May 21, 2017 - Weekly Commodity - Oil traders waiting for Opec, rain challenging US crops , sugar rejected ethanol parity

Last week the US and Brazilian politics were making the main headlines. Continuous weakening of US dollar supported commodities while the depreciation of Real had a negative effect on sugar, coffee and soybeans. The weak Brazilian real caused a liquidation of 5mil. tone of soybean stocks in only one day. Raw sugar got extra support on Friday from the rains forecasted for the cane crushing regions of Brazil. Crude oil prices supported by oil minister statements (Saudi Arabia and Russia) regarding OPEC production cut extension. The US farmers keep fighting their battle with cold weather and high moisture, corn sowing still below average. 

Crude Oil

The oil market is now focusing on the upcoming OPEC meeting (25th May) where countries producing oil and Russia are expected to agree on an extension of the production cut by 6-9 months. The expected positive outcome of a production cut extension and the increasing demand are the 2 main factors that can help to recover the oil prices. The production cut up to now however didn’t decrease supplies as OPEC members  were emptying their oil reserves which are much lower now. This means the extension would bring a real drop in oil supply this time and in combination with the expected increase in demand for 2H this could cause a signficant rise in oil prices. I will publish a deeper, fact digging article later this week ahead of the OPEC meeting.

Technically WTI closed the week above psychological $50 level and if you are not log yet, probably you could still think about going long or start to build a long positions as in case extension the price can easily break out from the flag and reach new highs in the $60/b area. The tricky part here is the impact of US shale producers hedging activity usually pushing prices down. Even this will effect mostly the longer expiries (1+ year from now) I would probably take some profits around January highs ($50/b) if the closest contracts reach it.

Corn

The grain market is focusing on the North American weather still as current moisture is hitting two crops the same time. While the wheat harvest is just starting, the rain and cold weather may cause potentially yield and quality problems as well as spreading crop disease. However it's hard to assess the damage at this phase. Corn sowing is slowed down by moisture and as I mentioned earlier there are fears if the rains will not stop the farmers will eventually switch from corn to soybean which could be planted a little later.  This could result in jump in corn prices and further drop in soybean. Also don't forget the huge corn net short in hedge fund positioning, which could result in a short coverage and jump in prices.

Technically we saw a false break to the downside from the triangle on Corn chart. There is a higher short squeeze potential in the corn makret (MM increase their already huge net short positions more than expected) that could be triggered by further sowing delay and hence farmers shifting potentially to soybeans. This may also trigger a bear run in Soybeans breaking down through the October lows.

Sugar

The last week in the Sugar market was more about Government crisis in Brazil than the fundamentals. Due to the weakening of Brazilian real the Sugar prices slid down toward 15 cents levels. However at the end of the week sugar prices recovered above 16 cents again due to further rain forecasted in the cane growing regions of Brazil. The other supporting case for sugar is that the market reached the 15 cent ethanol parity zone in Brazil below which it’s more economic for mills to produce ethanol instead of sugar.This could eventually result in less sugar production as expected.

Technically there is some upside potential short term to retest the H&S neckline and the last low before the sell-off at 18 cents. There is a high probability of range trading for several weeks between 15-17 cents until the market start to sell again. The Brazilian ethanol parity will provide strong support @15 cents until the cane crush season is over.

Good Luck and remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

Contact: landoftradingATgmailDOTcom, Blog: landoftrading.blogspot.com

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Feb 17, 2017 - Market Update

Short recap

Asian stocks pausing

Samsung VP in custody over bribery, shares down only 1% as the company has good track record in coming back from troubles

Oil found support in talks about OPEC extending its production cut (now 6 month only)

ECB Minutes showing possibility of capital key adjustments what benefits peripherals a lot

French yields lower after seeing huge demand for 2028 bond issue yesterday

Trump at the end of his marketing cycle, starting campaigning again over the weekend

Ryan (speaker of the House of Representatives) having troubles to push tax reform to republicans

