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September 2007 Archives

September 4, 2007

Hurricane Felix Moving Markets This Morning!

Crude Oil: Oil futures are currently trading lower in post-holiday trade, as bulls take profits with Hurricane Felix figuring now to bypass Mexico’s Oil rigs in the Gulf of Mexico. The category 4 storm is now on track to reach Nicaragua and Honduras later today. October Crude Oil is currently trading at $74.11, down $0.12.

Wheat: Chicago Wheat futures for December were up the 30-cent limit at the end of the overnight session, as India purchased 795,000 tons of Wheat yesterday – well above the 530,000 tons offered in last weeks tender. The increased purchase comes despite all-time highs in world Wheat prices. Australia, the world’s third leading Wheat exporter, is now expected to produce less than 19 million metric tons of Wheat this season, down from the June estimate of 22.5 million tons. At the end of the overnight session, December Wheat was trading at $8.05 ½, up 30 cents.

Coffee: New York Arabica Coffee futures are trading higher in electronic trade this morning, following higher prices in the London Robusta trade as traders fear Hurricane Felix will damage the Coffee crops in Honduras. This comes at a time when Coffee supplies are tight, with the International Coffee Organization looking for an 8-million bag deficit next season. In early trade, December Coffee was trading at 117.20, up 1.35.

Mike Zarembski, Senior Commodity Analyst


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Ten-Year Note Yields Approach 4.50%!

Prices on U.S. Ten-year Notes continue to rise as cash Ten-year Note yields hover near 6-month lows. The low yields are the effect of traders’ beliefs that the Federal Reserve will cut interest rates, with the market pricing in a 75 basis point cut in the Fed Funds rate by March of 2008. Financial traders will be watching today’s release of the Institute for Supply Management (ISM) factory index. Economists expect U.S. manufacturing growth to have slowed last month, with an average estimate of 53 for the factory index versus 53.8 the previous month. Analysts will be closely watching this month’s round of economic reports, as most will include the period when the subprime fallout directly affected the markets. Should the data prove to be weaker than expected, it could be the catalyst for the Fed to finally cut rates and support the bull trend in the Treasury markets.

Looking at the daily chart for December Ten-year Note futures, we notice prices hovering near the recent highs of 109-150. Currently yielding 4.52%, cash yields are approaching psychological resistance at 4.50%. Momentum as measured by the 14-day RSI looks strong, but is approaching overbought levels with a reading of 67.33. The recent highs of 109-150 should act as resistance for the December contract, with support found at the 20-day moving average currently at 108-080. In early trade, December Ten-year Note futures were trading at 109-100, up 0-085.


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Gold Futures Eyeing $700!

Fears of higher inflation down the road have helped boost Gold futures this afternoon, as traders look for the Federal Reserve to focus less on fighting inflation and more on keeping the U.S. economy out of recession. In addition, a stronger U.S. stock market is also supporting Gold prices. Technical traders noted December Gold rose above the key 100-day moving average, which many traders use to determine if a market is bullish or bearish as a trigger for fresh buying by momentum traders. Buy stops were triggered above the recent highs of $688.10 and psychological resistance of $690.00. This morning's release of the ISM manufacturing index for July came in at 52.9, down from 53.8 in June but still above a reading of 50, which signals expansion. This was also deemed supportive to Gold futures, especially in light of the anticipated rate cuts by the Fed. The next resistance point for December Gold is seen at the July 26th highs of $695.50, with support found at $679.00. December Gold closed at $691.50, up $9.60.

Surging Wheat futures helped buoy the entire grain complex, with Soybean and Corn futures posting sharp gains to start the week. November Soybeans reached highs not seen since July 16th, closing above the $9.00 level for the first time in seven weeks. Coupled with the potential for declining U.S. Soybean crop estimates due to hot, dry weather in the southern Soybean growing regions in August, the limit-up move in Wheat futures is seen as a major factor in today's sector-wide price rise. December Corn rose to 1-week highs, moving above both the 20- and 50-day moving averages and sparking fresh commodity fund buying. However, prices closed well off the day's highs as this morning’s report on U.S. Corn export inspections for last week were below the previous week's totals. Corn export inspections totaled 35.634 million bushels for the week ending August 30th versus 36.514 million bushels the previous week. November Soybeans closed at $9.07 1/2, up 25 cents, and December Corn closed at $3.53 1/4, up 13 1/4 cents.

Mike Zarembski, Senior Futures Analyst


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Bulls First to Arrive at the Post-Labor Day Party

School is back in session today and so are the bulls on Wall Street. The Dow gained 91 points, with the S&P adding 15, and the NASDAQ tacking on 33. Although the S&P couldn’t quite hit the 1500 level for the first time since August 8th (the high was 1496), it was a positive day nonetheless. The optimistic vibes carried over to government bonds as well, with the 10-year Note ending the day with a 4.55% yield.

In the news, construction spending came in below expectations at -.04% (-.01% was the consensus). Tomorrow, traders will be processing automobile sales figures, which come out tonight at 5:00 PM Eastern time. In addition, we can look forward to Pending Home Sales, the Fed’s Beige Book, and Crude Oil inventories tomorrow.

Overseas, the Nikkei dropped .63%, while the Hang Seng remained generally flat with only a .08% drop.

Economic Data Scheduled for Tuesday, September 5, 2007

(All times in U.S. Central Time)

U.S.
9:00 AM: Pending Home Sales for July
1:00PM: Fed’s Beige Book

Great Britain
3:30 AM: Purchasing Managers Index (services) for August (Consensus 56.5)

Canada
8:00 AM: BoC Interest Rate announcement (Consensus 4.5%)

European Union
2:55 AM: (Germany) Purchasing Managers Index (services) for August (Consensus 58.1)
3:00 AM: Purchasing Managers Index (services) for August (Consensus 57.9)
4:00 AM: Retail Sales for July (MoM) (Consensus 0.3%)

Japan
None

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September 5, 2007

Perfect Storm for Wheat Futures!

Every day seems to bring new bullish fundamentals for the Wheat futures market, setting the stage for the current explosive run to all-time record high prices. Australian Wheat production may fall as low as 16 million metric tons this year – nearly 30% below the most recent government forecast – as hot, dry weather has damaged the crop on the western portion of the continent. Nearly every major Wheat exporter has experienced some problem this year, keeping supplies tight. India purchased 795,000 metric tons of Wheat this past weekend, with the majority coming from Russia. Despite record high prices, there are reports that India is still in the market for even more Wheat to ensure adequate domestic supplies. Egypt is reported this morning to have tendered to buy Wheat as well. Wheat futures markets around the world are trading at record or near-record highs again, with Liffe’s November Paris milling Wheat futures up 5.3% today, trading at a new all-time high of 300 Euro per ton. Liffe’s November London feed Wheat futures also hit a record high of 197.50 Pounds per ton in early trade. In South Africa, December Wheat futures traded a record 2,999 Rand per ton on the South African Futures Exchange. In the U.S., the most-active December Chicago Wheat futures were trading up the 30-cent limit at the end of the overnight session, and the spot month September contract posted a new all-time high of $8.37 per bushel today. Now that Wheat prices have gone parabolic, there is no telling how high prices have to go to start to ration demand. Wheat, unlike other commodities, is a necessity with few good substitutes available, which is why we’re seeing Wheat exports holding strong despite the high prices. Traders must expect extreme volatility in the Wheat futures market, with limit moves becoming more common on both the upside and downside in the near-term.

Looking at the daily chart for December Wheat, we notice prices moving near-vertically as few sellers are willing to stand in front of a charging bull. No surprise that the 14-day RSI has reached vastly overbought levels with a reading of 88.25. With the market trading in a near-panic mode, any support and resistance points would be nearly worthless as prices can and will move quickly through these points. Though fundamentals figure to remain bullish, that does not mean a sharp price correction cannot take place – a decline of $1 or more may occur quickly and slippage on protective sell-stops may be severe! At the end of the overnight session, December Chicago Wheat was trading at $8.35 ½, up 30 cents.

Mike Zarembski, Senior Commodity Analyst


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Gold Can't Hold Above $690!

Gold: After trading at 5 ½ week highs and moving above the key $690 level yesterday, profit-taking selling has emerged in early Gold trade this morning, with weakness in European and Asian stock markets and a stronger U.S. Dollar index giving traders a reason to lighten up on long positions. Currently, December Gold is trading at $688.90, down $2.60

British Pound: Consumer confidence levels fell to 4-month lows this morning, as the Nationwide Building Society’s index of sentiment fell to a reading of 94 – its lowest level since April. The spending index bottomed out for the year, dropping 7 points to a reading of 79. This sent September British Pound futures lower, as traders believe the Bank of England will keep interest rates steady tomorrow. In early trade, September British Pound futures are trading at 2.0102, down 0.0039.

