta (ANTO), Vedanta Resources (VED) and Anglo American (AAL).

 

The main drag on commodities has been concerns about China and the wider prospects for growth after JP Morgan downgraded its economic forecasts for the Chinese economy while the German ZEW survey missed expectations, somewhat surprisingly given the record highs seen in the DAX over the past week. If investors can’t get excited about a benchmark valuation at record highs then there has to be a concern that a lot of this rally is built on hope rather than solid fundamentals.

 

On the plus side it’s M&A that’s driving the gains today with Severn Trent (SVT) up over 10% on talk that a consortium of investors which includes the Kuwait Investment Office is about to table a bid of up to £23 a share. This has also helped pull United Utilities (UU.) higher along with other utility providers

 

Engineering group Babcock (BAB) is also a high riser after reporting a strong set of numbers with a 16% jump in pre-tax profits as well as a strong order book. Rolls Royce (RR.) who also operate in a similar sphere is also making good gains.

 

Falling import prices due to lower oil prices have helped reinforce concerns about falling prices with a drop of 0.5% in April. Improving small business confidence to the best levels in six months has also helped pushing US markets higher after the open as once again investors push equities to new record highs on expectations of an improving economic environment.

 

The financials are the big movers higher in the US while telecoms drag despite Verizon announcing a $7bn dividend.

 

JP Morgan Chase and Bank of America are helping leading the Dow higher as optimism about an improving US economy fuels further gains to record highs.

The US dollar is once again one of the main outperformers, while the yen has recently pulled back from the lows of the last few days.

 

The commodity currencies are once again taking the brunt with the Australian dollar sliding sharply to 11 month lows, after the latest Australian budget forecast a significant slowdown in growth over the coming months raising expectations of further RBA rate cuts. Potential concerns about a China slowdown aren’t helping either.

 

The pound has also come under pressure ahead of tomorrow’s Bank of England inflation report where it is expected that the bank could well downgrade its inflation forecast. If there is a downgrade to these forecasts then we will see speculation about further easing start to permeate market thinking irrespective of whether it is likely.

 

In any case the strength of the US dollar is likely to be predicated on improving economic data and future prospects for the tapering off of the Federal Reserve’s existing asset purchase program.

 

Copper prices have continued their recent weakness dragged lower by this morning’s China growth downgrade as well as rising inventories.

 

Crude oil prices have continued their recent declines, despite the IEA increasing its forecast for oil demand for 2013. Instead of supporting prices we’ve seen declines continue as rising inventories in the US mean that supply will likely outweigh demand for quite some time to come.

European markets got off to a slow start this week, slipping back after Chinese economic data came in slightly below expectations prompting a little profit taking from investors after all-time highs in US and German equity markets last week.

 

These early losses were tempered by the latest US retail sales numbers for April which came in much better than expected at 0.1%. Expectations had been for a decline of 0.3%, but the numbers were boosted by the sale of bigger ticket items like car sales and electrical goods. Given the recent positive adjustments in employment data and the fall in gasoline prices there was always the likelihood of a positive surprise and that’s what we got.

 

On the downside the financial sector is slipping back led by Standard Chartered (STAN LN) on reports that renowned short seller Carson Block is betting against the quality of the company’s debt. The rest of the banking sector was also lower with Lloyds Banking Group (LLOY LN) following close behind.

 

British Airways owner IAG (IAG LN) was also a leading faller after last week’s disappointing Q1 numbers with concerns about its Spanish operations continuing to act as a drag. On the plus side security group G4S (GFS LN) is a high flier after last week’s hefty declines as the announcement that the company would be helping protect the June G8 summit prompted some bargain hunting. Also doing well is Chilean copper miner Antofagasta (ANTO LN) after broker Nomura suggested that certain mining companies with balance sheet headroom could afford to raise their dividends.

 

US markets opened slightly lower this morning despite a much better than expected retail sales number for April which showed a rise of 0.1% helped by increased spending on big ticket items like car sales.

 

Having seen three successive weeks of solid gains it’s not too much of a surprise to see some caution and reticence creep in to investor mindsets. The early movers lower include Alcoa and Hewlett Packard, with slightly softer copper prices and oil prices weighing down raw material and cyclical stocks.

 

Dell also remains in focus as the takeover shenanigans continue with respect to large investor Carl Icahn’s counterbid for the company.

