This morning we have Australia's central bank lowering their benchmark interest rate by a quarter point in order to try and give the economy a boost as the commodity boom has begun to slow. As we stated in our other article this morning, both the Australian stock market as well as the New Zealand market are moving higher this morning and that could very well be good for our commodity stocks. As go the Australian, New Zealand and Canadian markets, so too do commodities in general.
Gold continues to trade above the $1775/ounce level and appears to be making a move to take out the $1780/ounce level this morning. Thus far it has failed twice, but sometimes we have to wait for New York to open for the real moves to begin.
Silver had a healthy bounce yesterday and has settled down around the $34.80/ounce level which has reached our previous short-term estimate area (we thought $35/ounce would be a short-term top) so we will need to look at that today and figure out where we think prices head from here factoring in the new QE3 and how that easing will affect prices through the end of the year. We still think that the move is higher, but we want to see short-term if we have maybe gotten ahead of ourselves.
Oil & Natural Gas
We see news this morning that ConocoPhillips (COP) is interested in divesting its stake in the prolific Kashagan oil field in Kazakhstan. The government appears to be the logical choice to purchase the stake in the offshore oil play, but the real question is who can pay the company the most to make a deal happen. Oil shall begin to flow next year, and one has to wonder where ConocoPhillips will redeploy that capital in order to replace that planned production and reserves. Our bet is that they bring that money to the US to drill and if that is indeed the case it would be another case of multinationals coming back to the domestic market which can only be described as bullish for everyone with a financial interest in the smaller shale players.
The first name that this trend benefits is Chesapeake Energy (CHK) which has numerous properties on the market at this time that could be suitable for a large company to co-develop. We agree that ConocoPhillips could use cash to develop assets currently in the portfolio, but we think that they would be better off targeting a large land package with oily tendencies (think Utica or Mississippi Lime) and using their large balance sheets to build those areas up. That may be optimistic on our part, but it is a belief we have had for some time regarding big names moving into the shale plays.
Mosaic (MOS) will report earnings before the market open today, which could provide a boost to names like Potash Corp of Saskatchewan (POT) and Agrium (AGU). Due to their diversification, Agrium has been the best performer and trades just off of their 52-week highs. Any bullish news coming from Mosaic this morning shall be bullish for Agrium and for Potash which is the largest producer of the fertilizer. Just a little color for traders, Agrium has had the most momentum due to the diversification with their store network and rumors about a hedge fund maybe trying to break the company up to increase shareholder value while Potash and Mosaic have lagged their pace as production has been cut and pricing pressures. We had previously forecast that pricing would improve this year with the Chinese and Indians purchasing more potash to replenish their stocks and help increase productivity (remember that Indian farmers are notorious for farming very unproductive land).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.