S&P 500 futures: September e-mini S&P 500 futures are giving back most of yesterday’s gains in early trade this morning, as traders fear recent upheaval in the credit markets will hurt earnings in the 3rd quarter. Also hurting stock futures was the forecast from the Organization for Economic Cooperation and Development lowering its 2007 growth estimate for the U.S. to 1.9%, down 0.2% from the previous forecast. In early trade, September e-mini S&P 500 futures were trading at 1479.50, down 10.00.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Tuesday, September 5, 2007
(All times in U.S. Central Time)
U.S.
9:00 AM: Pending Home Sales for July
1:00 PM: Fed Beige Book

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Ten-year Yields Fall Below 4.5%

Ten-year Note futures continue to climb, with cash yields falling to 5-month lows today in the wake of another weak U.S. housing figure and concerns that August employment data will be weaker than anticipated. The National Association of Realtors reported that pending home resales fell by 12.2% to 89.9, far more severe than the pre-report estimate of a 2.5% decline. ADP Employer Services came out with its estimate for private sector jobs in August this morning, stating that only 38,000 jobs were created last month, as layoffs in the financial services sector – specifically the mortgage industry – hurt the employment picture. Analysts are looking forward to Friday’s Non-farm Payrolls report with renewed interest, as a soft number may bolster the belief that the Fed will cut rates at its September 18th meeting. Current expectations are for August payrolls to increase by 110,000 jobs and the unemployment rate to remain steady at 4.6%. 110-000 is seen as the next resistance point for December 10-year Notes, with support found at 108-245. December 10-year Notes closed at 109-230, up 0-215.

Copper futures ended the session on a down note, falling to 1-week lows, as middling U.S. housing figures overshadowed a drawdown in Copper stocks. Pending home resales fell to their lowest level since September 2001, drawing concerns that U.S. economic growth will slow – a negative for base metals. Today’s sell-off overshadowed a 2,625 metric ton drawdown at LME warehouses and a weak U.S. Dollar against the Euro. Technical traders noted that prices closed below the 20-day moving average, which may have contributed to momentum-based selling this morning. 320.00 is seen as support for December Copper, with resistance found at 338.80. December Copper closed at 326.30, down 4.30.

Mike Zarembski, Senior Commodity Analyst

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U.S. Housing Slump Continues, Dragging Stocks Lower

A disappointing Pending Home Sales report and fears that Friday’s payrolls report will show sluggish jobs growth weighed on stock indexes today, with the S&P 500 losing 17.13 and the Dow Jones falling by 143.55.

Treasuries were the biggest benefactor of today’s stocks slump, with the Ten-year Note yielding 4.47% and the Two-year Note yielding 4.02%. Traders will be focusing on Friday’s Non-farm Payrolls report for August, with expectations of an increase of 110,000 jobs. The unemployment rate is expected to remain steady at 4.6%

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, September 6, 2007
(All times in U.S. Central Time)

U.S.

7:30 AM: Initial claims wk-9/1 (Consensus 330k)
7:30 AM: 2nd qtr Productivity revised (Consensus 2.4%)
9:00 AM: ISM Services for August (Consensus 54.5)
9:30 AM: EIA Energy Inventories

Great Britain

3:30 AM: Industrial Production for July (MoM) (Consensus 0.2%)
6:00 AM: Bank of England interest rate decision

Canada

7:30 AM: Building Permits (MoM) (Consensus -1.5%)

European Union

5:00 AM: (Germany) Factory Orders for July (Consensus -2.5%)
5:45 AM: ECB interest rate decision

Japan

None

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September 6, 2007

Gold Going Its Own Way

Many traders in the precious metals sector were caught off guard over the past few weeks, as the expected “flight-to-quality” buying did not materialize when world stock markets posted steep sell-offs in the wake of recent credit crunches. In fact, Gold prices fell as large investors and speculators unloaded their positions to meet margin calls or to get “liquid” during the height of the stock sell-offs. This week, however, Gold has started to shine, as prices hit 6-week highs in Asia overnight. Strong physical demand is still seen out of India, and European Central Bank selling has been lighter than expected so far this month. Expectations that the Federal Reserve will cut rates at the September 18th meeting may also be a factor in the recent bullish interest for Gold, as any signs that the Fed has shifted its focus from controlling inflation could hurt the U.S. Dollar and therefore help support Gold prices. With the $700 level coming into view for the December futures contract, it might be a tempting target for Gold bulls. And if short-covering buy-stops lie ahead, this could provide further fuel to keep Gold prices moving higher.

Looking at the daily chart for December Gold, we notice prices holding well above the major moving averages. Momentum as measured by the 14-day RSI has moved into overbought territory, however, with a current reading of 75.96. The July 24th highs of $701.00 appear to be the next resistance point for December Gold, with current support found at this week’s lows of $680.10. In early trade, December Gold is trading at $695.10, up $4.40.

Mike Zarembski, Senior Commodity Analyst

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$76 Crude Oil, Yet Supplies are Adequate?

Energy Futures: Lead month October Crude Oil rose past the $76 level in early morning trade, as traders fear recent refinery outages may have crimped fuel supplies. Refinery utilization last week is expected to have fallen below the previous week’s 90.3% capacity rate, which would not bode well for increased supplies of Gasoline. Traders are gearing up for this morning’s weekly EIA energy stocks report, one day later than usual due to the Labor Day holiday. According to a Bloomberg survey, Crude Oil stocks may have fallen by 2.2 million barrels last week. Gasoline stocks were estimated to show a 1.3 million barrel decline. Next week’s OPEC meeting in Vienna is not expected to produce any policy changes in current output, as several Oil ministers have recently announced that the supply of Oil is adequate to meet current demand. In early trade, October Crude Oil is trading at $76.12, up $0.39, and October RBOB Gasoline is trading at $2.0070, up $0.0105.

Wheat: Profit-taking selling came into the Wheat market overnight, as prices eased off record highs made yesterday. However, Wheat tenders continue, with Japan purchasing 175,000 metric tons of milling Wheat from the U.S., Australia, and Canada this morning.
Australia continues to suffer from poor weather conditions, with South Australia state – the third largest producer for the country – now expected to produce nearly 25% less Wheat than previously expected. At the end of the overnight session, December Chicago Wheat was trading at $8.20 ¼, down 15 ¼ cents.

British Pound: September British Pound futures were trading slightly lower in early trade, after the Bank of England kept interest rates steady at 5.75%. This pause comes after 5 straight rate increases this year, and until recently many economists were looking for another increase to 6% by the start of the fourth quarter to help keep inflation in check. In early trade, September British Pound futures were trading at 2.0182, down 0.0021.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, September 6, 2007
(All times in U.S. Central Time)

U.S.

7:30 AM: Initial claims wk-9/1 (Consensus 330,000)
7:30 AM: 2nd qtr Productivity revised (Consensus 2.4%)
9:00 AM: ISM Services for August (Consensus 54.5)
9:30 AM: EIA Energy Inventories

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“Board” with Stocks and Bonds?

Can one futures market act as a barometer for the housing industry, the construction sector, and the Atlantic hurricane season? “Wood” you believe that Lumber can?

Traded at the Chicago Mercantile Exchange (CME), Lumber futures provide a risk management vehicle for producers like mills and wholesalers, as well as end users like home builders and retail dealers. Given the recent slump in the U.S. housing sector, many hedgers and traders see the Lumber futures market as a gauge of the overall health of this corner of the economy. Meanwhile, speculators often favor Lumber futures as a diversification tool, as well as a means of taking advantage of the seasonal trends of the market, including increased demand during the volatile storm season.

Lumber futures are yet another example of the exciting range of futures products now available to optionsXpress customers. Check out all the futures products now available for trading. There are more to come in the weeks ahead!

Mike Zarembski
Senior Commodity Analyst
optionsXpress

Futures involve substantial risk and are not appropriate for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for an account.

EIA Energy Stocks Recap

Crude Oil inventories fell by 3.9 million barrels

Gasoline stocks fell by 1.5 million barrels

Distillate inventories rose by 2.3 million barrels

Natural Gas injections totaled 36 bcf

Items of Interest:

Cushing, Oklahoma Crude stocks rose by 1.8 million barrels

Gasoline imports rose by 321,000 barrels per day

Refinery rates rose by 1.8% to 92.1%

$700 No Match for Gold Bulls!

Gold futures surged past the $700 level in the most active December contract this morning, as commodity fund buying, short-covering, and a weaker U.S. Dollar all supported prices on the day. Technical traders noted prices accelerating to the upside once the December contract moved above the recent highs of $701.00. Concerns that the Federal Reserve will lower interest rates at its September 18th meeting was deemed supportive to Gold futures, as lower rates would be a negative for the Greenback, making Gold more attractive to non-Dollar buyers. In addition, any signs that the Fed is moving away from its focus on keeping inflation in check would only add to Gold’s luster as an investment. The May 7th highs of $713.50 are now seen as the next major resistance point for December Gold, with support now found at $701.00. December Gold closed at $704.60, up $13.90.