The euro has struggled to rally today despite a decent Italian auction, though this may have more to do with comments by ECB member Visco who stated that negative deposit rates would be effective.

 

The pound has overall had a much more negative day despite some notably positive updates on the UK economy today. The CBI’s latest survey paints a much more positive outlook for the UK economy over the course of the next 12 months, while a separate survey by Lloyds TSB also suggested that regional growth was starting to edge higher.

 

The Australian dollar is by far the worst performer dragged down by concerns about a slowing China and the prospect of further rate cuts. The New Zealand dollar is not too far behind it.

 

Copper prices have slid back after three consecutive weeks of gains slipping back as a result of the small miss on Chinese industrial production in April. Any further doubts about the prospects for future Chinese demand are likely to temper the upside and are likely to do the same with respect to crude oil prices.

 

As a result of this Crude oil prices have continued to remain under pressure after the gains seen in the last couple of weeks as demand concerns and higher inventories weigh on prices. Last week’s concerns about shorter term demand expressed by OPEC on Friday appear to have tempered upside for the time being.

 

WTI prices have also struggled despite the better than expected retail sales data out of the US as they continue to struggle anywhere near the $97 mark. The Brent/WTI spread is now at its narrowest level in over a year at $7.75 when it was trading just above $7 in January 2012

Spot market gold bullion prices fell to two-week lows Friday, drifting lower towards $1440 an ounce during this morning's London session before dropping sharply through that level, as stocks gained and most commodities fell as the Dollar strengthened against major currencies.

Silver fell to $23.34 an ounce, while copper prices ticked higher.

"The risk [for gold] is a break through support [will] test the $1322 low," say technical analysts at bullion bank Scotia Mocatta, who cited $1440 an ounce as a key support level.

Heading into the weekend, gold looked set for a 2.2% weekly drop by lunchtime in London, with silver down 2.6% on the week.

The world's biggest gold exchange traded fund SPDR Gold Trust (ticker GLD) meantime saw the volume of bullion held to back its shares climb to 1054.2 tonnes yesterday, the first daily addition mid-March. The GLD has seen its holdings fall by more than a fifth since the start of the year, taking them down to four-year lows.

Deutsche Bank became the latest investment bank to cut its gold forecast Friday, with its analysts now projecting a 2013 average gold price of $1533 per ounce, down from the previous forecast of $1637. The 2014 forecast was cut from $1810 an ounce to $1500, with the 2015 forecast down from $1930 to $1450.

On the currency markets, the US Dollar rose above the 100 Japanese Yen mark for the first time in four years Friday. The Dollar also added to gains made against the Euro Thursday, which followed the release of the lowest weekly US initial jobless claims figure since January 2008.

"Gold's been put a little bit under pressure because of the Dollar move," says Afshin Nabavi, senior vice president at Swiss bullion refiner MKS.

"Physical-related demand had been very strong up to yesterday. The lower gold goes, the more physical demand will come in."

"People in Hong Kong are still complaining about tight supply," one dealer in Singapore told newswire Reuters Friday.

Japan's Nikkei 225 stock market meantime closed up nearly 3% Friday, hitting a five-and-a-half-year high as the Yen weakened against the Dollar.

The Bank of Japan last month announced that it will double the monetary base over the next two years, buying between ¥60-70 trillion of assets a year, after prime minister Shinzo Abe said policymakers will do "everything possible" to achieve an inflation target of 2%.

"In general, if you ease monetary policy, your currency will weaken," International Monetary Fund deputy managing director Naoyuki Shinohara told an audience in Tokyo Friday, adding that poor fiscal discipline from the government risks giving the impression that is being financed by the central bank.

"Most central banks...still have a bias to ease," says a note from Morgan Stanley.

"Given this disposition, it doesn't take much in terms of downside surprises in growth or inflation to tip the balance for more central banks to pull the trigger for more easing."

Today's meeting of G7 finance ministers and central bank governors near London is "an opportunity to consider what more monetary activism can do to support the recovery," said UK chancellor George Osborne yesterday, "while ensuring medium-term inflation expectations remain anchored".

"Central banks are our best friends," Mohamed El-Erian, chief executive of world's largest bond fund Pimco, said earlier this week.

"Not because they like markets, but because they can only get to their macro objectives by going through the markets...the hope is that improving fundamentals will validate what central banks have done."

