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Apr 19, 2012, 05.44 PM IST
The CRB, a global commodities benchmark broke 300 level on Wednesday; this fall according to Dhiren Sarin, chief technical strategist - Asia-Pacific, Barclays Capital is concerning and shows weakness in commodities.
The downside driver for the CRB index has been base metals, he said. “If you look at the likes of copper and platinum, it seems to have broken down quite sharply, which is causing some drag on commodity markets.”
Given this, he expects commodities especially, base metals to underperform in the near-term.
He expects Brent crude to find support at USD 116.30-116.50 levels. "If WTI crude is looking a little bit more bullish we expect this Brent sell off to start to stall over the next week and we start to see some signs of life in energy markets," he added.
Meanwhile, he expects India to be an underperformer in the equity markets and has a moderately neutral-to-bearish view on India .
Below is the edited transcript of Sarin’s interview with CNBC-TV18. Also watch the accompanying video.
Q: Crude slipped to USD 118 per barrel. Do you spot a breakdown or do you think this is just a temporary cool off? I am talking at Brent Crude?
A: We are seeing a little bit of weakness for Brent crude. There is some important support coming around USD 116.30-116.50 area, those are peaks of late last year and the markets are approaching that pretty quickly. That should hold up for the time being.
This is why I bring up WTI crude as well because we don’t expect them to diverge too greatly. If WTI crude is looking a little bit more bullish we expect this Brent sell off to start to stall over the next week and we start to see some signs of life in energy markets.
Q: For the commodity universe though, would you say the trend is lower rather than for it to be moving up. Yesterday, the CRB broke the 300 level?
A: The CRB is concerning, primarily the downside drivers aren’t energy though, it is base metals. If you look at the likes of copper, platinum, it seems to have broken down quite sharply, which is causing some drag on commodity markets.
Ultimately, we do view this entire move in commodities as corrective, but for the time being this trend for commodity underperformance, we have seen that for a few months now, we are going to stick with that trend for the time being. We expect particularly base metals to underperform.
Q: What is it that you see on the charts of S&P and Dow? Is this looking like a pause before a big up move or are markets running out of steam?
A: We have had a very solid move in first few months of the year. A rise of 15-20% these are kind of moves where subsequently you do see a pause, but this pause should be healthy, it should be corrective. Ultimately, we do think this will resume higher.
For the time being the S&P could probably dip down another 2-3%, but it has started to look for a base. Similar to our view in crude oil, around 1,340- 1,350 is a reasonable basing zone for the S&P.
Q: Would you say the same for the European charts that you are seeing at this point or do they look shakier?
A: That’s drastically different, the European charts particularly the Spanish charts if you look at the Spanish IBEX that’s approaching it lows from 2009. That is the credit crisis lows. It’s just showing how fearful the market is. They are entrenched in this psychology of a bearish trend.
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