After hitting a recent high of 112-13 in the December contract, Treasury Bond futures succumbed to a bout of profit-taking selling, as traders begin to square positions ahead of the August Non-farm Payrolls report due at 7:30 AM Chicago time Friday. Current estimates call for a gain of 112,000 jobs in August, according to a poll conducted by the Dow Jones Newswire – this is up slightly from the 92,000 jobs gain in July. The unemployment rate is expected to remain steady at 4.6%. This report is especially important given the recent expectations that the Fed will be forced to lower interest rates due to the recent fallout in the credit markets tied to the subprime loan situation. Should the employment picture appear better than expected, it may lessen the chances of a Fed rate cut in September. 112-24 is seen as the next resistance point for December Bonds, with support found at 111-05. December Treasury Bonds closed at 112-02, down 0-05.

Mike Zarembski, Senior Commodity Analyst

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Subdued Trade Ahead of NFP

Stock indexes posted modest gains this afternoon as traders gear up for tomorrow’s Non-farm Payrolls report for August. The consensus is for payrolls to have increased by 110,000 jobs last month, but some analysts are looking for a lower figure in light of layoffs in the mortgage industry following the subprime loan fallout. The unemployment rate is expected to remain steady at 4.6%.

Treasury futures were lower to close afternoon trade, with December Ten-year Note futures falling by 0-070 to close at 109-160, and December Two-year Note futures ending the session at 103-0875, down 0-0275.

Economic Data Scheduled for Friday, September 7, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Non-farm Payrolls for August (Consensus 110,000)
7:30 AM: Unemployment Rate for August (Consensus 4.6%)
7:30 AM: Average Hourly Earnings for August (Consensus 0.3%)
9:00 AM: Wholesale Inventories for July (Consensus 0.5%)

Great Britain
None

Canada
6:00 AM: Unemployment Rate for August (Consensus 6.1%)

European Union
1:00 AM: (Germany) Trade Balance for July (Consensus 15.6 billion)
5:00 AM: (Germany) Industrial Production for July (MoM) (Consensus 0.9%)

Japan
12:00 AM: Leading Economic Index for July (Consensus 70.0)

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September 7, 2007

Financial Markets Await This Morning’s NFP Report

Stock Index Futures: September e-mini S&P 500 futures are lower in early morning trade, as traders gear up for this morning’s release of the August U.S. jobs report. Job growth is expected to show a slight rise from July, despite the recent U.S. housing slump and credit crunch. The majority of estimates range from between 90,000 and 110,000 new jobs created in August versus 92,000 in July. Meanwhile, the unemployment rate is expected to remain at 4.6%. The Labor Department will release the data at 7:30 AM Chicago time. In early trade, September e-mini S&P 500 futures are trading at 1474.25, down 5.25.

Treasury Futures: Financial traders also await this morning’s NFP report. A weaker-than-expected increase in jobs last month just might be the final key to unlock the Federal Reserve’s tightening bias and convince Fed Governors that the markets are correct in their assessment that a rate cut is necessary at the September 18th meeting. In quiet early morning trade, the December Ten-year Note is trading at 109-180, up 0-020, and the December Two-year Note is trading at 103-0700, down 0-0175.

Gold: The yellow metal rose to highs not seen since mid-2006, as investors and traders are now starting to return to Gold as a “safe haven” investment in the wake of increased volatility in the stock and bond markets due to turmoil in the credit markets. In addition, the belief that the Fed will cut interest rates by at least 25 basis points this month could hurt the U.S. Dollar, but would benefit Gold. In early trade, December Gold is trading at $706.60, up $2.00.


Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, September 7, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Non-farm Payrolls for August (Consensus 110,000)
7:30 AM: Unemployment Rate for August (Consensus 4.6%)
7:30 AM: Average Hourly Earnings for August (Consensus 0.3%)
9:00 AM: Wholesale Inventories for July (Consensus 0.5%)

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Black Gold?

Crude Oil futures continue to hover near 5-week highs this morning, after yesterday’s release of the weekly EIA energy stocks report showed that Crude Oil stocks fell by 3.97 million barrels last week, or more than twice the average analyst estimate. This was the 8th time in the past 9 weeks that Oil stocks have fallen, and the continued backwardation in WTI futures appears to suggest that the market considers the current demand strong and supplies tight. However, OPEC has a different opinion, with at least five members of the cartel having stated that the current supply of Oil is adequate to meet demand and that OPEC output should remain unchanged. Also supporting the Crude market is a “weather premium” being placed on current prices, as the Atlantic hurricane season is still in its prime. Traders are reluctant to hold large short positions in Crude, should a tropical storm disrupt the Oil infrastructure in the Gulf of Mexico. Another take on the continued rise in Oil prices is that some traders and investors are looking at Oil as an inflation hedge, adopting a portion of the role that Gold usually plays in this regard. However, if the recent credit market turmoil does spark a worldwide economic slowdown, then Oil prices may be ripe for a steep fall.

Looking at the daily chart for October Crude Oil, we notice a steep rise of nearly $9 since recent lows were made on August 22nd at $68.63 per barrel. During this time, prices have risen well above the major moving averages, and momentum looks strong. However, the 14-day RSI has moved into overbought territory with a reading of 78.67. Also, the contract highs of $78.15 made on August 1st need to be challenged soon, or a potential double top pattern may be forming, which could signal a correction in prices. In early trade, October Crude Oil is trading at $76.67, up $0.37.

Mike Zarembski, Senior Commodity Analyst

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August Jobs Report Highlights

4,000 jobs were LOST in August versus expectations of a 100,000-120,000 gain

Unemployment rate remained steady at 4.6%

Average hourly earnings rose by $0.05 to $17.50 per hour – a 0.3% rise

July payrolls were revised to 68,000 versus 92,000 originally estimated


Mike Zarembski, Senior Commodity Analyst

August Jobs Data Sends Shockwaves Through the Financial Markets!

What a way to end a holiday-shortened week, as traders brush off the “unofficial” end of summer and face a shockingly weak Non-farm Payrolls report for August. This morning the Labor Department reported that payrolls for August fell by 4,000 jobs versus pre-report expectations of a rise of between 90,000 and 110,000 jobs. As if that were not enough to send shivers through Fed officials, job creation figures for July were also revised down from the 92,000 originally reported to only 68,000, and June payrolls were lowered from 126,000 jobs to just 69,000. Once again, manufacturing jobs suffered, falling by 46,000 jobs last month – the sharpest drop in over 4 years. The slump in the U.S. housing market is starting to take its toll on the labor market as well, with the construction sector shedding 22,000 jobs. Not even government could help the labor market, as public sector jobs fell by 28,000. Service sector hiring was one of the few bright spots in today’s numbers, posting a fairly modest 60,000 jobs gain. The unemployment rate held steady at 4.6%, and average hourly earnings met expectations, rising by 0.3%.

Short-term interest rate futures were the biggest gainers on today’s news, with December Fed Funds futures pricing in a 4.25% Fed Funds rate by end of the year and a 50% chance that rates could be cut to 4%. The Fed Funds rate currently stands at 5.25%. The long end of the yield curve was also in a bullish mode, with December 30-year Bonds moving up by over one full point at the day’s peak. Stock indexes were down sharply across the board, with the Russell 2000 and S&P 400 mid-cap futures among the hardest hit. The U.S. Dollar plunged as traders continued to price in further interest rate cuts by the Fed, especially against the Japanese Yen and the Swiss Franc. So called “carry trades” were being unwound, with the Aussie/Yen and Kiwi/Yen combos bearing the brunt of the punishment. The metals complex had mixed messages for traders, with the precious metals – especially Gold – performing well, as investors move some assets over as a hedge against the volatile stock and bond market activity seen during the past few weeks. Meanwhile, base metals were weaker, with Copper falling moderately on concerns that a slowdown in the U.S. economy may turn into a recession that would adversely affect industrial activity. Today’s figures put an even bigger spotlight on the Fed’s next meeting scheduled for September 18th, as traders and economists look at not only what the Fed will do with interest rates, but how it views the overall health of the U.S. economy given recent economic data and events.

Mike Zarembski, Senior Commodity Analyst

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September 10, 2007

Can Cattle Futures “Beef” Up Prices Heading Into Winter?