Gold mining companies meantime reduced their gold hedge positions during the last three months of 2012, according to the latest analysis from precious metals consultancy Thomson Reuters GFMS.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

Wholesale market prices for buying gold climbed back above $1460 an ounce during Wednesday morning's London trading, in line with its range over the last week, as stocks gained and longer-dated US Treasuries dipped ahead of an auction of 10-year bonds later today.

Silver climbed back above $23.90 an ounce, while copper also gained and oil prices fell.

A day earlier, gold dipped as low as $1440 an ounce in Tuesday's US session before regaining some ground overnight.

"We believe there will be more sideways price action between $1441 and $1495 before the metal takes another run down to $1323," says the latest technical analysis from Scotia Mocatta.

"Demand for gold as a safe haven is currently lower amid sharply rising equity markets," adds today's commodities note from Commerzbank.

US stock markets touched fresh nominal highs yesterday, with both the Dow Jones and the S&P 500 setting new records.

European stock markets also ticked higher this morning, with Germany's Dax setting a new all-time high, following gains in Asia after China released figures showing its trade balance returned to surplus last month, with year-on-year export and import growth both stronger than expected at 14.7% and 16.8% respectively.

"I have no strong conviction whether the [Chinese trade] data reflects reality," says Zhang Zhiwei, Hong Kong-based chief China economist at Nomura, noting that China's State Administration of Foreign Exchange recently announced new rules aimed at preventing capital inflows being disguised as trade payments.

"China's export growth is probably overstated by around seven percentage points," adds the currency team at Standard Bank.

"[There are]anomalies caused by double-counting, capital inflows being disguised as trade receipts, some tax evasion and speculative currency positions, which are being done via Hong Kong...stripping out potential distortions, China's exports increased by around 6.5% year-on-year in April, up from 2% in March."

Elsewhere in China, the world's second-biggest gold buying nation last year, "premiums on the Shanghai Gold Exchange remain elevated, although average daily volumes have eased by about 34% from the exceptional levels over the last couple weeks" says a note from UBS this morning.

"[Chinese] investment demand [for gold] should continue to stay strong through the rest of the year because of limited investment alternatives," reckons Zhang Bingnan, secretary general of the China Gold Association.

"There's still a shortage in the physical metal," one Hong Kong dealer told newswire Reuters this morning.

"Premiums for gold bars are at $3.50 an ounce.

"Supply is indeed tight," agrees one Singapore dealer, "[but] demand from Indonesia and Thailand has subsided, and in fact there's some selling today from their side."

Turning to world number one India, "our index of India physical flows continues to suggest demand that is well above average, but here too volumes have come off the peak of the previous two weeks," says UBS, adding that next week's Akshaya Tritiya festival, traditionally an auspicious gold buying occasion, means demand should "hold up reasonably well in anticipation".

"However, it is less clear how resilient Indian demand will be afterwards. Last year appetite dried up shortly after the festival, which then fell on April 24, whereas back in 2011 offtake remained elevated for two weeks after Akshaya Tritiya, amid weaker gold prices."

Proposals from India's central bank to restrict imports of bullion by banks "will lead to a supply shortage in the market" according to Samir Sagar, director of Manubhai Jewellers in Mumbai, speaking to the Economic Times.

"Indian consumers will have to pay 3% to 4% more for jewelry during the lean season. This may go up to 7% to 8% during Diwali and wedding season."

The Reserve Bank of India proposed last week to restrict banks' import of bullion on a consignment basis – where the metal is shipped but remains the property of the supplier – to meet only demand from gold jewelry exporters. Gold and silver was India's second biggest import item last year behind oil, and bullion imports are blamed for exacerbating India's trade deficit.

 "I don't see much of an adverse impact of this measure," Mehul Choksi, managing director at jewelers Gitanjali Group, said last week.

"There are other ways to import gold, like importing it by paying a fixed price or taking it on loan."

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

With European equities closed for the May day bank holiday, UK traders initially sent stocks better bid as strong corporate earnings, optimism over a European rate cut and better than expected PMI Manufacturing numbers contributed to strong risk appetite early on. The bullish mood dissipated in afternoon trade however, as weaker than expected macro data from the states capped gains in the short term.

 

Amongst the early movers were Antofagasta (ANTO LN), who updated the market with numbers before the open that saw quarterly copper output rise 13%, with their key Esperanza mine proving fruitful over the period. The news provided welcome respite for the firm’s shareholders with the stock trading down 30% year to date, though the general market malaise since the ADP number leaves the stock now trading flat on the day.

