Commodities are on the upswing in overnight trade amid a broad-based recovery in risk appetite. The MSCI Asia Pacific regional benchmark index is up over 1%, pulling sentiment-anchored crude oil and copper higher while offering de-facto support to gold and silver by way of ebbing haven demand for the US dollar. The newswires are attributing the chipper mood to a vaguely promising meeting between US President Obama and Congressional leaders on Friday that seem to be buoying hopes for a compromise to avoid the so-called “fiscal cliff”.
Failure to reach a deal will trigger the onset of steep tax hikes and budget cuts at the turn of the calendar year. The Congressional Budget Office (CBO) estimates that if the hefty dose of austerity is allowed to proceed as-is, it stands to trim US GDP growth by a hefty 0.6% in 2013, tipping the economy into recession in the first half of 2013. In an environment where investors are hoping a firming US recovery will help countervail headwinds from Europe and Asia, the prospect of avoiding a scenario seems reasonably positive for sentiment, although follow-though is suspect for now until something concrete emerges.
Looking ahead, October’s US existing home sales data headlines a quiet economic calendar. Expectations point to a print at 4.75M, matching September’s outcome. Absent a sharp deviation from expectations, the outcome seems unlikely to yield much in terms of directional momentum. On the sentiment front, S&P 500 futures are pointing firmly higher, suggesting the risk-on tone is likely to carry forward, making for a supportive view for the commodities space in the hours ahead.
Comex E-Mini Copper (NY Close): $3.452 // -0.010 // -0.29%
Prices are testing support at a rising trend line set from early October 2011 (3.405). A break downward initially targets horizontal support at 3.300. Near-term resistance is at 3.505, the 23.6% Fibonacci retracement, with a piercing above that exposing the 38.2% level at 3.568.
WTI Crude Oil (NY Close): $86.67 // +1.22 // +1.43%
Prices pushed above resistance at a falling trend line set from the September 14 high to challenge the 38.2% Fibonacci expansion at 87.70. A break above that exposes the 23.6% Fib at 92.53. Trend line resistance-turned-support is now at 86.36, with a push below that targeting the 50% expansion at 83.76.