Winter month Live Cattle futures continue to hover around the $100 cwt level, as a surprising drop in Cattle placements on feed in July has traders looking for tight supplies going into the winter. However, beef export business has been slow, especially with South Korea banning imports from three U.S. meat packers due to the discovery of bones in recent shipments. Japan has allowed the importation of U.S. beef, but only from cattle 20 months old or younger due to fears of mad cow disease. Futures are trading at a solid premium over cash market prices, with light trading in the $95 cwt found on Friday. Recent concerns of a slowing U.S. economy would also be a bearish factor for Cattle futures, as consumers switch over to cheaper meats such as pork or poultry. The most recent Commitment of Traders report has speculators on both sides of the fence, with large non-commercial traders net-long 38,090 Live Cattle contracts as of September 7th, and small speculators net-short 30,579 contracts. With valid arguments for both sides on the direction of Live Cattle futures, some traders could “moove” to the sidelines until bulls or bears win the battle.

Looking at the daily chart for December Live Cattle, we notice Friday’s sharp price drop sent the contract below the lows of the recent trading range of 99.62. Prices managed to close just above the 20-day moving average at 99.40, which could be supportive to Cattle prices should this level hold on a closing basis. Momentum as measured by the 14-day RSI has started to weaken, but remains in neutral territory with a current reading of 44.04. Major support is seen at the 50-day moving average of 98.75, with resistance found at 100.20. December Live Cattle closed on Friday at 99.45, down 0.77.

Mike Zarembski, Senior Commodity Analyst

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Gold Regaining Investors’ Interest!

Gold: December Gold futures started the week on an up note, rising for the fifth time in the last six sessions as continued volatility in world equity markets has traders looking for a “safe haven” investment. In addition, the most recent Commitment of Traders report shows large non-commercial traders increasing their net-long position by over 25,000 contracts for the week ending September 7th. In early trade, December Gold is trading at $713.80, up $4.10.

Treasury futures: Despite the recent sharp rally in the U.S. Treasury complex, foreign owners of U.S. debt are not terribly happy, as the declining U.S. Dollar is cutting into profits or even causing losses for these investors. It appears that key Asian buyers have been net-sellers of U.S. Treasuries recently as they seek out better returns and increased diversification from Dollar-based assets. In early trade, December Ten-year Note futures are trading at 110-15, down 0-025.

Wheat: Chicago Wheat futures added to gains made on Friday, surging to a new contract high of $8.72 per bushel overnight, as Australia’s Wheat crop received only scattered rainfall over the weekend, which was insufficient to help the stressed crop. In addition, Western Australia’s state Department of Agriculture cut the region’s Wheat production to 5.1 million tons – down from 5.6 million tons – due to drought conditions. At the close of the overnight session, December Wheat was trading $8.65, up 21 ½ cents.

Mike Zarembski, Senior Commodity Analyst

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Oil Higher Ahead of OPEC Meeting

Crude Oil futures closed higher to start the week with the second highest close ever for the lead month contract, as traders squared up their positions ahead of a meeting by OPEC ministers in Vienna on Tuesday. Though some OPEC officials have commented that the Oil market is well-supplied and current output is fine, there are a growing number of traders and analysts who believe that Saudi Arabia – the largest individual Oil producer in the cartel – will ask for an output boost of as much as 500,000 barrels per day. This possibility has some traders nervous, especially after the lead month October contract has posted five consecutive up days. However, bullish traders will counter that OPEC is currently producing above its official quota, and any increase will mostly be symbolic. Oil prices still include a “weather premium,” as this year’s Atlantic hurricane season could still produce a storm to interfere with Oil production in the Gulf of Mexico. Resistance is seen at the August 1st highs of $78.15, with support found at $73.48. October Crude Oil closed at $77.49, up $0.79.

Coffee futures soared to 3-week highs this morning, closing above two key moving averages as traders raise concerns over dry weather in Brazil. Early flowering in some Brazilian groves last month is increasing the need for ample moisture as the trees go through the blossoming stage this month. Also supportive to Coffee prices are concerns that Hurricane Felix may have caused more damage to Central American groves than previously reported. Brazilian growers continue to withhold supplies hoping for higher world prices later in the year. Technical traders noted that today’s rally took the December contract through the 20- and 50-day moving averages, which spurred some short-term momentum buying. This Friday is options expiration for October Coffee options, with traders noting decent open interest in the October 125 calls and 115 puts. December Coffee closed at 119.80, up 2.90.

Mike Zarembski, Senior Commodity Analyst

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A Day on the Treadmill

Both bulls and bears left the party early today as the markets went for a great ride, but without much to show for it in the end. The Dow ended the day 9 points in positive territory, while the S&P closed down 2 points and the NASDAQ lost 6. Bonds continued their rally today with another gain, as the 10-year Note closed with a yield of 4.75% and the 30-year Note ended at 5%.

There wasn’t much news to start the trading week, which may help explain the relatively flat close. Traders seem to be reserving most of their expectations for the upcoming Federal Reserve meeting a week from tomorrow, when many assume the Fed will lower rates. However, this is a rate cut that may already be priced into the market, meaning it may not help as much as people think. Later this week, we look forward to Initial Claims and Retail Sales figures.

Overseas, the Nikkei dropped 2.22% and the Hang Seng was flat in the last trading session.

Mike Tosaw, Director of Education

Economic Data Scheduled for Tuesday, September 11, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Trade Balance for July (Consensus -59.0 billion)

Great Britain
3:30 AM: Total Trade Balance for July (Consensus -37.0 billion)

Canada
7:30 AM: New Housing Prices for July (YoY) (Previous 7.8%)

European Union
None

Japan
6:50 PM: Current Accounts for August (Consensus 1900 billion)

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September 11, 2007

Traders Sack the Greenback!

The U.S. Dollar continues to take a beating, with September Dollar Index futures at lows not seen since September of 1992, as fears of a slowdown in the U.S. economy signals a need for the Federal Reserve to cut interests rates. Friday’s employment report shocked traders, as August payrolls unexpectedly fell by 4000 jobs. This news, combined with the recent credit crisis brought on by the subprime loan situation, has suddenly renewed fears that a recession is possible. Yesterday, Fed Governor Mishkin and Fed Bank of San Francisco President Janet Yellen both spoke of slowing growth in the U.S. due to credit market woes. Fed Fund futures are now pricing in a 76% chance that the Fed will lower rates by 50 basis points at its September 18th meeting. This comes after the European Central Bank kept interest rates steady and did not rule out the possibility of a rate hike by the end of the year if the credit situation improves. The potential narrowing of the yield differentials between the U.S. and Europe is a negative for the U.S. Dollar, as Dollar-denominated investments become less attractive to foreign buyers. However, there are some analysts who believe the Dollar has become oversold at current levels and expect a rally, especially if investors start to liquidate foreign investments for the safety of U.S. Treasuries as the recent volatility surrounding the credit crunch continues.

Looking at the daily chart for the September Dollar Index, we notice prices holding well below all the major moving averages. Momentum is very weak as new contract lows are being made today. The 14-day RSI has moved into very oversold territory, with a reading of 18.93. 78.95 appears as the next support point for the September Dollar index, with the September 1992 lows of 78.43 being a major line in the sand for Dollar bulls. In early trade, September Dollar index futures are trading at 79.74, down 0.07.

Mike Zarembski, Senior Commodity Analyst

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Oil Traders Await OPEC’s Decision on Production Quotas

Crude Oil: October Crude Oil climbed past the $78 a barrel level in overnight trade, as traders await a decision by OPEC officials on whether the cartel will raise its production quotas. Current expectations are for a 500,000-barrel/day increase in production, but several oil ministers are calling for no change. After making a new contract high of $78.32, October Crude ran into some selling pressure to send prices lower in early morning trade. October Crude Oil is currently trading at $77.32, down $0.17.

Copper: December Copper is sharply higher in early morning trade, following a rise in base metals price in London due to declining exchange warehouse stocks. LME Copper stocks fell by 325 metric tons this morning to stand at 137,275. However, canceled warrants or stocks scheduled to be removed from storage rose by 13% to 8,200 metric tons – this is usually a sign that demand is starting to build for Copper. In early trade, December Copper is trading at 331.75, up 6.15.

Platinum: “Safe haven” buying of Gold has spilled into the Platinum market as well, as prices remain near 5-week highs this morning. In addition, near-record high Oil prices have some traders believing that motorists will begin to look for more economical vehicles such as diesel-powered cars – which use more Platinum in their emissions control – thus bolstering demand for the white metal. In early trade, October Platinum is trading at $1294.50, up $0.50.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Tuesday, September 11, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Trade Balance for July (Consensus -59.0 billion)

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They Call It Yellow Metal!

