XAU/USD:
In the coming week you had better sell the precious metal for two reasons. Firstly, the US corporations that are accountable for the third quarter last week, pleased investors strong data that allows you to count on growth in the US stock market quotations. Capital inflows into risky instruments traditionally painful perceived by investors, who invest in safe assets, where gold has an important role. Historically, traders feel the “yellow metal” as “safe haven” where you can park money during periods of instability. Now, any instability is not observed and not expected, at least in the short term. Second, the dollar index basket of the last three trading week ended on a positive note and the continuation of this trend will put pressure on gold, which typically moves inversely to the US currency trends. In my opinion, the dollar will continue its winning streak and will test the 99 figure, since the representatives of the FOMC continues to declare the need for a speedy increase of the discount rate. I open short positions 1268/1281 and set take profit at 1242.
Brent:
Black gold is located in the “green zone” the past four trading weeks and I expect some technical correction. In my opinion, this week Brent will test the psychological level of $50/barrel. I must begin my review with speech of the Russian Minister of energy A. Novak, which he delivered on 21 October in Ufa, where it was stated that Russia may increase production to a level of 548 million tons per year in 2017. Novak predicts that in 2016 the volume of production will be at the level of 544 million. Tons. It sounds rather ironic, since Russia declared its readiness to join the OPEC plans to reduce production. But if you understand the structure of Russia’s economy, there is nothing paradoxical in the words of the minister did not sound. The Russian Federation is really necessary to increase production of oil, to keep the budget within the framework of their plans and not to go into a deep deficit. Or there is another scenario – significantly reduce government spending, primarily in the social sphere. But such scenario is fraught with public unrest. It is also necessary to add the position of Nigeria, said that the possibility of selling its oil at a discount to Brent quotations in the region of 15%. Nigeria dumping to increase its share of the market – for investors dumping is always a signal for short-term sales. In the United States, according to the release, Baker Hughes, the number of oil rigs increased by 11 units, to the level of 443, which is the highest since 12 February of this year. It is worth noting that all new platforms are among the installations, horizontal drilling, and in this regard, while it is not necessary to expect sharp increase in the level of oil production in the United States. The effectiveness of horizontal and vertical drilling varies considerably. In the first case a well permit to extract up to 12% of oil extraction in the second case comes to 40%. Thus, only after the growth of vertical drilling platforms in the U.S. will be a sharp increase in production volume. Vertical platforms are 57 units now. However, since the beginning of October the number of horizontal rigs increased by 38 units, which indicates a gradual increase in the volume of production. I open Sell position 52,90/54,10 and set take profit at 50,20.
S&P500:
During the week, we should expect moderate growth of quotations. Firstly, on the Treasury bond market correction observed on the reference yield securities, which is a positive signal for the stock in the short term. The yield on 10-year bonds peaked on October 17 at the level of 1.81%, and the end of trading on Friday, fell to 1.74%. Bond markets and stocks traditionally compete for funds from investors and as for debt securities decreased profitability, capital is directed in equity securities. In addition, important macroeconomic statistics, which can cause the growth of profitability, will be published only on Friday, October 28, when we get the release of the US GDP for the third quarter. Leading indicators point to a data output within the median forecasts (2.3% -2.5%): growth of business activity in the services sector and the construction industry, as well as an increase in consumer spending can expect to yield a moderately positive data. Secondly, the beginning of the corporate earnings season generally runs on a positive note, forcing investors to buy shares. I open long position 2136/2120 and set take profit at 2150,5.
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