Trump at joint-session of Congress on Feb 28 presenting his agenda, looking at cutting corporate tax to 15% but Republicans resistant and open to 25% only as their fear of increasing the debt ceiling again what will have implications on US credit rating

No clear expectations of his agenda for now, either he disappoints or makes it

Allianz ready for buy backs worth of EUR 3 bln and adjusting budget for takeover activities

Deutsche Boerse – LSE acquisition process spiced up by allegation of DB CEO from insider trading

Snap IPO – owner of Snapchat to start investor roadshow on Monday, lowering target valuation of the company

Germany supports Peugeot-Citroen takeover of Opel/Vauxhall on no planned job cuts or factory closings

JP Morgan, BoAML, Citigroup proposing publicly to easy anti-money laundering rules as they are ineffective

Blackstone buying Cloudreach that is active in cloud computing business

OpenFin (financial software developer) raising USD 15 mln from JP Morgan, DRW Trading group (high-speed trading firm) and NEX Group (interdealer broker)

Saturday, US VP Mike Pence to reassure allies in Europe and polish the wording Trump is using towards NATO and Russia

Data

Feb 20 – EZ FinMin meeting on Greece

Feb 28 – Trump at Congress (US stock investors should get ready for a correction if Trump disappoints; on the other hand they are still likely to find a pro-growth solution)

Mar 15 – FOMC

Mar 17-18 – G10 FinMin and central bankers meeting (right after FOMC)

…the period between Fed 28-Mar 15 would be interesting as Trump believes in weaker USD

EURSEK – seems to be heavy after Riksbank not delivering

Waiting for CPI

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Nov 21, 2016 - Why Angela Merkel will win German elections in 2017 and become the Chancellor for the fourth time?

Simply, because of the change, so no surprise here.

-          She seems to be tired and not bringing anything new but it may be her advantage as Europe desperately needs stability, experience and leadership at this time.

-          Europe needs her as a symbol of stability after few rounds of Greek crisis, ongoing rise of populism in Europe and around the world of which the last proof is Donald Trump becoming the US president. Without the experienced leader, stability, pragmatism and realistic view Europe cannot reinvent itself.

-          All of that is happening when her close allay on international scene Barrack Obama is leaving White House, the UK has no idea how to pursue with Brexit, French president Francois Hollande is not very popular (nicely said) and Marine Le Pen is gaining support on international scene and of course not to forget about Russian president Vladimir Putin who is actively working on creating the chaos and split between Western leaders.

-          Europe needs an experienced leader who can deal with problems like refugees crisis as well as to face the unpredictability that may come from Washington in terms of security and protectionism.

-          Her strength as well as weakness lies in her being the last one who can defend the basic principles of liberalism and free trade. She is very pragmatic and sometimes invisible, what is a good contrast to populists, like those who pushed the UK to Brexit situation.

Angela Merkel’s victory can bring the hope for a change on the continent.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Nov 21, 2016 - Why Trump, Putin and Erdogan are good for Europe?

Simply, because of the change. Europe needs to redefine itself in the field of:

-         Whether to continue with a closer cooperation or return some of the decision making powers back to national governments. We believe going back is not the smartest move as it would lead to fragmentation and loss of benefits of common market.

-          Security and military perspective – still growing threats from Russia and terrorism will lead to redefining and creation of EU army and closer police cooperation. All of that is also happening in the light of Donald Trump becoming the US president and questioning the role of NATO especially, in Eastern Europe.

-          Uncontrolled immigration and external borders protection – is the deal with Turkey really good for EU? The EU must have a full control of its borders as it is not possible for thousands of refugees to freely move across the continent. Also having a deal with the antidemocratic leader doesn’t bode well for democratic values.