Gold futures continue their torrid pace upward, with the December contract hitting highs not seen since May of 2006 as a weaker U.S. Dollar and commodity fund buying continue to underpin the market. Fresh momentum buying came in and buy stops were triggered once the recent highs at $718.00 were taken out in the December contract. The sharp rally coincided with a speech by Fed Chairman Ben Bernanke, but the timing may have been little more than a coincidence as the Chairman did not discuss his views on interest rates or his outlook for the U.S. economy. Reports that some Gold producers were beginning to lift established hedges was also deemed supportive to the market. $725.00 is now seen as the next resistance point for December Gold, with major support found at $700.00. December Gold closed at $721.10, up $8.90.

Corn futures continued their recent consolidation, as traders squared up positions ahead of tomorrow’s USDA‘s crop production and supply/demand reports. Current estimates are for the U.S. Corn crop to have increased, with average estimates from a Dow Jones Newswire survey calling for a 13.128 billion bushel Corn crop versus 13.054 billion in the August report. The increased production is expected to come from higher average yield estimates. Corn demand is expected to remain strong, with analysts looking for a modest decline in 2007-08 carryout totals from the 1.137 billion bushel estimate by the USDA last month. Technical traders will note a possible symmetrical triangle pattern forming on the daily chart for December Corn. This consolidation pattern consists of lower highs and higher lows for the past month, and will need to see a breakout of either the upper or lower trendline on above-average volume to provide a clue to the next direction for Corn prices. Current support is seen at $3.36 ¾, with resistance at $3.52 ½. December Corn closed at $3.40 ¾, down 5 ¼ cents.

Mike Zarembski, Senior Commodity Analyst

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Bulls Strike First This Week

US stock markets staged a big rally today, with the Dow adding 180 points, the S&P gaining 19, and the NASDAQ closing 38 points in the green. Although there were no big news announcements on the economic calendar (Trade Balance came in close to expectations), the market rallied nonetheless.

Bond yields were down again today, with the 10-year Note finishing at 4.36%. The big talk once again for both stocks and bonds is the magical date of September 18th when the Fed meets to discuss interest rates and the overall health of the U.S. economy.

Overseas, the Nikkei added .71% while the Hang Seng lost .2%.

Mike Tosaw, Director of Education

Economic Data Scheduled for Wednesday, September 12, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: USDA Crop Production and Supply/Demand Report
9:30 AM: EIA Energy Stocks Report

Great Britain
3:30 AM: Average Earnings Excluding Bonus for July (Consensus 3.5%)

Canada
None

European Union
4:00 AM: Industrial Production for July (MoM) (Consensus 0.2%)

Japan
12:00 AM: Household Consumer Confidence for August (Consensus 44.0)

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September 12, 2007

Gearing up for the USDA Crop Report

The following is a summary of pre-report estimates for this morning’s USDA Crop Production and Supply/Demand reports:

Soybeans: Average estimates for 2007 Soybean production are for a crop of 2.650 billion bushels versus the August USDA estimate of 2.625 billion bushels. Ending stocks for the 2007-08 season are estimated at 217 million bushels.

Corn: Corn production is expected to have increased from the August USDA estimate, with analysts looking for a crop near 13.13 billion bushels versus 13.054 in the August estimate. Average Corn yields are expected to have increased to 153.7 bushels per acre versus 152.8 bushels in August.

Wheat: 2007-08 U.S. Wheat carryout totals are expected to decrease once again, with average estimates coming in at 376 million bushels versus 404 million bushels in the August report.

Cotton: U.S. Cotton production is expected to show a moderate increase from the August USDA estimates, with analysts expecting a crop of 17.41 million 480-pound bales versus the August estimate of 17.35 million bales. This increase is expected to raise the U.S. carryout figures to 5.93 million bales, up 0.13 million bales from August.

Mike Zarembski, Senior Commodity Analyst

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Wheat Prices Fly as Bulls Continue to Buy!

The records keep on coming for Wheat futures, with the December 2007 Chicago Wheat futures contract surpassing the $9 per bushel level for the first time in history. Panic buying took hold at the end yesterday’s day session as traders were fearful of being caught short ahead of the USDA supply/demand report due out today at 7:30 AM Chicago time. Analysts expect the USDA to cut its U.S. Wheat carryout estimates, as strong U.S. exports and unfavorable growing conditions in nearly all of the major Wheat-exporting countries are expected to keep next season’s stock extremely tight. The average estimate for 2007-08 Wheat ending stocks is 376 million bushels according to a Dow Jones Newswire survey, down from the 404 million bushels the USDA estimated in its August report. Canadian Wheat stock estimates were lowered, as Statistics Canada estimated Canadian Wheat stocks at 6.828 million metric tons as of July 31st – well below pre-report estimates of 7 to 8 million metric tons. Traders also feel that the USDA will lower its production forecasts for Australia, Argentina and the EU as well. With record high prices, one might assume that Wheat-importing nations would hold back on their buying in hopes of lower prices, but that hasn’t been the case recently. Japan is said to have tendered for 155,000 metric tons and Egypt is back in the market for another 55,000 tons, with some of it expected to be U.S. Hard Red Winter Wheat. Though a correction in prices seems imminent, traders should be aware of the famous market words to live by – “markets can stay irrational longer than I can stay solvent!”

A look at the daily chart for December Wheat inspires one simple reaction – WOW! The 14-day RSI was reading an extremely overbought 89.14. With prices in such uncharted territory, support and resistance points are nearly meaningless. However, this morning’s major USDA report could be the catalyst for a badly needed correction in prices. Even if the report is deemed bullish after the release, extreme volatility should be expected! At the end of the overnight session, December Wheat was trading at $9.06 ¾, up 16 ¼ cents.

Mike Zarembski, Senior Commodity Analyst

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Corn Rallies Despite “Bearish” USDA Report

The long-awaited September Crop Report was released this morning, with the USDA raising its estimate for the U.S. Corn crop to 13.308 billion bushels versus 13.054 billion bushels in the August report. Average Corn yields were also raised to 155.8 bushels per acre, or 3 bushels per acre higher than the previous estimate. Corn carryout totals for 2007-08 were also raised to 1.675 billion bushels, up sharply from the average estimate of 1.529 billion bushels. However, despite this “bearish” report, Corn futures rallied sharply this afternoon, as a classic “sell the rumor, buy the fact” mentality took hold. Traders noted buy stops being triggered above the $3.50 level in the December contract, with few sellers willing to take the other side until prices moved even higher. Corn was further supported by spillover buying from the Soybean complex, as Beans, Soy Oil and Soy Meal all made contract highs this afternoon. The next major resistance point for December Corn is seen at the August 23rd highs of $3.70, with support found at $3.32 ½.

Crude Oil futures rose to near $80 per barrel as U.S. Crude inventories fell by more than pre-report estimates last week. In its weekly energy stocks report, the EIA reported that Crude Oil stocks fell by 7.1 million barrels last week – more than double the 2.7 million barrel decline expected. This was the ninth time in the last 10 weeks that U.S. Oil inventories had fallen, making traders nervous about tightening supplies. Oil stocks in Cushing, Oklahoma – the delivery point for the NYMEX contract – fell by 500,000 barrels last week. Refinery operating rates dropped to 90.5% versus 92.1% the previous week, which gave a boost to Heating Oil and Gasoline futures. Oil traders have mostly dismissed yesterday’s announcement from OPEC that the cartel will boost production by 500,000 barrels per day starting in November, as the boost is viewed as not nearly enough to tame tightening supplies as demand for Oil continues to grow.

Mike Zarembski, Senior Commodity Analyst

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Bulls and Bears Remain Wallflowers at Today’s Dance

There wasn’t a lot of news in the U.S. markets today, and in the end there wasn’t a whole lot of movement either. The Dow came out ahead by 16 points, the S&P finished up a fraction of a point, and the NASDAQ lost 5 on the day. Crude Oil drew much of the attention today with a 1.8% increase, actually going above the $80 per barrel level for a time.

The bond markets finished ahead on the day, with the 10-year Note closing with a 4.4% yield, while the 30-year Bond ended the day at 4.68%. The Federal Reserve meeting next Tuesday continues to be the focal point for forward-looking traders.

In Asia, the Nikkei closed down .5% and the Hang Seng finished its last session ahead by 1.5%.

Mike Tosaw, Director of Education

Economic Data Scheduled for Thursday, September 13, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims for wk ending Sept. 8th (Consensus 325K)
1:00 PM: Treasury Budget (Consensus -85.0 Billion)

Great Britain
None

Canada
None

European Union
None

Japan
None

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September 13, 2007

The Other “Carry Trade” Currency

The Swiss Franc has played second fiddle to the Japanese Yen as the currency of choice for the borrowing side of the so-called “carry trade.” In these setups, investors borrow funds in a low-yielding currency such as the Yen or the “Swissy,” and lend funds in a higher-yielding currency such as the Australian or New Zealand Dollar. The ultimate goal is to hopefully profit from the difference in yields, but risk comes into play if the borrowed currency rises more than the lending currency. Switzerland’s short-term rate is the second lowest of the major world economies, thus making it a solid choice as an alternative to the Yen for carry trade speculators. This morning, the Swiss National Bank is expected to raise interest by 25 basis points to 2.75% to help keep inflation under control. This move is counter to the ECB’s decision to keep rates steady, as fears of a slowdown in world economic growth due to the U.S. subprime loan situation and recent short-term credit crunches had central bankers shifting their focus temporarily away from inflation and more toward recent economic events. The Franc has already risen 2.1% versus the Greenback this month alone, and another rate hike may force traders to continue to unwind carry trades involving the Swissy, which might continue to stoke the Franc’s rise against the U.S. Dollar.

