Wednesday, February 20, 2013

Commodities Taking It On The Chin

The market is lower in early trading, though we have seen early morning weakness plenty of times this year that have never amounted to much.  We will have to see if dip buyers step in again later in the trading session.

Commodities are in the spotlight as they trade particularly weak in the face of a rising dollar today. Oil prices are falling back to $94, and gold prices have broken below the $1600 level to around $1579.  Copper and silver prices are also lower.

Materials stocks are lagging the market, while defensive utilities stocks are bucking the weakness so far.

In economic data, housing starts came in at 890,000 units for January.  The prior month's figures were revised downward to a rate of 973,000.  And producer prices rose 0.2%, slightly above estimates of 0.1%.

Asian markets were higher across the board overnight.  China rose 0.6% as property stocks rebounded from yesterday's losses.  Malaysia reported GDP rose 6.4% in the latest period, above expectations of 5.5%.

Europe's markets are little changed despite the unemployment rate in the UK ticking higher to 7.8%, industrial new orders in Italy declining -1.8%, and Greece having its first general strike this year in protest of the austerity measures.

The 10-year yield is only slightly lower at 2.01%.  And the VIX is moving higher by 7% so far up to 13.25.  It will be interesting to see if it can regain the 15 level where it traded around for so long. 

Trading comment: The market has weakened a bit further, but still a moderate pullback by most standards.  The commodity wheels are coming off here, with many metals stocks down by more than 5%.  Gold also continues to trade horribly and it feels like there are lots of commodity traders caught leaning the wrong way as many though gold could only go higher with central banks racing to provide quantitative easing.  Disappointing housing data today is adding to the weakness, with homebuilding stocks weak and reverberating down the food chain of materials suppliers.  We are hoping for more weakness to add to stocks at better prices.


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