Bullish US $ index view at risk. 79.26 is KEY, Watch the Russell 2000 and its 200d avg & Don't Fade The Bond Rally, BofA Warns

Bullish US $ index view at risk. 79.26 is KEY

The breakdown in US 10yr yields threatens our bullish US $ Index outlook, as well as our long $/Chf position and topping view in €/$. However, for now we are sticking to our call. A US $ Index break of 79.26 (the Mar-13 low) says our view is misplaced and opens significant US $ index downside.

Watch the Russell 2000 and its 200d avg

We are becoming increasingly concerned about small cap and tech stocks. Indeed, the Russell 2000 is dangerously close to its 200d (1113). A closing break below would expose 5yr trendline support (1057) and could lead to a bout of n/term risk aversion. This is bullish Treasuries.

10yr USTs threaten the US $

US 10yr Treasury yields take center stage next week. After 3 months of range trading, they have resumed their year-to-date downtrend. The Friday Bearish Outside Bar (a bearish chart pattern indicating further downside) and closing break of the 2.591% range lows says lower 10yr yields are coming. We target the 2.420%/2.399% multi-year pivot zone and potentially below. DON’T FADE THIS BREAKDOWN. Watch US equities.

While the S&P500 is still constructive, small caps and tech remain vulnerable. Indeed, the Russell 2000 is dangerously close to its 200d moving average, a close below which could lead to a bout of risk aversion and be the catalyst for further yield weakness. From an FX perspective, the 10yr yield breakdown threatens our bullish US $ index / bullish $/CHF. HOWEVER, FOR NOW WE ARE STICKING TO OUR GUNS. A break below 79.26 (US $ Index), 0.8699 ($/CHF) and above 1.3967 (€/$) forces us to reassess. In contrast, the yield breakdown increases our n/term bearish conviction on $/¥.

Chart of the week: 10yr Treasuries return to trend

The Friday Bearish Outside Bar and close below the 3m range lows say that 10yr yields have returned to a downward trending environment. In the sessions weeks ahead we target the 2.420%/2.399% pivot zone and potentially below.

$/¥ takes aim at its 200d avg and below

In contrast to our bullish US $ Index view, we remain near term $/¥ bears. Indeed the breakdown in 10yr yields adds to this bearish conviction. In the sessions ahead we look for a test and break of the pivotal 200d (now 101.00), targeting the 99.37 swing target.

Barclays cuts Q2 price forecast for LME Copper from $7,300 to $6,900 a ton

British banking giant Barclays has marked lower their LME copper second-quarter price forecast from $7,300 a ton to $6,900 a ton but continue to see upside from current levels.

According to Barclays. first-quarter LME copper prices were in line with their forecast of $7,100 a ton, averaging $7,037 a ton.

Barclays maintains their second half price forecast for LME copper to trade around $7,000 a ton. Much will depend on China. The strong sequential recovery in Chinese economic growth our economists are forecasting will be needed to prevent a ballooning copper market surplus.

Chinese market participants have indicated demand has begun to pick up. Factories reported a moderate bounce in orders that allowed them to source more raw materials. The State Grid Corp of China awarded two rounds of tenders in March, and other infrastructure projects are also under way. At the same time, government reassurances that China could deliver growth began to steady sentiment.

However, demand is still best described as lukewarm rather than very hot. YTD State Grid transformer tenders are still 13% lower y/y, and tight credit continues to constrain a variety of activities, from construction to property sales, said Barclays.

Barclays expects imports to begin to thin in the coming months, reflecting soured financing appetite and high bonded inventories. While recent feedback suggests that inventories have flattened as outflows from the warehouses to the domestic market roughly offset imports and smelter deliveries to the warehouses, Chinese demand needs to pick up more strongly for the market to rebalance.

Barclays maintains 2014 LME Lead price forecast at $2,239 a ton

 Barclays maintains their full year LME lead price forecast at $2,239 a ton while the metal's first-quarter prices were slightly softer than expected averaging $2,105 a ton, compared with their forecast of $2,200 a ton.

According to Barclays, the fundamental picture for lead continues to look constructive with the market in a modest deficit and reported stocks-to consumption very low.

Data from the ICSG show that the US lead market deficit continues to increase, though we believe that may be partially exaggerated by record-high imports in January. 

Barclays understands that some of those imports went to unreported stock builds, with market participants keen to hold a more comfortable inventory buffer given the lack of domestic production following the closure of the Herculaneum smelter.