 

Similarly Home Retail (HOME LN) traded higher early on after their Argos brand managed surprising sales growth despite the difficult consumer environment, but the excitement eventually gave way to profit taking, leaving the stock down as much as 7% at analysts questioned the optimistic nature of the firm’s forecasts for 2013.

 

US benchmarks have retreated from yesterday’s record high for the S&P, as investors absorb a fall in ISM manufacturing ahead of a much awaited statement from the Fed. The manufacturing number came in at 50.7 against a 50.9 expectation and now sits at the lowest levels since December.

 

Merck and Co was down over 4% in early trade after a beat on earnings expectations was overshadowed by a miss on revenue.  Worldwide sales dived 9% to $10.7 billion, with the firm blaming patent expirations and a negative impact from foreign exchange.  Losses of patent exclusivity for Singulair, Maxalt and Clarinex weighed heaviest on sales, and has forced the firm to revise full year guidance down 3 to 4 from last year’s levels.   There was some cause for cheer however, with trials on a recent type 2 diabetes drug, developed in partnership with Pfizer Inc expected to begin this year. 

 

Another stock lower after earnings was Oil and Gas firm Chesapeake Energy. After making a profit in Q1 and smashing revenue expectations, the stock initially traded higher in the pre-market session, but succumbed to pressure from profit taking on the open, finding itself in the red after 15 minutes of trading.      

 

Faring better are Genworth Financial, who see their stock bid higher after profits soared in Q1, more than doubling from last year – largely attributed to gains from its U.S mortgage and life insurance divisions. It’s US mortgage business turned around a loss of $44 million a year ago, to book profits of $21 million this year. 

 

Attention will turn to a much anticipated set of Facebook earnings after the market close, as the stock continues to creep back up from the lows of last September, with investors questioning their ability to make good on lofty revenue forecasts.     

 

The US Dollar remained under pressure today as the ADP National Employment report showed a monthly drop of 39k to 119k private payrolls and the ISM Manufacturing Survey came in at 50.7 vs 51.3, continuing a run of bad data for the greenback as traders look ahead for clues to Fridays non-farm payrolls figure. At the moment bears remain dominant with no expectation of a change in monetary policy sentiment from FOMC statement, due tonight at 7:00pm.

 

Sterling and the Euro have both benefitted from this Dollar slide, reaching highs not seen since February with the single currency factoring in an expected rate cut to 0.5% of its main refinancing rate, as traders view the move as a sign that the ECB may be more inclined to take a hands-on approach to their current economic woes in future rather than the surely unsustainable hands-off approach of recent months.

 

Gold trades down today as we get reports regarding how gold exchanged-traded products were affected during the recent selloff where we saw Gold touch a 2 year low on April the 16th. Some $17.9 billion was wiped off the value of these funds as investors offloaded 174 metric tons. These reports appear to strengthen traders view that the Federal Reserve will maintain unprecedented monetary stimulus.

 

Trading in both Soybeans and Raw Sugar has been unpredictable as the effect of record crops from Brazil in both commodities has been muted by the expected logistical issues which will affect their delivery. There are constraints which are likely to delay the transport of the commodities to the ports which are further heightened by the potential for a late US corn harvest. Brazil’s main producing region is set to reach 237,000 tons in the first half of April, up from 152,000 tons for the same time last year.

WB Monday 10th December 

Last Week…..

….. underlying optimism that the  Chancellor’s extension of mild austerity policies is sufficient for recovery helped the FTSE 100 to close at 5914 which was up 0.8%.  The FTSE 250 improved 1.3% while the Aim All Share at 688 which very marginally lower. UK Manufacturing PMI picked up at a relatively faster pace to 49.1, although 50 would show standstill.  US Unemployment dropped from 7.9% to 7.7% while  the  troublesome fiscal cliff negotiations are on-going. 

 

....This Week…..

…….. UK Unemployment will be reported on Wednesday with Balance of Trade on Tuesday the latter is likely to show higher imports so could negatively impact on employment.  The EU and US report a host of production and prices, perhaps Thursday’s Retail Sales from US will be watched most closely. End of year optimism still helps markets.

 

Pause for Thought

“ I try to buy companies when they are special and sell when they become ordinary”. Jim Slater                                                                                                      

Director Dealing

The rules covering Directors Dealing makes this a more useful as a medium term indicator.

