Global commodities are routed overnight as China growth jitters and the spectre of higher U.S. rates saw long-term bullish positioning being pushed off the cliff. Oil, in particular, having fallen 5% overnight, has collapsed another 2% in Asian trading.
OIL
There was no light at the end of the tunnel for OPEC and Non-OPEC producers overnight, in fact, the light turned out to be the train coming the other way, as both Brent and WTI crashed just shy of 5 % in North American trade. As previously highlighted, OPEC has been looking down the barrel so to speak, of resurgent supply from Nigeria and Libya amongst OPEC and of course, American shale which combined have completely offset the 1.8 million barrel per day production cut agreement.
With commodities collapsing on China growth wobbles and the prospect of higher U.S. interest rates back on the table, it is evident that many long-term structural longs threw in the towel and headed for the door en masse overnight. OPEC will be faced with some stark choices going forward as the global supply glut clearly isn’t going to roll over and die anytime soon. The potential deflationary shock will be felt in the halls of power in Japan and Europe as well, where officials will be fretting about the collapse in oil and commodities undermining their inflation targeting.
Back to the here and now, we are in somewhat uncharted territory technically on both Brent and WTI, with both tanking in Asia by around 2% as I write. The move looks suspiciously stop loss driven as the overnight lows are taken out.
Brent spot opened at 48.10 this morning with resistance at 50.40 and 51.00. Support was at the overnight low at 47.80, but with this now well and truly gone there is nothing but clear air until 45.50 from a chart perspective.
WTI spot opened at 45.30 but has collapsed 2% as I write. Resistance at 47.00 and 48.00 seem to be distant memories now as upport initially at the overnight low at 45.10 and then 44.40 breaks. opening up a possible move to 42.00.
From a technical perspective, the break of 44.40 now opens up the possibility of a move to the 42.00 region.
PRECIOUS METALS
GOLD
The reverse alchemy in the precious metals markets continued overnight, as they looked more leaden than golden with gold itself off another 1% in New York trade. To be fair, this wasn’t a bad result given the general carnage seen in the commodity space overall. Potential China growth wobbles and the uncomfortable reality of higher U.S. interest rates being put back on the table by this week’s FOMC sees the safe haven unwind in gold continue to gather momentum.
The recent day’s price action could be implying that there are a lot of structural longs in gold that had been put on in the last months, at what are not very unattractive levels. Suggesting that, like crude oil, overnight, there may be more pain ahead.
Gold trades at 1228.30 in early Asia having fallen to 1225.50 overnight and this represents initial intra-day support. Key support lies just below at 1221.00 the 100-day moving average, with a close under there suggesting a move to the 1195/1200 region.
Resistance is at 1240 initially, the breakdown level and now a major daily pivot point. Above here the 200-day moving average at 1251.75 and the 1260 form resistance.