Looking at the weekly chart for Swiss Franc futures, we notice prices trading at highs not seen since 2005. Prices are above all of the major moving averages, and the uptrend – which officially started back in late 2005 – looks firmly intact. The 14-period RSI appears strong with a current reading of 67.32. 0.8756 is seen as the next major resistance point, with support found at 0.8375. December Swiss Franc futures are currently trading at 0.8516, up 0.0012.

Mike Zarembski, Senior Commodity Analyst

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Nothing Like a Government Report to Ruin a Good Bull Market!

Wheat: Chicago Wheat futures have started to pull back from their all-time highs, with traders beginning to unload long positions in light of the USDA’s better-than-expected forecast for global Wheat production. In yesterday’s crop production report, the USDA lowered world Wheat production to 606.24 million metric tons as of May 31, 2008, down 0.7% from last month’s estimate. However, the USDA only lowered the estimate for Australia’s crop to 21 million tons versus 23 million tons. Many analysts believe that a continued drought in Australia could bring that figure in at as low as 15 million tons. In early trade, December Wheat is trading at $8.55 ¾, down 4 ¾.

Crude Oil: After trading to a record high $80.18 per barrel for a lead month contract yesterday, October Crude Oil is down moderately in early trade as Hurricane Humberto begins to weaken as it moves across Texas today. In addition, an OPEC production increase of 500,000 barrels per day comes just as the International Energy Agency cut its prediction for world Oil demand by 90,000 per day to 85.9 million barrels. In early trade,
October Crude Oil is trading at $79.84, down $0.07.

Natural Gas: After hitting one-month highs in the October contract yesterday, Natural Gas futures are trading lower this morning as traders gear up for this morning’s EIA Gas storage report. Estimates are for an injection of just over 65 billion cubic feet (bcf) last week – well below the 103 bcf injection this time last year. In early trade, October Natural Gas is trading at $6.269, down $0.169.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, September 13, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims for week ending 9/8 (Consensus 325K)
1:00 PM: Treasury Budget (Consensus -85.0 Billion)

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Humberto Fires Up Gasoline Bulls!

RBOB Gasoline futures rose to nearly 2-month highs this afternoon, as Hurricane Humberto knocked out power to three Texas Oil refineries today. The refineries affected can use up to 850,000 barrels of crude a day, and this comes just one day after the EIA announced that Gasoline inventories fell by 700,000 barrels last week. With Oil prices continuing to hover near the $80 per barrel level, follow-through buying was expected in the energy products, especially Gasoline. Traders noted buy stops being triggered once the October contract moved above recent highs of 2.0278. The next major resistance point for October Gasoline is seen at the July 10th highs of 2.1297, with support found at the 50-day moving average of 1.9684. October RBOB Gasoline closed at $2.0464, up 0.0304.

Cocoa futures declined for the second consecutive session, falling to one-week lows as drier weather in the Ivory Coast should allow growers to move Cocoa beans to port this week. Origin selling was seen, especially after speculators attempted to rally the December contract once prices moved above yesterday’s close at $1829. Lower prices in London and expiration of the September contract were also seen as factors in today’s sell-off. The International Cocoa Organization is estimating a world Cocoa surplus of 117,000 tons in the 2007-08 marketing year. Support for December Cocoa is seen at the 20-day moving average of $1801, with resistance found at $1872. December Cocoa closed at $1818, down $11.

Mike Zarembski, Senior Commodity Analyst

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Credit Fears Crunched!

Equity futures rose in the U.S. and Europe this afternoon on speculation that the recent worldwide credit crunch may be nearing an end. The Federal Reserve announced that the U.S. commercial paper market improved somewhat last week, bolstering investors’ confidence. The U.S. Dollar rose versus the Euro and Yen and U.S. Treasury futures declined, as flight-to-quality buying ebbed.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, September 14, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Retail Sales for August (Consensus 0.5%)
8:15 AM: Industrial Production for August (Consensus 0.3%)
8:15 AM: Capacity Utilization for August (Consensus 82.0%)
9:00 AM: Business Inventories for July (Consensus 0.3%)
9:00 AM: University of Michigan Sentiment Index for September (Consensus 83.5)

Great Britain
None

Canada
None

European Union
1:00 AM: Consumer Price Index for August (MoM) (Consensus 0.1%)
1:00 AM: (Germany) Consumer Price Index for August (MoM) (Consensus-0.1%)

Japan
None

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September 14, 2007

Storm Season Volatility Continues for Natural Gas Futures

It’s been a choppy weak for Natural Gas traders, as neither bulls nor bears can seem to take control. Just looking at the past two sessions, we notice prices rising 8.5% on Wednesday, as traders short the market bought back their positions ahead of Hurricane Humberto reaching the Gulf of Mexico. Then on Thursday, when no damage was reported to the Gas installations in the Gulf, prices plunged by 6.4%. Now this morning, prices are up sharply in early trade, as traders look east to find Tropical Strom Ingrid forming. Ingrid is currently about 805 miles east of the Lesser Antilles, and winds are still moderate at 40 mph. However, going into the weekend, traders are fearful of being caught short should the storm start to track towards the Gulf of Mexico. The volatile situation in Natural Gas is more acute this year, due to the rather bearish fundamentals affecting the market. Natural Gas in storage currently totals a hefty 3.069 trillion cubic feet, which is 9.3% above the 5-year average. This has caused large speculators to want to be short Natural Gas futures, with the most recent Commitment of Traders report showing large non-commercial traders holding a net-short position of 75,900 contracts as of September 4th. If a storm were to strike the energy installations in the Gulf and cause serious damage, there is no telling how high prices would climb, as those caught short would have to try to find sellers to cover their positions.

Looking at the daily chart for October Natural Gas, we notice a moderate uptrend in place, despite the recent choppy action. Prices are above the 20-day moving average and are currently flirting with the 50-day average as well. Momentum has started to turn up, with the 14-day RSI reading a fairly strong 62.04. Barring a major storm in the Gulf, $6.785 is seen as the next resistance point for October Natural Gas, with support found at the 20-day moving average, currently at 5.901. In early trade, October Natural Gas is trading at $6.414, up 0.385.

Mike Zarembski, Senior Commodity Analyst

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Can’t Go Up Every Week!

Ten-year Note futures: Barring any surprisingly weak U.S. economic data this morning, December Ten-year Note futures look to be headed for a down week, with flight-to-quality buying of U.S. government debt waning as the short-term credit crunch eases a bit. Traders are expecting today’s report on U.S. retail sales for August to show an increase of 0.5% versus a 0.3% rise in July. Also out this morning is the Reuters/University of Michigan Consumer Confidence Index, which is expected to show a reading of 83.5 for September, up 0.1 from August. In early trade, December Ten-year Notes were trading at 109-310, up 0-100.

Wheat: The long-awaited correction in Chicago Wheat futures has begun, after the “buy the rumor, sell the fact” decline in prices following Wednesday’s USDA crop production and supply/demand reports. Since reaching an all-time high of $9.11 ¼ on Wednesday, December Wheat has fallen as low as $8.28 in early trade this morning. Traders will be eagerly awaiting the September 18th crop estimate by the Australian Bureau of Agricultural and Resource Economics for the official estimate of the Australian Wheat crop. The USDA estimated the Australian crop at 21 million metric tons, down from 23 million metric tons in its August estimate. However, some private forecasters are calling for a crop as low as 12 million metric tons. At the end of the overnight session, December Wheat is trading at $8.36 ¼, down 8 ¾ cents.

Japanese Yen: Yen futures are poised for their first weekly loss in nearly three weeks, as an improvement in world equity markets and a slight easing of the recent credit crisis has traders starting to resume the so-called “carry trades.” The Yen was especially weak versus the New Zealand Dollar, with the high interest rate differential between the two countries making this pair among the most popular with speculators looking for high returns. In early trade, the December Japanese Yen was trading at 0.8810, up 0.0034.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, September 14, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Retail Sales for August (Consensus 0.5%)
8:15 AM: Industrial Production for August (Consensus 0.3%)
8:15 AM: Capacity Utilization for August (Consensus 82.0%)
9:00 AM: Business Inventories for July (Consensus 0.3%)
9:00 AM: University of Michigan Sentiment Index for September (Consensus 83.5)

MTW09142007.jpg
September 17, 2007

Bears Don’t Like Cold Beans!

