Crude Oil Set to Follow S&P 500 Lower, Gold Outlook Turns Clouded

[akats]

Crude oil prices appear firmly anchored to broad-based sentiment trends with the correlation between the WTI contract and the S&P 500 – a proxy for overall risk appetite – now at the strongest in over two months (on 20-day percent change studies). This suggests the path of least resistance favors weakness as futures tracking the equity benchmark slide over 0.5 percent in European trade.

Crude oil prices appear firmly anchored to broad-based sentiment trends with the correlation between the WTI contract and the S&P 500 – a proxy for overall risk appetite – now at the strongest in over two months (on 20-day percent change studies). This suggests the path of least resistance favors weakness as futures tracking the equity benchmark slide over 0.5 percent in European trade.

Markets are turning jittery in anticipation of a French bond auction amid returning Eurozone debt crisis fears. Paris will sell €8 billion in 2021-2041 paper, with the outcome particularly interesting given rating agencies’ threats to downgrade the country’s AAA credit score (which would consequently compromise the AAA score assigned to the EFSF bailout fund) over recent months.

On the economic data front, all eyes are on the US ADP Employment reading as traders prepare for Friday’s all-important official jobs report. Expectations call for an increase of 178,000 in December compared with 206,000 recorded in the preceding month, alluding to a slowdown in hiring.The non-manufacturing component of the ISM survey may be a mitigating factor however, with forecastssuggesting service sector growth accelerated for the first in four months. Weekly inventory figures are also on tap.

On the technical front, prices put in a bearish Hanging Man candlestick below resistance at 103.35, the November 17 high, warning a double top may be in the works. Near-term support lines up at 101.28. Alternatively, a break higher exposes 106.05.