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This morning's employment data shows further improvement in US economic conditions. The ADP report, in particular, was very stong, showing a gain of 375k jobs. While we remain very suspect of the ADP and its predicative power for what the BLS will show, it is so strong that bulge-bracket economists will likely scramble to up their forecasts for tomorrow. The recently positive market will surely feed off this. Still, equity futures are lower, on concerns about Europe and the rapidly sinking euro currency. The euro zone leadership have apparently resigned themselves to an S&P downgrade, according to reports. It would be good then of S&P to get it over with already. Hungary is the latest trouble spot, and the serial warnings about the euro zone outlook from Germany's Merkel and others continues to reverberate. For all the talk urging investors to seek out high dividend paying, consumer stocks, Pepsico, of all companies, has checked in this morning with a round of layoffs and a discontinuation of its 401(k) match. That certainly does not jive with the consensus outlook. The Iran situation is rattling the oil markets. It appears a euro zone embargo of Iran oil will be agreed to on January 30th. The resulting $100+ oil price will rapidly become a drag on the US economy; consumer resistance to and degradation from $4.00 per gallon gasoline is a foregone conclusion.  We continue to be highly skeptical of the recent rally in equities. Crude oil looks poised to go higher, and gold's attraction should be acted upon below $1600.
 

Petroleum Markets    
   
Iran dominated yesterday's session yesterday with increasing bluster about closing the Strait of Hormuz, and warning the US not to send another aircraft carrier in the Persian Gulf. As we have been saying, we see little for them to gain by taking this all the way to a martial conflict with the US and its allies. Europe has moved closer to sanctions and President Obama has signed into law measures making it more difficult for Iran to sell its oil. Until the issue is resolved, it will dominate perceptions because if it erupts, there is no telling how high prices may go. Some analysis produces a price $50 higher, some $100 higher. This is the problem in trying to prepare for it. Some speculative interests may establish long positions, and take larger risks for fear of missing out. Hedgers may divine that prudence dictates a larger and larger coverage. New claims for unemployment insurance dropping to 372k in the latest period also contributes to a growing bank of hopeful data that will speak to aggregate demand for some participants. But do not forget that structural economic problems persist, and could move to the forefront if Iran's bellicosity turns into opera bouffe, as


Petroleum Tech Talk    
 
The old high of 103.37 was taken out yesterday and with a settlement above 103.00 we will change our bias for higher. Prices broke above the neckline of the head and shoulders formation and actually measures a possibility of a move to 114.00. Given exogenous events, we have to admit it is possible, but we remain cautious. Support at 102.15 has been tested at today's low of 102.16. Buyers in early European trading almost bested yesterday's high of 103.74. Open interest is on the rise after falling for a week, so we have to assume new length is entering the market. The first meaningful support comes in at last Friday's settlement of 98.30, a break may carry to 98.00, and suggest that the move from 92.70 has concluded. The succession of higher highs, higher lows and higher settlements since that mark was posted trace out a discernible trend.


Natural Gas
           
Blustery weather over high consumption regions blew more shorts out of the market yesterday. Reflecting the more moderate readings last week, we project EIA will report an 88 bcf withdrawal from stocks, later this morning. With the mercury rising to the high 40s by week's end, there is scant encouragement for bargain hunters. The 3.548 Tcf currently stored looks particularly onerous given the time remaining for the hard, sustained freeze now required to pare it significantly be the time normal heating demand dissipates. Certainly, prices near or below 3.00 are going to be closing in on production costs, but with lower extraction cost shale contributing more and more to total output, that normally constraining influence is somewhat marginalized. But prices will show a reaction to the weather, but any upside should be contained unless or until a sustained frigid blast is forecast.


Natural Gas Tech Talk                 
 
Exiting shorts generated enough momentum to carry almost through the 13-day EMA, before retreating. There could be more short-covering but we will keep our bias for lower until 3.201 is breached on settlement, which will turn us to neutral, a break above 3.44 would turn the bias higher. For now, there is little support until 2.409 except for a temporary bottom at last Tuesday's 2.936 low. Oversold conditions will crop up with the failure to post a fresh low, prompting more shorts to cover, but any rallies should be looked at as selling opportunities until a break through 3.201. This is where stops should be placed.

source: KilduffReport.Com