Soybeans: Freezing temperatures in parts of the northern Midwest over the weekend have bean traders buzzing, as concerns mount that crop damage may have occurred in parts of Iowa, Minnesota, and Wisconsin. This news helped send November Soybeans to highs not seen in three years, with prices moving closer to the psychologically important $10 per bushel level. At the end of the overnight session, November Soybeans are trading at $9.71 ¼, up 16 ½ cents.

Stock Index futures: U.S. equity index futures have started the week on a down note following losses in Europe, as a major U.K. mortgage lender, Northern Rock Plc, fell to seven-year lows after customers continued to withdraw savings following a bailout by the Bank of England last week. This has sparked fears that the recent credit crunch has not been resolved and may spread throughout the world. In early trade, December S&P 500 futures are trading at 1476.00, down 9.00.

Coffee: Following a move to 9-year highs by the Robusta contract in London, Arabica Coffee futures in New York rose to one-month highs in early trade, as traders fear tight supplies ahead of the harvest in Vietnam – the world’s largest producer of Robusta Coffee – starting in November. High Robusta prices have caused some Coffee roasters to switch to using more Arabica beans in their blends. In early trade, December Coffee is trading at 122.75, up 1.85.

Mike Zarembski, Senior Commodity Analyst

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Bull Market in the Making?

Poor Cotton – the market just can’t seem to get a break. This year’s Cotton production is down sharply due to high Corn and Soybean prices, which led many producers to switch away to more profitable planting alternatives. Now with record high Wheat prices, some Cotton producers may switch to planting Wheat instead of Cotton this fall. In fact, in some parts of the country, growers can double-crop Soybeans behind Wheat and have twice the production instead of just one Cotton crop. This possibility has traders starting to look at the December 2008 Cotton contract – the first new-crop trading month for next year’s production – with an eye on what may be the start of a major bull market. Currently, Dec 08 Cotton is trading at around a 9-cent premium to the Dec 07 contract, reflecting the potential for even fewer planted acres next year. This premium may have to expand even further if Cotton expects to win back some acres from the grain complex next year.

Looking at the daily chart for December 2008 Cotton, we notice prices holding well above the major moving averages, with current prices hovering near the contract highs of 73.50 made back in July. The 14-day RSI has reached overbought territory, however, with a current reading of 78.19. Should bulls manage to take out the contract highs of 73.50, the next resistance point is seen at 75.00. Current support is seen at the 50-day moving average of 69.91. December 2008 Cotton closed on Friday at 72.65, up 0.80.

Mike Zarembski, Senior Commodity Analyst

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Coffee Starts to Heat Up!

Bulls awoke to the smell of a major Coffee rally this morning, as lead month December Coffee made 6 ½ month highs, with the dual threat of dry weather in Brazil and low domestic inventories sending bears scurrying to cover short positions. Buy stops were seen being triggered above the recent highs at 121.50, with additional buying found above the August 13th highs at 125.80. Support was also found across the Atlantic, as the London Robusta futures hit 9-year highs for the November contract. Origin sellers were scarce this morning, as growers await higher prices for their stocks, especially with the critical flowering period for the Coffee trees currently underway. 130.00 is now seen as the next resistance point for December Coffee, with support found at 121.50. December Coffee settled today at 127.80, up 6.90.

It’s all about the weather for Natural Gas traders, as forecasts calling for above-normal temperatures in the Midwest and a potential tropical cyclone near the Gulf of Mexico have combined to spark a buying frenzy to start the week. Much of today’s buying was seen as short-covering by large speculators, who are holding a net-short position totaling 72,138 contracts as of September 11th. Any further development of a tropical system near the Gulf of Mexico will be enough to spark additional buying, especially by traders who remember what occurred in the Natural Gas market after Hurricane Katrina struck in 2005. Temperatures are expected to be in the 80s and 90s in the Midwest this week, which should increase cooling demand and spur additional Gas usage. Technical traders will note that today’s rally sent prices above the 50-day moving average, which tends to draw momentum traders into the market. The next resistance point for October Natural Gas is seen at the 100-day moving average at $7.165, with support found at the 20-day moving average near $5.870. October Natural Gas closed at $6.653, up $0.374.

Mike Zarembski, Senior Commodity Analyst

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The Waiting is the Hardest Part

The markets went down today – not by a lot, mind you, but they still closed lower than when they started, as the Dow lost 39, the S&P dropped 7, and the NASDAQ gave up 20. On a day when meaningful news was in short supply, the bears modestly won the battle.

Over in the bond pits, yields decreased, with the 10-year Note finishing the day with a 4.48% yield. The 30-year Bond closed with a 4.72% yield, while the 2-year ended with a 4.08% rate.

PPI would normally be the tomorrow’s marquee release, but most traders on this particular Tuesday will be devoting more attention to the Federal Reserve meeting. Current debate is vacillating between a .25% and a .5% rate cut – if the Fed happens to either pause or even raise rates, it will come as a huge surprise to the markets.

Overseas, the Nikkei added 1.94% and the Hang Seng lost 1.2% in their last respective trading sessions.

Mike Tosaw, Director of Education

Economic Data Scheduled for Tuesday, September 18, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: PPI for August (Consensus -0.3%. Core 0.1%)
8:00 AM: Net Foreign Purchases for July (Prior 120.9 Billion)
1:15 PM: FOMC Policy Statement

Great Britain
3:30 AM: Consumer Price Index for August (Consensus 0.4%)
3:30 AM: Retail Price Index for August (Consensus 0.5%)

Canada
None

European Union
4:00 AM: (Germany) ZEW Survey-Economic Sentiment (Sep) (Consensus-17.0)

Japan
None

UAN09172007.jpg
September 18, 2007

All’s Quiet Before the Fed Meets

Stock Index futures: Indexes in both Europe and the U.S. are little changed from yesterday’s close, as traders await what might be one of the most widely anticipated FOMC meetings in years. The slump in the U.S. housing market coupled with the recent liquidity crisis looks to have forced the Fed’s hand into lowering the Fed Funds rate by 25 basis points, according to survey of economists by Bloomberg News. However, the statement released after the rate announcement will be closely analyzed by the markets for any signs that further rate cuts are down the line, or if the Fed hopes to jawbone the market into believing it is ready to tackle further weakness in the economy if necessary without losing its grip on controlling inflation. In early trade, the December e-mini S&P 500 futures are trading at 1478.75, up 1.75.

Wheat: Chicago Wheat futures continue to rebound from last week’s sharp price correction after hitting all-time highs on Wednesday. The Australian Bureau of Agricultural and Resources Economics lowered its estimate for the country’s Wheat production to 15.5 million metric tons – down sharply from its previous estimate of 22.5 million tons. Australia is the third largest Wheat exporter behind the U.S. and Canada. South Korea bought 47,700 metric tons of U.S. Wheat today, with Taiwan and Japan also expected to tender for U.S. Wheat this week. Both Pakistan and Turkey may each need to import up to 1 million metric tons of Wheat this season to help replenish stockpiles. At the end of the overnight session, December Wheat is trading at $8.87, up 12 cents.

Crude Oil: Lead month October Crude Oil rose above $81 per barrel in overnight trade, as traders anticipate another drawdown in U.S. Crude inventories last week with rising demand continuing to overwhelm supplies. In tomorrow’s EIA energy stocks report, traders are anticipating another 2 million barrel draw in Oil stocks, which will be the 10th drawdown in 11 weeks should it come to pass. In early trade, October Crude Oil is trading at $80.91, up $0.34.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Tuesday, September 18, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: PPI for August (Consensus -0.3%. Core 0.1%)
8:00 AM: Net Foreign Purchases for July (Prior 120.9 Billion)
1:15 PM: FOMC Policy Statement

MTW09182007.jpg

Fed Eyes PPI Before FOMC

The last piece of economic data traders will see before today’s Fed meeting is expected to show that inflation is starting to be tamed, at least on the wholesale level. This morning, the Labor Department will release the producer prices report for August, with analysts estimating a drop of 0.3% on the headline number, with the so called “core” rate – which excludes food and energy prices – expected to climb by a modest 0.1%. A subdued reading on inflation should make the Fed’s decision to lower rates a bit easier, as it can better justify a rate cut if there are signs that inflation is starting to ease due to slower economic growth.

Two-year Note futures prices have slid the past several sessions, as the market has lowered its expectations for a 50 basis point rate cut in today’s FOMC meeting. The cash Two-year Note was yielding 4.06% in morning trade in London. Even if the Fed only cuts rates by 25 basis points today, the market is still anticipating further rate cuts, with a 45% chance that the Fed Funds rate could fall as low as 4.5% by year’s end. The Fed Funds rate currently stands at 5.25%.