  

Buys

Access Intell. 4.125m @4p

Assura           0.9m @34p

Copper Dev.      1.5m @3p

Monitise         100k @30p

Thomas Cook      317k @24.5p

Sells

Bellzone          50m @17p

Next 15          781k @100p

Company Reports

  

OMG (OMG)

£23.5m@32.5p

Seeing future growth

Finals from OMG (Oxford Metrics Group) showed a strong recovery with a PBT of £1.8m compared to £0.7m. Revenue was £29.5m up 7.8% with PBT margins of 6.1%. OMG have evolved to produce a verity image understanding products and services to a wide range of international customers from entertainment, defence, life science and engineering industries. There are cash cow in life science products but two raising stars are 2D3 and Autographer. Investment in the 2d3 a defence industry product that delivers high quality intelligence from aerial imagery, has paid off. Two US defence contracts have been won for over $1m each and is now profitable A completely new kind of camera aimed at consume Autographer,  is the world's first intelligent, wearable camera. It offers spontaneous hands-free image capture, featuring a custom wide angle "eye-view" lens, it has five in-built sensors, which choose the right moments to take photos. It will be sold exclusively available through OMG’s own online store. Profits for the September 2013 year end are forecast at £3.2m for an EPS of 3.45p giving a prospective P/E of 9.4x while yielding 1%

Financials:

Net cash is £4.3m  and  the focus is to continue the geographic expansion with the US particularly targeted as well as product development,

 

 

Plastics Capital (PLA)

£19m@69.5p

Niching the World

Interims to September showed this innovative plastic niche products manufacturer suffered from  lower  European sales.  Revenues were 3% lower at £15.7m but sales are stabilising as  seven new potential customers could produce an extra £1.8m of annualised sales value.  PBT fell  from £2m to £1.8m reflecting  the  adverse exchange rate movement and lower margin contracts with production companies.  The new product development is centred on improvement to existing  ranges such as such as ball bearing for photocopy toner cartridges which is a potentially  £2-£3m market. Sales from f miniature bearing for a camera lens focus system are expected. In the second half there will be an additional £1.2m of capital investment in new capacity for the high strength film packaging business which is supported by a contract. There is still spare capacity at the factory in Thailand and there are offices in China, Japan, USA and India  with sales to over 80 countries worldwide.  Full year profits to March 2013 are forecast to improve from  £3.7m to £3.9m which would  give  a prospective P/E of  6.2x while yielding 1.5%. PLA would look to acquire earning enhancing bearing and casing businesses but are perhaps held back but the current rating.

Finance

Cash generated from operations continues to reduce borrowings and net debt was £8.6m and net debt will fall further assuming no acquisitions are made.

 

Vianet  (VNET)

£28.2m@101.5p

Growth could flow from US

After restructuring Vianet’s has  shed low margin and unprofitable business.  So the Interims to September  reported a 5% decline in sales to £11.2m with profit 2% lower at £1.87m but there are more cost reduction benefits to come.  The number of pubs taking its core beer monitoring systems has fallen  but Vianet has sold more of its higher value iDraught systems. Currently 3,000 of the 18,000 pubs and bars that are customers now use iDraught and 70% of total revenues are reoccurring. This division of the business still makes all of the group profit but the vending and machine-to-machine operations are near to profitability. One of the key areas of potential growth is the US, where the iDraught system has been test marketed on a localised basis. A sales team has been recruited and a deal made with a firm that can install and service the systems on a national basis. The aim is to have 5,000 systems in place in three years  time generating recurring revenues of £12m. Profits for the full year to March 2013 are likely to show little growth at £2.5 which gives an EPS of just under 10p so a prospective P/E of 11x but yielding 5%. 

Finance

Net debt has been reduced to £2.44m and the interim dividend has been increased by 2% to 1.7p a share.

A death cross is a technical indicator that provides confirmation that a major trend change is underway. It occurs when the 50 day moving average drops below the 200-day moving average. It confirms the start of a new downtrend and is the opposite of the more commonly known golden cross. 
 

Back in July, the US Dollar index peaked and since then, USD and its moving averages have been rolling over. Today the 50-day and 200-day averages are "Even Steven" but any further decline from here would generate a death cross, a bearish signal for USD. The previous golden cross occurred a year ago, while the last death cross on USD was in September 2010, as expectations of the QE2 program were building. 