-          Economic and international trade – well, as the EU is the largest market in the world as well as largest trading partner for China, definitely should benefit from it. It should also take advantage of its position on the back of likely upcoming protectionism from US side. Actually, the last week’s ASEAN meeting can be an interesting inspiration as Asian countries are open to closer cooperation without US. Why not to join such an initiative from EU side as well when Americans don’t want?

-          Increasing populism and nationalism in Europe – European public will have a unique chance to express their wishes in the upcoming referendum in Italy and elections in Austria, Netherlands, France, Germany, Czech Republic and Slovenia, and decide whether Europe should follow the path of irresponsible promises without accountability. The only thing EU needs right now is pragmatism and leadership what leads us to German elections and Sunday’s official announcement of Angela Merkel to run for a Chancellor again.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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(NEWS) Turkey - Market reaction (Update 1)

20/07/2016 - 21:22 GMT (Update 1)

Turkey is imposing a three-month state of emergency. Following the unsuccessful coup and ongoing persecution of citizens, the state of emergency is becoming the next level of escalating the situation. Unfortunately, the combination of getting closer ties with Russia, its geographical location close to conflict areas, NATO military base with nuclear weapons and cementing the power by Erdogan seems to be a pretty dangerous cocktail to many Western politicians’ taste.


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As a follow up on unfortunate events in Turkey over the last weekend, the reaction of the market was rather muted but rating agencies have started to express their worries. For example Moody's is reviewing country's rating with possibility of a cut or even moving it to Junk territory.

Overall, it is not just what has happened but also the weakening efforts to reform the economy with upcoming challenges at political, economical as well as security level.

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this  material  as an investment advice. 

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Story of the Week: Gold Platinum Spread

The increased spread (difference in the price) between two instruments often creates interesting opportunities. Currently gold seems to be overvalued compared to platinum, in the terms of historical average. Recently the difference in the price of these two precious metals reached historic levels around $350/oz. While usually the price of platinum was higher in the past, currently it seems that gold is outperforming his cousin big time while this happened only once the last 25 years. This anomaly will very likely attract many traders and this may offer us an interesting investment or trade opportunity if we play smart. We can bet on the tightening of the spread between these two metals by a kind of Inter Market Spread Strategy. Here are some Pro`s and Con`s:

Pro`s:

•       Platinum is 15 times rarer than gold 
•       Historically unprecedented spread between Gold and Platinum will probably attract spread traders betting on the tightening of this gap. 
•       Platinum`s main substitute is Palladium, which can cause a shift demand from automobile industry for Platinum (Platinum is used mostly in Automobile  industry - especially in diesel vehicles. Eventual Palladium supply disruption from Russia could give boost demand for Platinum and push up the price
•      Comparative advantage of Platinum vs. Gold, more in the technical view (see below)

Con`s:

•         Risk of slowing global economic growth may cause further widening of the spread
•       Eventual supply disruption in South Africa may cause the car industry will not shift  back to platinum
•       Eventual crisis in diesel car markets (for example spreading of the Volkswagen case),  where Platinum is used the most in catalytic converters
•       Any geopolitical risk which could cause Gold will maintain momentum over Platinum

The Spread

By now you should have the a quick picture about the background. For more fundamental information about the two metals please roll lower. From the chart below you can see how the spread between them looked like over the last 25 years. As you can see, it was most of the time in favor of Platinum. However, the recent uncertainty created by the Brexit vote and the slowing global economy caused a strong Gold rally and Platinum is not really catching up with it yet. Last week we closed with tighter spread than the record week before. Even the pace of closing up the gap slowed down this week, there is a got chance will close the week with even smaller difference.

You can follow the gold platinum spread at this website: 

http://www.denvergold.org/precious-metal-prices-charts/platinum-gold-spread/

Now let´s take a deeper look at the fundamentals behind the two precious metals.

Platinum

Currently we estimate that Platinum is app. 15 times rarer than Gold. There are only 4 big mines in the world providing 90% of the production of Platinum.

