MacroView

The after-glow of Friday's strong employment report is not carrying over into the new week, so far. The concerns over the global economic picture were not vanquished by the report nor the island of prosperity that is, increasingly, the USA. The Greek saga continues to weigh, and outright bankruptcy is being given more and more consideration. China's economic state is also a growing question mark: their all-in strategy on housing is drawing comparisons to the USA circa 2008, and fears over a euro zone contraction may halve the country's growth rate. Various manufacturing measures continue to surprise to the upside. While we speculated that Friday's employment number may have pushed off a QE3 regime from the US Fed, a Bloomberg article this morning points out that consumer resistance to price increases remains strong: P&G failed in its effort to raise the price of its dishwashing liquid, recently, and Kimberly-Clark has had to offer aggressive coupon deals on its popular diaper brand. Bernanke's greatest fear is deflation, and these are just the types of indicators that will have him and his Fed on guard to push the QE3 button, despite some economic improvement.  The markets still look vulnerable to an unraveling of the Greek debt deal, which should resolve itself , one way or another, this week.

 
Petroleum Markets

Europe's conundrum will just not go away. Nor is an 8.3% unemployment rate, four years on from a recession any reason to celebrate either. The "Blinding Glimpse of the Obvious" award goes to the IMF which stated that China's annual economic growth could be cut nearly in half this year if Europe's debt crisis tips the world economy into a recession. Seriously? An export driven economy can not carry the global economy when its major customers were in contraction. Any hope of renewed energy demand suggested by Friday's jobs report, must have been reconsidered as Greece slumps further towards inevitable default. Subsequent erosion of the euro's recent rally to the benefit of the dollar is weighing on oil prices. This is real demand destruction. Austerity and onerous public sector debt. As we have been saying for over two years: it is not going away. Nor is Iran, apparently. On Friday, US Secretary of Defense Panetta, announced at a NATO meeting that he was convinced Israel would strike Iran, sometime in Spring. We assume a US defense secretary does not issue these kinds of comments lightly, but market participants seem to be assuming that cooler heads will prevail by then; we hope so.
 

Petroleum Tech Talk     

Crude oil prices posted a new low since the recent peak at 95.44 on Thursday. Another new low has not been posted since. We will still keep our bias for lower though. Below 95.44 should be an open road to 92.74, where support might be projected as the 38.2% correction of the move from 74.95 to 103.74. a break above the most recent low though may suggest that a corrective move has concluded and another test of 103.74 is imminent. A erosion in price all the way back to 74.95 will imply that the move down from last Spring's 114.83 high has resumed.


Natural Gas            

The non-farm payroll number failed to keep gas prices out of negative territory for long on Friday. Market sentiment remains overwhelmingly bearish, but in the absence of new lower territory being probed, new shorts are reluctant to enter the market, probably waiting for an opportunity to sell into a modest rally. This may happen with the eastern half of the country expecting more seasonal norms. Still, withdrawals over the period will not be sufficient to erode the surplus significantly. Ergo, total inventories are likely to be at record high levels at the end of the winter heating season. The longer that prices hover above recent lows, the stronger will become the impulse to lock in longer term price structures. Open interest should tell that story, if it unfolds. With some early shut-in announcements, also come the prospect that the phenomenon will spread the lower prices go, as well. Lower prices may become increasingly harder to come by without more corrections.


Natural Gas Tech Talk                 

The reversal back down from the recent correction initially held the 3.409 target. Our bias remains for lower, but 2.231 may represent a bottom a while longer. A move, initially over 2.844 may confirm. It will probably require a change in the structure of the underlying fundamentals though to generate enough momentum to carry over congestion near 3.132, particularly at this time of year. But a meaningful break of 2.231 will open the way for the next target at 2.13, and then the 2002 low of 1.96.

source: KilduffReport.Com