Talking Points

  •  Crude Oil May Bounce with Stocks But Major Headwinds Remain
  •  Gold Pressured as US Dollar Gains on Renewed EU Debt Fears

WTI Crude Oil (NY Close): $97.40 // -2.19 // -2.20%

S&P 500 stock index futures are ticking higher overnight, seemingly pointing the way higher for crude price amid a recovery in overall risk appetite, but a corrective bounce is hardly unreasonable after yesterday's brutal selloff so it probably unwise to read too much into current positioning.

Meanwhile, the headwinds facing sentiment remain formidable: the ominous tone of the Fed's Beige Book survey of regional economic conditions and a deeply disappointing US Durable Goods Orders result are reinforcing fears of a global economic slowdown on tap through the second half of the year, the US debt ceiling fiasco remains unsolved, and Euro Zone sovereign fears have returned into the spotlight.

With little by way of economic data on the docket, the earnings calendar is in focus as with a whopping 62 S&P 500 companies set to report results. As before, the focus will be on business cycle-sensitive names including ExxonMobil and ADP Inc. News flow on the US deficit-reduction debate naturally continues to be important, with any significant developments sure to make themselves felt across the sentiment spectrum and threatening to overshadow other catalysts.

On the technical front, prices followed up a Doji candlestick with a move lower after a test of resistance at the psychologically critical $100/barrel figure and are now probing below rising trend line support set from late June. As we mentioned earlier, the current setup is reminiscent of the Ascending Triangle formation carved out between early May and June, pointing to bearish continuation after a consolidation period, though confirmation on a firm break below trend line support is needed before that can be said with confidence. The next layer of support beneath the trend line stands at $95.14.

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Spot Gold (NY Close): 1613.65 // -5.65 // -0.35%

Yesterday, we pointed out that although gold displayed a significant inverse correlation with the S&P 500 and so could rise amid risk aversion, a bounce in the US Dollar under the same underlying conditions could derail the advance. Indeed, that was precisely what happened as familiar headwinds from an increasingly dour global growth outlook and lingering stalemate over raising the US debt ceiling were unexpectedly joined by renewed sovereign stress in the Euro Zone as Moody's warned that Greece's second bailout set a precedent for future rescues and would weaken the fiscal position of lender nations.

An overnight jump in the Spanish 5-year CDS rate, a metric representing the cost of insuring against the country's default that rises with increased debt fears, hints that more of the same may be on tap. The economic calendar is broadly uneventful, but traders will keep a close eye on an Italian bond auction as the largest of the so-called PIIGS sells 8.5 billion euro new debt across 2014-2021 maturities. A sharp jump in borrowing costs would reinforce Euro Zone debt worries, boosting the US Dollar and weighing on precious metals. Naturally, the evolution of the debate over raising the US borrowing limit remains a wildcard, with one eye-catching headline seemingly enough to flip sentiment trends in the current environment.

Prices put in a Doji candlestick at the top of a minor rising channel established from mid-July and moved lower, with sellers targeting initial support at $1604.55. A break below this boundary exposes the channel bottom, now at $1592.70. Channel resistance is now at $1624.60. The longer-term setup is broadly bullish, but warning signs have started to emerge.

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Spot Silver (NY Close): $40.28 // -0.60 // -1.46%

Silver continues to broadly mimic the trading dynamics of its more expensive counterpart, hinting it too is caught between the opposing implications of risk sentiment trends for safe-haven precious metal demand and the direction of the US Dollar. Technical positioning remains inconclusive, with prices still locked in consolidation below resistance at $41.06. Negative RSI divergence does argue for a cautiously bearish bias however, with a break below initial trend line support exposing $39.01. Alternatively, a push above resistance targets $43.11.

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