Globally, demand is being supported by the build out of 4G networks, especially in China, India and, to a lesser extent, Africa. Stationary battery demand for this use is expected to be a significant contributor to global lead demand alongside solid transportation demand, especially in China and from a recovering European autos market.

The restructuring of Exide Technologies could further tighten the US market depending on what it decides to do with its smelter assets. Regardless, the risk is for significant disruption since a sale would require new owners to make the facilities environmentally compliant. Alternatively, if Exide kept its US smelters, it could use this to feed at least part of it battery operations. However, smelter upgrades would still be required, leading to closures and likely production disruptions, which could tighten US supply further.

Aluminum demand underpins by improving economy, emissions rules: BofAML

Demand for aluminum is underpinned by an improving economy and tighter emissions regulations for automobiles, said Bank of America Merrill Lynch.

The fundamental backdrop outside of China has especially improved, and the bank says the world excluding China may post a 590,000-metric-ton supply deficit this year after a 3.2 million-ton surplus in 2009.

“Focusing on demand, the rebound in offtake was of course heavily influenced by a recovery of economic activity, highlighted also in aluminum demand's beta of two times global GDP growth,” the bank added.

“The cyclical boost has been mirrored in a high correlation between global vehicle sales and the metal's consumption as well.” In addition to higher vehicle production, the sector’s shift toward lighter vehicles, in order to meet emissions standards, also means more use of aluminum in cars,” said the analysts with Bank of America Merrill Lynch via Kitco News.

“Car manufacturers can comply with stricter regulations by a combination of factors, including a reduction in vehicle weight. Considering that aluminum has a lower density compared to other raw materials like steel, it can be a material of choice to reduce a vehicle's weight,” the bank concluded.

China copper premiums hit nearly 3-yr high on tight credit, robust demand

* Domestic copper trades at 1,500 yuan above ShFE front-month contract

* China traders see strong downstream copper demand

* But high local premiums attract metal out of bonded zones

Premiums in Chinese copper markets rallied to their highest in almost three years this week as robust demand met tight local supply, industry sources said, although levels could ease slightly near term.

Soaring premiums - the price paid on top of local cash futures prices to obtain metal - have surprised some given sluggish factory growth in the world's top consumer, suggesting that Chinese demand in some sectors may be holding up better than broader data suggests.

Domestic copper supply has also dwindled after Chinese producers sold stocks to global markets in March, while financing deals have locked away stocks from the market.

Some banks have also curbed credit terms, making it harder for small consumers such as air conditioner manufacturers to import metal, traders said, prompting those firms to run down their inventories.

"Domestic supply is so tight it has boosted the premium, while downstream orders are strong," said a trader at a Chinese copper smelter in the eastern province of Shandong.

Activity in China's factories increased marginally in April but export orders fell sharply, adding to questions about whether the world's No.2 economy is stabilising after its first-quarter slowdown.

Still, state spending on China's power grid grew by 13 percent to record levels in the first quarter, while production of white goods, automobiles and electronics is expanding between 5 to 15 percent, said analyst Joel Crane at Morgan Stanley in Melbourne.

"Inventory is low and we're in peak demand season. The key copper end-use sectors are growing at a reasonable clip. As long as those conditions remain, the premium should stay high."

China is the world's top copper consumer, accounting for around 40 percent of demand. Power grid investment makes up the lion's share at around 47 percent, Morgan Stanley says.

Physical copper CU-1-CCNMM on China's local market traded at a 1,570 yuan ($250) premium to the front-month Shanghai Futures Exchange contract on Monday - the highest since Oct. 2011.

That represents a more than 80 percent advance on the $138 charged by top producer Chile's Codelco for 2014 term shipments, which are paid above London Metal Exchange cash prices.

SUPPLY DRIED UP

Local supply dried up from March, when a bond default by a solar equipment maker pushed copper prices to more than four-year lows, sparking worries of a meltdown in China's credit markets that could up-end financing deals.

Those transactions are typically used by importers to get around China's tight credit and currency controls, and are a key driver of the country's imports.

In a typical deal, an importer gives a yuan deposit to a bank for a letter of credit in dollars to buy copper, then resells the copper into the domestic market to raise cash that can be used for higher yielding investments such as real estate.

While the vast majority of these deals are fully hedged, the sharp drop in local prices encouraged producers to sell copper to higher priced global markets cutting the volume of metal on hand at home.

That helped to bump up stocks in China's bonded zones to around 800,000 tonnes, according to several trader estimates, from 560,000-660,000 tonnes in late February.

China's state stockpiler also bought when prices were low, sucking up at least 200,000 tonnes.

But worries about defaults linger, with traders noting tighter credit conditions in the past month especially for 1-year LCs from western financial insitutions.

