Have we come across a another indicator to worry about?

The weekly Oil inventory number is nothing new but its impact on markets has generally (and quite naturally) been restricted to the price of the black stuff. As we commented on Monday the inventory numbers appeared quite satisfactory but that did not stop analysts forecasting a drop for the week.

The actual number showed several rather alarming factors. The first (and most obvious) was that inventories actually increased quite strongly indicating more oil in storage. The second (and rather more worrying) was that implied demand appeared to have fallen. Of course this is just one weeks data and historically September has always shown falls in demand but it was enough to start some debate about whether the slowdown in the US economy is actually bottoming out. Inventories for the finished product (Gasoline) have now gone up far more than expected for several releases in a row.

Naturally the price of Oil was smashed down on the data falling over 300 cents but, possibly more importantly, it managed to close below the medium term bullish trend line in place since February which was crossing at around 69.40. If we fail to regain the bull move in the next few sessions fears for another winter of price weakness may surface. This time last year, as mentioned on Monday, we were trading at around the 100 buck level and most analysts seemed confident that 100 would be the marker for some time to come. Three months later we were at 35 dollars! This time we have a similar scenario with many commentators talking about $75 and higher being the natural range. If economic numbers start to reflect implied oil demand then we could be in for an interesting next few months.

This said there is still very good volume support all the way from current prices at 68.60 all the way down to 67.10 and then at 66.20. If price do fall from here it will not be an easy push. Oil is recovering slightly in early trade as dealers speculate that the move yesterday was overdone (a natural reaction to a 3 dollar, plus, fall).

On the release of the Oil inventories at 15.30 there was an immediate impact on the dollar, on the indices and on Gold as its implications for growth and inflation were quite clear. Subsequent trading managed to overcome the move until the FOMC later in the day but his will not alter the fact that next Wednesday at 15.30 we may well see rather more interest in the Oil numbers.

Today the FTSE is being called some 20 points lower on the back of the fall in the US late in the session but there is only limited interest from our clients at the moment. Punters seem confident equities will continue their moves higher with Longs continuing to outweigh Shorts by some 11 to 1 in the single stocks but the actual Indices themselves (FTSE, Dax, Dow etc) sees a slightly different perspective with Shorts (just) outweighing Longs. The index does not seem to want to give up the gains just yet and although we have had a few attempts over the last few sessions to drive us down the momentum of the bull run seems to hold the upper hand for the time being. For the bears there is good support at 5100 and very good support at 5050 but investors might be fighting shy this weekend as we have made no further progress on the highs of last Friday. There may be a tendency to take a few profits off the table and come back after October. It is always dangerous to make investment decisions based on history but October has often been a dire month for Markets.

Sterling is doing its best to recover from the recent falls but our clients seem to be unimpressed. Heavy selling into yesterday’s minor rally has set up nice short positions for many above 1.6400, on the other hand it must be noted that the failure on Monday to threaten the 1.6110 support did result in a strong recovery through Tuesday. For all the winging around versus the dollar the cross remains well and truly stuck in the 1.60/1.61 to 1.66/1.67 range where we have been for four months now. The weakness of the pound versus other majors has merely been reflected by the Dollars own lack of strength. Versus the Euro the cross seems unable to bounce far away from 1.10 and it is becoming evident that the poor old pound is finding few friends just now. The BOE’s huge QE injection and the low base rates are not exactly filling investors with much in the way of future expectations.

Gold remains in a tight range (for Gold) considering the important level that we are at just now. Most would have expected fireworks once the 1000 buck level had been confirmed but the moves of the 2nd and 3rd of September to get us here remain the biggest trading sessions of the month. The short term charts are showing a gentle upward trend (albeit with as many down days as up) and our clients remain long overall. Although one or two big ones are now selling.