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KASB Securities Limited and Economics Research- Commodities Corner

Karachi, October 04, 2012 (PPI-OT): Crude gets whitewashed as other risky assets survive

Pulling the rug from under the feet

According to KASB Securities Limited,

• Flat price action that had been prevailing in crude oil for several days quickly translated into an ugly sell off with WTI breaching technical levels and shedding 4.1%. At current levels, WTI is already trading at a discount of ~US$20/bbl to Brent and traders are of the view that additional spread weakness could be limited despite the technical picture not looking too good. Overall WTI would need really poor headlines to push it lower which seems limited right now since geopolitics are balancing the other side of the equation.

• Dept. of Energy stats came out yesterday and a 0.5 million barrel crude draw could not succeed in arresting the slide. Risk remains bid on equities (S and P +0.4%, FTSE +0.3%) though and additional upside in these classes could also spill over into crude products.

• ADP’s report showed a substantial 162k addition to jobs in Sep. However the follow through impact on equities was muted as investors preferred to wait till Friday’s report and not jump the gun. Among precious metals, gold clung on, defying the odds from a stronger US$ as the robust jobs number and a bounce back in US manufacturing activity lifted the greenback.

Unease to persist over Greek finances, Spain aid timing

• Over to Greece, where negotiations are still ongoing over a disputed €12 billion in spending cuts as well as differences in assessments over the country’s GDP growth in 2013E. While EU officials have downplayed the chances of a delay in disbursement of €31 billion to Greece, prolonged negotiations with troika officials and lack of a break‐through could possibly add to investor unease.

• Spanish, French and Italian leadership are due to meet on Friday along the sidelines of a summit where apart from overall financial situation, efforts to manage Spain’s finances will also be on the agenda.

• Investors will likely delve into the ECB’s press conference today in order to gauge further details of the Outright Monetary Transactions (OMT) program. However no change in interest rates is expected.

Source: Bloomberg, Reuters

Key events/data releases

• BOE and ECB monetary policy decisions

• FOMC Meeting Minutes

Time Currency Impact Event Forecast Previous
4 October, 2012 Thursday
Tentative EUR Medium French 10-year bond auction

2.21|2.1

4:00pm GBP High Asset Purchase Facility

375bn

375bn

4:00pm GBP High Official Bank Rate

0.5%

0.5%

Tentative GBP High MPC Rate Statement

4:45pm EUR High Minimum Bid Rate

0.75%

0.75%

5:30pm EUR High ECB Press Conference

5:30pm USD High Unemployment Claims

371k

359k

11:00pm USD High FOMC Meeting Minutes

5 October, 2012 Friday
5:30pm USD High Non-Farm Employment Change

115k

96k

5:30pm USD High Unemployment Rate

8.2%

8.1%

Source: www.forexfactory.com/calendar

Gold Spot

Technical Strategy: Sell on Strength

Gold consolidated at the upper levels and closed marginally in the green. However, it has to close above US$1,778.00 or break US$1,793.00 intraday in order to resume its bullish trend. The Stochastic Oscillator has generated a sell signal whereas the RSI is in an overbought region suggesting a corrective move. The first support is at US$1,770.50 and the second support is at US$1,763.00. The first resistance is at US$1,783.50 and the second resistance is at US$1,793.00.

Silver Spot

Technical Strategy: Sell on Strength

Silver remained range-bound and closed below US$35.05. Any further correction should be limited, as the 5‐month moving average is on the verge of cutting the 10‐month MA from below which is a bullish sign. Moreover, a closing above US$35.05 or a break above US$35.70 intraday could lead to additional upside. The Stochastic Oscillator has generated a sell signal whereas the RSI is in an overbought region suggesting a corrective move. The first support is at US$34.48 and second support at US$34.05. The first resistance is at US$35.05 and the second resistance is at US$35.70.

WTI Spot (Crude Oil)

Technical Strategy: Sell on Strength

WTI dropped sharply yesterday and gave a closing below its 100‐DMA which signals a bearish trend. Moreover the 30‐DMA is on the verge of cutting the 50‐DMA from above which is also a bearish sign. The Stochastic Oscillator has generated a sell signal whereas the RSI is also weak. The first support is at US$87.60 and second support is at US$86.40. The first resistance is at US$88.80 and the second resistance is at US$89.70.

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