Welcome back from what I hope was a happy and healthy 4th of July weekend. The market has certainly been shocked out of its doldrums over the past several sessions starting with Thursday mornings US jobs data. While the headline number of 223 K was virtually spot on expectation and the rate was actually lower by one tenth at a reading of 5.3 the number was effectively taken as a negative based on the participation rate plummeting by 3 tenths to 62.6%. It is interesting because no one really paid much attention to the participation rate, at least not with this type of vigor , in the past. It really shouldn`t have the negative effect that it has been spun into, though the Greeks sitting on the precipice of disaster most assuredly had something to do with the exaggeration of any negative bias.
China continues to show a slowing economy with more negative data having been released and their stock market opening down substantially. This comes on the heels of the aggressive central bank action just a week ago. While China does have a plenty of room for further action with here interest rates at 4.85%, it is concerning that the last intervention appears to have had little stabilizing effect. The concern from an energy perspective is that the greatest purchaser of commodities for the past 10 years maybe not able to keep up with that level of demand.
Bearish sentiment is starting to creep in from the demand side with both China slowing and the Greek crisis. Further bearish sentiment is being found on the supply side. Baker Hughes (NYSE:BHI) reported on Friday that 13 rigs in the US went back on line. That is following over 20- weeks of declines in rig count, possibly meaning that we could see the shift back to larger supplies as these rigs begin producing. For the past five weeks we have seen WTI crude supplies show less than expected builds and even draws in supplies. We can start to look for some evidence of increased production in the next few inventory meetings.
With crude having finally broken out of its range to the downside we now need to look for support areas below. While there could be some psychological support at the 50 dollar price, look for a retest at some point of the 48.71 low from mid-March.
Natural gas continues to struggle to find any sustained rally though has not really sold off much either. While it continues to show signs of strength, the rallies are muted with little follow-through. With the dip in crude related products, there could be some renewed interest in natural gas as they two different fuel sources rarely move in tandem. Potential demand question in the WTI can be a positive as natural gas sometimes finds more diligent buyers who are overly concerned with being long the crude.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors.