The EU Summit is over with some more baby steps in moving forward with the Merkel Sarkozy proposal mostly accepted. Twenty three of the twenty seven EU members approved the deal. Lots of details still to be put together and will likely take until the next EU Summit meeting in March. Overall it is another kicking of the can down the road a bit and with lots of details yet to be worked out resulting in the potential for a lot more volatility as the situation progresses likely to be the norm. The European situation has not been put to bed yet. At the moment the markets are cautiously positive based on the way most risk asset markets are trading. That said in pre-US opening equity futures have only recovered about half of yesterday's losses so far with key technical resistance levels yet to be tested.

The EU deal will play out through today's US trading session and beyond as many of the usual suspects voice their opinions over the media airwaves. Bottom line... in my opinion... will Europe be dissolving anytime soon and/or is Europe heading into a deep recession that will spread around the globe anytime soon? I do not think so. I think the EU and the ECB (lowering rates) may have done enough to slow the problem down enough to allow the European economy to slowly begin to grow. That said I am not sure my view will be the primary view that will be in the markets today or the near future as many participants remain extremely skeptical about a soft landing for Europe. Time will tell but in the meantime extreme caution should be used when trading or investing in any of the risk asset markets. Use stops and keep your investments and trading positions at smaller than normal levels until there is a lot more clarity. Unfortunately that clarity is not going to come unit at least the first quarter of next year. Expect high levels of volatility, many intraday and day to day price reversals and a seemingly infinite amount of 30 second news snippets around Europe for the foreseeable future.

Moving to Asia China's inflation data came in below the market estimates (4.2% versus expected at 4.4%) and below October's 5.5% level. This is a good news, bad news data point. Good news... with China's inflation slowing the government is likely to continue to ease monetary policy further. Recall they started last month in lowering the bank capital reserve requirements by 50 basis points. Expect more and watch for a cut in interest rates in the near future. The bad news part of the number is a slowing inflation number suggests that the tight monetary policy employed by the government for the last year or more has worked and the Chinese economy is slowing. The Chinese economy is one of the main growth engines of the global economy and now we will have to see if the government is going to be able to revive the economy and pump up the growth rate now that inflation is not an issues.
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Finally in the US the macroeconomic data continues to outperform. Yesterday the weekly initial jobless claims dropped much more than the expectations. The US economy is growing slowly even as Europe is still a mess and Asia has been slowing down. Good news for the equity markets not much of an impact on the oil markets as demand growth is almost negligible in the US versus places like China.

Yesterday's sell-off in global equity markets wiped out all of the weekly gains and then some. The Index is heading into the last day of trading in the west down 0.9% for the week resulting in the year to date loss widening to 14.5%. At the moment Europe is a tad higher and US equity futures are signaling a higher opening on Wall Street this morning. The US is still in positive territory for the year but eight of the remaining nine bourses are still showing double digit losses with Hong Kong on the cusp of moving back into bear market territory. How the equity markets trade for the remainder of the year will be very dependent on how the situation in Europe evolves.

WTI is still trading above the key technical support level of the mid- $94's/bbl and along with the changing fundamentals and geopolitics I am keeping my view and bias at cautiously bullish. In addition the cloud of uncertainty got a tad smaller today in Europe but we will have to watch Europe closely as the sentiment could change on one or more negative news snippets at any time as the details of the new EU deal are worked out over the next few months. WTI & Brent are still in sync with the direction of the US dollar and euro but are also being driven by the ongoing geopolitical situations in the middle east.

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I am maintaining my neutral view and bias but could get interested in a short term long side trade if the spot futures contract closes above the $3.51/mmbtu level (does not look likely at this time). That said I am not bullish rather I am just looking at a potential short term technically driven trade potential. The surplus that is building in inventory versus both last year and the five year average is going to get harder and harder to work off until it gets cold over a major portion of the US and as such for the medium term I am still very skeptical as to whether NG will be able to muster any kind of strong upside rally absent some very cold weather for an extended period of time.

For the fourth week in a row the weekly Nat Gas inventory report was bullish versus the consensus expectations and exactly at the level I forecast it would be ( see below for a more detailed discussion on inventories below). That was the main positive or bullish item for Nat Gas while everything else continues to have a bearish bias. The short term NOAA forecast is still calling for a modestly bearish temperature forecast for the period of 12/12 to about 12/20. Some below normal temperatures are forecast for the western part of the US while the highly populated mid-section and north east are expecting normal to above normal temperatures. The market remains oversupplied as the surplus in inventory today is growing when compared to both last year and the five year average. Unless the winter rolls into a large portion of the country pretty soon and remains in place the winter heating season is going to be a non-event for Nat Gas as it will be very difficult to work off the existing surplus before the winter ends.

Simply put Nat Gas has been in downtrend since early June of this year and the parameters of this downtrend have not been violated from a technical perspective just yet. Until they are violated one has to assume that lower prices may still be possible even though we are entering the heart of the winter heating season. Simply recall that during a good portion of last February the spot Nat Gas futures prices traded with a $3 handle.

Currently as a new day of trading gets underway in the US markets are higher.
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Best regards,
Dominick A. Chirichella
dchirichella@mailaec.com
Follow my intraday comments on Twitter @dacenergy.