Nowadays, it is as precious as industrial metal, and it’s used in many industries as a chemical substance, as a catalyst and apart from many other uses also in dental and jewellery alloys.

Most of industrial use of Platinum however come from the automobile industry where it`s used in catalytic converters.  There is also a substitute to Platinum, it`s Palladium (and rhodium), but in diesel cars only Platinum could be used. Looking at the current economic slowdown in Europe, where most of the diesel engines are used, you can get a hint why are the Platinum prices so depressed.

The most important factor for car industry to choose between them, is their relative price. In 2001 the Palladium prices were after a huge bull market at historic heights while Platinum was just about to pick up momentum. Given the huge difference in prices the car industry changed the technology toward Platinum which kick started the Platinum bull market at the same time. Similar reverse shift could have been seen during the last financial crises when Platinum prices reached historic records. At the same time the Palladium bull market started...

Geopolitically you need to take into consideration that the most of worlds Platinum is produced in South Africa and most of Palladium is mined in Russia. Problems with the Russian Palladium supply will lead to an increase in demand for it`s substitutes, among them demand for Platinum and vice versa. If there is a Platinum supply disruption in South Africa, the biggest Platinum producer of the world, Palladium will rally due to the increased demand from car manufacturers.

Gold

The qualities of the yellow metal makes it probably the most popular and best known precious metals in the world. The usage of Gold is diverse, starting from jewelries to different range of industries. As a dental supplement for example the Gold has been used for more than 3000 years.
 
Gold is heavily used in manufacturing of electric devices as it acts as a reliable and fast conductor of electricity. However silver and copper are better conductors so why to use gold...? The advantage of gold compared to its much cheaper peers is that it is not corroding hence offering better durability and stability.

For some interesting figures let`s look at the mobile phone industry. According to the World Gold Council, a single mobile device contains up to 50 milligrams of Gold. That’s a tiny amount but nearly 1 billion cell phones are produced each year... 

For Gold is also typical seasonality when the physical demand for the yellow metal increases especially in Asia. The two most followed periods of the year are the Indian Wedding Season in the fall and the Chinese New Year around January and February. In Asia, Gold is still a well trusted asset representing social status. Therefore, in times of falling Gold prices many families are also trying to get the yellow metal at bargain price, which may provide certain cushion to the decline.

From technical perspective

Gold 

Gold has confirmed a few weeks ago the higher low by breaking above 1300. The yellow metal has recently broken another significant resistance at 1350 and if it can close the week above, the break will be confirmed. The next level with a potential 40 dollar gain is around 1400 (more accurately (zone 1392-1433) which could be a significant hurdle for the bulls.

Platinum

There is a slightly different (or delayed) situation at the Platinum market. As Gold had already confirmed its higher low, Platinum`s resistance zone of $1090-1100 is just tested and the bulls seem to struggle to break out. Until this resistance is not broken (weekly close above) the higher low cannot be considered as confirmed. However, if this will happen the next significant resistance zone starts app 100 dollars higher (resistance zone $1190-1290). This gives Platinum a comparative advantage vs. Gold.

Summary:

You can play this situation with two simple strategies:

1   

      1. Long Platinum at breakout with a stop below former resistance expecting the white metal will catch up with the momentum of gold. Targets $1200-$1300-$1500 per ounce by moving the stop higher each time.

2    2. Inter market spread trade: Long Platinum and Short gold, same notional at current levels. This allows you to play on the spread tightening hedging partially the risk of an eventual sell off in the precious metals market by shorting gold. Getting out of the strategy when spread reaching -$361 (you need to monitor this daily, link to spread chart). Targets spreads are $0 and $180 (just below average spread). With a small part of your position you can try to wait as long as the spread goes up to $500 per ounce, but to reach this it will require fundamental change in the background of the Platinum market.

       I hope this helps. If you have any question regarding the above, please do not hesitate to     contact us

       Watch your risk and be consistent !

       Mr. TechMan

       DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this  material  as an investment advice. 

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