Still, higher premiums have begun to entice metal back to the domestic market, and premiums could ease when Chinese markets reopen on Monday after public holidays at the end of this week.

"When premiums spiked the other day, we began to see (traders) looking to import the material and move it back onshore," said a trader at a bank in Singapore. 

($1 = 6.2593 Chinese Yuan) 

GOLD MAJOR RESISTANCE $1312 ABOVE THAT IT CAN TOUCH $1356

GOLD SUPPORT :- 1277, 1283, 1295  

RESISTANCE :- 1307, 1312, 1327, 1346 AND LAST 1356.

Altyn means Gold, Eurasian Economic Union And Formation Of Joint Currency

Several Russian media outlets have reported that Russia, Kazakhstan and Belarus, that currently form the Eurasian customs union, will sign an agreement in May to accelerate the formation of an economic union and a joint currency: Altyn.

On the territory of several Russian principalities the currency Altyn has been circulating from the 15th century until 1991. Originally it was made of copper, the silver Altyn appeared during the times of Peter the Great.

I added English subtitles to the video below, press the ‘captions button’ to activate.

Transcript of the video:

ALTYN BECOMES THE NEW CURRENCY FOR CUSTOMS UNION

NEW EURASIA CURRENCY MAY APPEAR IN THE NEXT FIVE YEARS

A new currency for the Eurasian Economic Union, “Altyn” may enter into circulation within the next five years. In May, the Presidents of Russia, Kazakhstan and Belarus will sign an agreement on the establishment by 2015 of the Eurasian Economic Union. This unique partnership and single economic space will be a response to the European Union. It is not excluded [It is possible] that this may eventually develop into a military- political alliance which is able to compete with NATO and China. The original idea for creation of a single currency belonged to President of Kazakhstan Nursultan Nazarbayev. In 2012, it was supported by Russia’s President Vladimir Putin. It was originally planned to create a currency in 2025, but the introduction of serious economic sanctions against Russia may begin to accelerate plans for this new currency market.

Other media outlets that reported this news were Pravda.ru and Moskovsky Komsomolets. From these leads I did some searching on official sources on the development of the Eurasian Economic Union (EEU) and Altyn. What I found was that the EEU is in an advanced stage, on Altyn I couldn’t find much so I’m not convinced this currency will be introduced within 5 years. Presumably only an “oral agreement” between the states has been made on the joint currency.  

From Wikipedia:

The Eurasian Customs Union was launched as a first step towards forming a broader European Union-type economic alliance of former Soviet states. The member states are planning to continue with economic integration and were set to remove all customs borders between each other after July 2011. On 19 November 2011, the member states put together a joint commission on fostering closer economic ties, planning to create a Eurasian Union by 2015. Since 1 January 2012, the three states are a Single Economic Space (SES) to promote further economic integration. The Eurasian Economic Commission (EEC) is the regulatory agency for the Customs Union.

United States foreign policy opposes the Customs Union, claiming it as an attempt to “re-establish a Russian-dominated USSR-type union amongst the Post-Soviet states”

Documents from the Eurasian Economic Committee confirm the formation of the Eurasian Economic Union. Kyrgyzstan, Armenia and Tajikistan may join the new financial and economic organisation. Currently the three member states are at stage III of their integration process, they aim to reach stage IVby the end of 2015. Especially Putin is keen on closing a deal to move away from the petrodollar in conjunction with allies in central Asia.

Development Stages Eurasian Economic Union

As was being said in the video above the President of Kazakhstan Nursultan Nazarbayev was the first to come out with the idea to form a joint currency. According to Pravda.ru Nazarbayev is of the opinion the US dollar is an illegal and non-competitive means of payment “the world currency was not de jure legitimate because it was never adopted by any communities or organizations. There is no such international law,… the world currency market is not a civilized market, as the system of world currency issuance is not being controlled.” He said. Nazarbayev believes the world is heading towards a new monetary system; from “defective capitalism” to “the new capitalism that would be based on a non-defective currency – self-growing global wealth.”

Fun Facts About The Eurasian Economic Union

Russia’s economy is eight times smaller than that of the US, but by forming a new ‘empire’ on top of a vast amounts of resources this economic block will be a serious threat for the US petrodollar. Russia is now speaking openly about getting rid of the US dollar for trading energy, it’s building its own payment system and closing gas export deals with China - the other Asian empire. The Eurasian Economic Union will be a powerful stab at the US dollar hegemony.

By the way, in Kazakhstan “Altyn” means … gold.

Article : In Gold We Trust