There are two trends now undermining USD. First, the greenback and US treasuries had benefitted earlier this year from huge inflows of capital from other regions in a flight to safety. While the global economy is sluggish, for many countries it’s more of a correction within an expansion than a new recession. Also, Europe continues to muddle along causing fears of a financial meltdown to recede as shown by falling treasury yields for countries like Greece and Spain even though they continue to struggle with austerity. As fears dissipate, and the US economy shows signs of life with recent employment numbers, capital is starting to work its way back out into other markets including stocks, commodities, resource currencies and European currencies in a normal rebalancing. 

Second, although many countries are easing monetary policy through interest rate cuts and QE programs, the US QE3 program appears particularly aggressive with its open ended nature. This can undermine the value of the greenback against other paper currencies and particularly against gold and silver. 

These broad shifts of capital highlight why stocks, commodities and precious metals, which had rallied so much and become so overbought in August and September, have remained well supported in recent weeks and have essentially consolidated at higher levels rather than dropping straight back. 

With earnings season starting in earnest, and the potential for developments in Greece and Spain, the next several weeks may generate a lot of news driven short-term trading opportunities. It’s important though for traders to avoid getting too caught up in day to day chatter by stepping back and recognizing the broader capital flows in order to best take advantage of market moves. 

Economic news 

US producer prices were up 2.1% over year last month, more than the 1.8% street estimate. 

China new yuan loans were 623B in September, down from 703B in August and short of the 700B the street had expected. 

Corporate news

Advanced Micro (AMD) put out a profit warning last night, announcing it expects Q3 revenue to be down 10% from Q2. Previous guidance was for revenues to come in between a 0.4% decline and a 0.2% increase. 

Earnings reports are out from two major banks today:

JPMorgan Chase JPM $1.40 vs street $1.21

Wells Fargo WFC $0.88 vs street $0.87

North American indices

The Dow Industrials (US30 CFD) is holding 13,300 support for now as it bounces up from an oversold 4-hour RSI but needs to clear 13,400 in a meaningful way to call off the current downswing. 

The S&P 500 (SPX500 CFD) is up a bit this morning but remained below trend resistance overnight. It needs to clear 1,445 to call off the current downtrend with next resistance near 1,460 and current support near 1,425. 

The S&P/TSX 60 (Toronto60 CFD) remains in the lower half of a 695-715 channel currently flirting with the 700 level again. 

Commodities today

- Copper has fallen back a bit toward the low end of its $3.70-$3.85/lb trading channel with next support near $3.65. 

- US crude remains nicely supported above $91.50/bbl with resistance near $93.00, $93.75 and $94.80. 

- UK crude has slipped back a bit with narrowing spread with WTI suggesting political tensions may be easing for now (but could resurface at any moment). Resistance now near $116.00/bbl with support near $114.00 then $112.25. 

- Gasoline was unable to break $3.10/gallon and has dipped back under $3.00. A break of $2.96 could signal a deeper downdraft toward key neckline support near $2.86. 

- Natural Gas remains above $3.40/mmbtu, a breakout point that has become a new support level with measured upside resistance near $3.60 and $3.80. 

- Corn is testing $7.70/bushel, a key support/resistance level today with next support near $7.40-45 and resistance near $7.70 then $7.92. 

- Soybeans was unable to break through $15.90/bushel resistance and has slumped back toward $15.45 with more support near $15.20. 

- Wheat has slipped back from $8.80/bushel toward $8.65 with more support near $8.45 following yesterday’s big jump. 

FX

- Gold held $1,760/oz support, setting a higher low that keeps its broader uptrend intact. It has started to work its way higher toward $1,775 with key resistance in place in the $1,795-$1,800 area. 

- Silver has been holding steady near $34.00/oz overnight within a $33.50-$35.00 trading channel. 

- USDCAD continues to bump up against $0.9800 as it tries to decide whether to break out or resume its downtrend. Lower highs suggest the primary downtrend remains intact with next support near $0.9730 then $0.9630. 

- EURUSD continue to recover, trading near $1.2975 with next resistance near $1.3000 and $1.3075 and support near $1.2950 and $1.2920. 

- GBPUSD continues to claw back lost ground, advancing on $1.6100 today with next resistance on trend near $1.6200 and support near $1.6050. 

- USDJPY is holding in the upper half of a 77.00 to 79.00 trading range. 

- AUDUSD stalled short of $1.0285 and has dropped back a bit with support near $1.0230 then $1.0200.