MacroView

A surprisingly positive reading from the China and UK manufacturing sectors, indicating expansion, has S&P futures and global equity markets higher this morning. The Greek debt deal remains close, but elusive. We are hearing that the debt write down may now exceed 70%; so, if those involved do not wish to call it a default, so be it: what S&P and ISDA conclude may differ, however, and the attendant CDS payout will roil the EU banks. The first of the US employment data series is out, and ADP came in a bit light. Since ADP's focus is private employment, this does not bode well for a strong number on Friday. Public sector employment continues to shrink, so private job creation needs to carry the day for a while. Still, given the weekly claims trend, we are looking for +115k headline reading.  The situation in Syria continues to deteriorate, and Russia appears ready to let it continue, blocking efforts of the UN Security Council and Arab countries to formally call for regime change. Apparently, Syria is too valuable a client-state to lose, even after all these post-cold-war years. Iran has indicated that it would welcome a longer stay by the current IAEA inspection team. We assume they will be allowed to stay long enough to attend the underground explosive test and Ahmadinejad's ensuing rally. Economic data and oil inventories out later today should set the tone for the markets into Friday's employment report.

 
Petroleum Markets

Chancellor Merkel again wins the quote of the day award, commenting that "Considering the time frame, this was a real masterpiece." Say what?! The 16th summit over two years accomplished exactly nothing in resolving the European malady. The bond vigilantes may not hold policymakers' work in such high regard. Nevertheless, oil traders seem somewhat encouraged that economic Armageddon will not arrive tomorrow. Instead, Iran will help that cause and it will be a source of worry a bit longer. However, lowering the heat to produce a simmer has helped crude oil prices remain in the lower end of the recent range. Still, the market keeps covering the same ground. It looked for a while yesterday that prices might break through the bottom. But 99.00 has been posted again today. Looking forward to Friday's jobs number, it will not take much to give bulls the requisite impetus to keep prices within the range, at least, with only a consensus expectation for growth of 135k jobs. ADP may have already recorded some disappointment showing private sector job growth of 170k against expectations for 182k new positions. And this is good news?


Petroleum Tech Talk     

Price action has been confined to the lower reaches of the familiar range. However, if the 99.37 high holds through settlement, it will be the lowest high in five weeks. Yesterday was also an outside day with a lower close. The downward slope off the early January highs is holding. Recent downward pushes have concluded just above channel support so we will keep our bias neutral, for the moment. Prices also are holding below the 13-day EMA and have not settled above in over a week. The overbought condition has been worked off somewhat and the market has not posted new highs over the 103.37-103.74 resistance. The trading ranges established over two months remains unbroken however and a convincing break of either 98.00 or 102.00 should unleash a considerable amount of directional momentum.


Natural Gas            

Short covering has certainly concluded. Sellers returned to push prices lower after consideration that production is still running at record highs, putting inventories on track to post another season-ending record. Ergo, prices must remain on the defensive, absent much colder weather to spur demand. The first announcements of curtailed production, in the end, are much too small to make a significant difference in the overall environment, so front month futures have almost retreated to where short-covering began in earnest. The 118 bcf withdrawal, we expect EIA to report tomorrow, can only stiffen the seller's resolve. Potential bulls will not find much solace from rig counts or fuel switching, which may slow, but not stop the inevitable fall to 2.00, sometime in the next two months.


Natural Gas Tech Talk                 

The market has now surrendered most of the short-covering gains and interim suuport of 2.409 is being tested. Every breach though diminishes its effectiveness as a directional cue. Next support comes in at the temporary bottom of 2.231, hit last Monday. First resistance will be the 13-day EMA at 2.637, followed by this past Monday's high of 2.844. While there may be more rounds of corrective reversals, subsequent surges should produce less and less intensity with the weakest shorts now purged. Obstacles to a challenge 2.231 are minimal, and once broken may generate momentum sufficient to reach the 2002 low of 1.96.

source: KilduffReport.Com