Weekly Fundamentals - 05 December 2015

In last week's piece we stated that "Next week will be all about NonFarm Payroll and the subsequent debate about whether the FED will or will not do anything with rates at the December Feb Meeting.
COT data whilst fairly unequivocally commodity and commodity currency bullish does not tell us when they will turn. All COT tells us is that we are at fairly major extremes and that when they do turn, the turn will be vicious.
Vicious turns in thin, illiquid markets can be quite spectacular!"
We were spot on. The Nonfarm figure came in better than expected and all seem now to believe the FED will hike this month. Even with that being the case precious metals and commodity backed currencies rallied. I was indeed quite spectacular!
We have a reasonably active week in terms of data.
USD: We start the week on Thursday when we see the customary Unemployment Claims number guesstimated at 266,000.
Friday is a busy day when we have Core Retail sales which excludes cars and is anticipated at 0.3% from last month's 0.2%. PPI is expected to be flat at 0.0% an increase from the previous periods -0.4%.
Retail Sales which includes cars is expected to rise from 0.1% to 0.2% and finally Consumer Sentiment is thought to measure 92.3 up from 91.3.
COT data shows that large commercials continued to increase their net short position slightly in the US$ Index from 58,105 to 59,137. We therefore remain SLIGHTLY BEARISH.
EURO: A quite week for the Euro with only one key data point on Friday when we have Targeted LTRO. This is the total value of money the ECB will create and use to loan to Eurozone banks.
COT data for the Euro shows that large commercials again increased their net long position from 215,922. to 224,522. We therefore continue to remain BULLISH.
GBP:  Busy week for the GBP with most attention focussed on Thursday.
On Monday BOE Governor Carney speaks.
On Tuesday we have Manufacturing Production which is expected to fall from last month's 0.8% to -0.1%.
Thursday is the big day as we have the MPC Official Bank Rate Votes expected at 1-0-8 meaning one member will vote to increase rates, zero members for a rate reduction and eight to vote for keeping rates unchanged.
We have the Monetary Policy Summary and finally the Official Bank rate expected to remain unchanged at 0.5%.
Large commercials slightly decreased their net long position from 51,379 to 49,040. We therefore remain BULLISH.

YEN: On Monday we have three items. BOJ Governor speaks, the Current Account figure is anticipated at 1.52T from the previous 0.78T and finally we have GDP expected to rise to 0.1% from the previous figure of -0.2%.
On Tuesday we have Core Machinery Orders expected to fall greatly from 7.5% to a -1.5%. This is horrible.
Finally also on Tuesday we have the manufacturing Index expected at 12.1 from the previous 11.0.
COT data shows that large commercials very slightly reduced their net long position from 107,933 to 104,921. We therefore remain BULLISH.

AUD: Three items for the AUD.
On Monday we have Business Confidence.
Wednesday sees both the Employment Change figure and the Unemployment Rate. The employment figure is expected to show a negative 10,000 from a previous positive 58,600. The rate is expected to increase from 5.0% to 6.0%.
COT data shows that large commercials reduced their net long position for the second week in a row from 75,027 to 59,494. We therefore turn from SLIGHTLY BULLISH to NEAUTRAL.

CNY: Also three items for the CNY.
On Monday we have the Trade Balance figure which is thought to increase slightly from 393Bn to 395Bn.
Tuesday sees the release of CPI which is expected to be 1.4% from the previous 1.3%.
Lastly on the following Saturday we have the Industrial Production number which is expected to improve slightly from last month's 5.6% to 5.7%.
There is no COT data for the CNY.
S&P500: Last week large commercials increased their net long position from 122,609 to 129,151. As long as large commercials remain net long to have to err on the side of being bullish. We therefore remain SLIGHTLY BULLISH.
GOLD: Large commercials again substantially reduced their net short position from 11,983 to a paltry 2,911. This is the fifth week running that large commercials reduce their net short position. This is their smallest net short position since the only time this century they were net long on 11/12/01, which was nearly 14 years ago. We therefore alter our view from BULLISH to SUPER BULLISH.
SILVER: Last week saw large commercials very slightly increase their net short position from 28,725 to 29,821. We therefore remain SLIGHTLY BULLISH.

This week will be all about what the FED does next week. Will it raise or not?
the argument over the last few years has been that low rates make risk assets attractive and safe haven assets such as gold and silver unattractive. This has been correct. Higher rates, if they happen should have an opposite effect. We therefore anticipate continued strength in the metals.
Follow the gold:silver ratio carefully. It now stands slightly under 75. It is now at an extreme and silver should begin to outperform going forward.
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Stay nimble. Good luck trading.


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