Looking at the daily chart for the December Two-year Note, we notice the price slide after yields fell to their lowest levels in nearly two years. Despite the recent correction, prices continue to hover just above the 20-day moving average, and momentum has moved to a more neutral stance – the 14-day RSI currently reads 49.72, after being as high as 74.67 just a week ago. Support is seen at the 20-day moving average around 103-0800, with resistance at the recent highs of 103-252. In early trade, the December Two-year Note is trading at 103-097, down 0-012.

Mike Zarembski, Senior Commodity Analyst

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Fed Surprises Traders with a 50 Basis Point Cut in the Fed Funds Rate!

The Federal Reserve lowered rates by 50 basis points to 4.75% to help mitigate the economic effects of a weak U.S. housing market and short-term credit crunch. The Fed also lowered the discount rate by an equal amount to 5.25%. Today’s aggressive move by the Fed demonstrates its concern over potential disruptions in the financial markets, and appears to make the statement that the Fed will do what is necessary to prevent a spillover to the overall U.S. economy. The Fed also noted that “readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and will continue to monitor inflation developments carefully.” The initial reaction in the markets included a sharp rally in Stock Index futures, with e-mini S&P 500 futures posting gains of over 30 points in the immediate wake of the Fed announcement. Metal futures also rallied, along with the Euro currency. Meanwhile, the Dollar, Japanese Yen, and 30-year Bond futures all posted steep losses.

Mike Zarembski, Senior Commodity Analyst

Fed Ignites Futures Traders With Surprising 50 Basis Point Rate Cut!

It was a wild afternoon for futures traders, especially after the Federal Reserve surprised some traders by lowering the Fed Funds rate by an aggressive 50 basis points to 4.75%. The FOMC vote was a unanimous 10-0 for the rate cut. The Fed also lowered the Discount Rate by 50 basis points to 5.25% – the second such cut in a month’s time. The news sparked an aggressive rally in Stock Index futures, with e-mini S&P 500 futures up well over 30 points at the peak. Bulls were also stampeding over to the metals sector, with December Gold trading over $730 per ounce, and December Silver leaping by nearly 25 cents. The energy complex was also sharply higher, with October Crude Oil futures moving above the $82.00 level for the first time. However, the cut was bad news for the U.S. Dollar, with the December Dollar index falling over 50 ticks at one point, as traders punished the greenback and the Japanese Yen. Long-term interest rate futures also posted sharp losses this afternoon. Traders now expect further interest rate cuts are in the offing, with March 2008 Eurodollar futures pricing in a 100% chance of a 4.5% Fed Funds rate by the first quarter of 2008, and an 88% chance of a 4.25% rate.

Mike Zarembski, Senior Commodity Analyst

FCB09182007.jpg

Economic Calendar

Economic Data Scheduled for Wednesday, September 19, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: CPI for August (Consensus 0.0%. Core 0.2%)
7:30 AM: Housing Starts for August (Consensus 1345K)
7:30 AM: Building Permits for August (Consensus 1350k)
9:30 AM: EIA weekly Energy Stocks Report – week ending 9/14

Great Britain
3:30 AM: Bank of England Minutes

Canada
6:00 AM: CPI for August (Consensus 0.1%)

European Union
1:00 AM: (Germany) PPI for August (Consensus 0.1%)

Japan
10:00 PM: BOJ Interest Rate Decision
12:00 PM: Leading Economic Index for July (Consensus 72.7)

September 19, 2007

Fed Fuels Futures Markets, But Will Inflation Follow?

Stock Index futures: Equity index bulls continue to celebrate into the early morning trade, after the Federal Reserve started the party rolling by cutting the Fed Funds and Discount rates by 50 basis points each. This sparked a tremendous rally in the stock indexes, as traders believe that the rate cuts will be enough to stimulate growth in the U.S. despite the recent housing slump. Traders will now turn their focus to this morning’s economic reports, with the Labor Department scheduled to release its report on consumer prices in August. Traders are looking for no change in the headline figure, but a moderate 0.2% rise in the so-called “core” rate, which excludes food and energy prices. Also out this morning is the report on housing starts and building permits for August, with economists expecting a decrease in housing starts to an annual rate of 1.35 million, which would be the lowest number in twelve years. In early trade, December e-mini S&P 500 futures are trading at 1540.00, up 7.00

Crude Oil: October Crude Oil futures continue to hover above $82 a barrel in early morning trade, as yesterday’s surprisingly aggressive Federal Reserve rate cut is expected to help stimulate the U.S. economy and keep energy consumption strong. Traders also are looking for another decline in Crude Oil inventories last week in today’s EIA energy stocks report – current estimates are for a decline of between 1.5 and 2 million barrels. In early trade, October Crude Oil is trading at $82.14, up $0.63.

Ten-year Note futures: Medium- and long-term Treasury futures are moderately lower in early morning trade, as traders start to sell longer-term government debt after yesterday’s Fed rate cut generates concern that inflation will start to heat up. One need only look at the continued weakness in the U.S. Dollar and soaring Gold and Crude Oil prices to see the market pricing in accelerating inflation expectations. Cash yields on the Ten-year Note rose by 5 basis points to 4.52% this morning in London. In early morning trade, December Ten-year Notes were trading at 109-225, down 0-050.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Wednesday, September 19, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: CPI for August (Consensus 0.0%. Core 0.2%)
7:30 AM: Housing Starts for August (Consensus 1345K)
7:30 AM: Building Permits for August (Consensus 1350k)
9:30 AM: EIA weekly Energy Stocks Report – week ending 9/14

MTW09192007.jpg

Fed Rate Cut May Add More Fuel to Energy Markets

$82 a barrel and climbing! That’s the story in the Crude Oil futures market of late, with the soon-to-expire lead month October contract trading at or near all-time high prices this morning. Oil prices have risen 11% so far this month alone, despite the U.S housing slump and concerns that U.S. economic growth rates would start to sag. With the Fed lowering rates by 50 basis points yesterday and the market anticipating further cuts into the 1st quarter of 2008, energy prices look poised to continue their climb, especially if the Fed’s “jumpstart” helps stimulate further increases in Oil demand. This all comes at a time when the market is looking at relatively tight Oil supplies, as the NYMEX WTI futures market is trading in a backwardation. This means that traders are willing to pay a premium for near-term delivery. The October/December 2007 Crude Oil spread is currently at a $2.60 October premium, which encourages those holding Oil to sell into the spot market as opposed to storing Oil for later use. So it should come as no surprise that traders are looking for another decline in U.S. Crude Oil inventories last week. In today’s EIA energy stocks report, analysts are looking for a decline of between 1.5 and 2 million barrels of Crude for the week ending September 14th. This would be the 10th decline in the past 11 weeks. Gasoline inventories are also expected to fall, with estimates calling for a 1.3 million barrel decline. Distillates – which include Heating Oil – are expected to show a gain of 1 million barrels. However, continued refinery outages are expected to produce a decline in refinery utilization to 90%, down 0.5% from the previous week. If that is not enough to send Oil bulls into a frenzy, a weather disturbance near the eastern coast of Florida has the potential to strengthen as it moves into the warm waters of the Gulf of Mexico. In fact, it has been reported that Shell has evacuated about 300 workers from the Gulf as a precaution, due to the tropical disturbance. Should a major storm develop, it could be a long rest of the week for Oil bears!

Looking at the daily chart for November Crude, we notice prices continuing to hang around contract highs. November Crude becomes the lead month tomorrow, and prices are still about $1.30 below that of the expiring October contracts. Prices are well above the major moving averages, but the 14-day RSI has reached overbought territory with a reading of 85.83. Spread trading will be active this morning as traders still in the October contract switch their positions over to November before the October contract goes off the board at 1:30 PM Chicago time today. Resistance for November Crude is seen at $81.50, with support found at $77.30. In early trade, November Crude Oil is trading at $80.76, up $0.53.

Mike Zarembski, Senior Commodity Analyst

DFS09192007.jpg

Copper is Red Hot!

Copper futures surged to their highest levels since August 1st as speculators rushed to cover short positions after yesterday’s surprising 50 basis point cut in the Fed Funds rate.
Traders viewed the aggressive move as a sign that the Fed is prepared to intervene, if necessary, to prevent the U.S. economy from falling into a recession, even at the risk of stimulating inflation. Any sign of an improving growth rate for the U.S. economy is a bullish sign for the entire base metals complex, including Copper. The most recent Commitment of Traders report showed non-commercial traders being net short 9,091 Copper contracts as of September 11th, and today’s sharp reaction was fueled by the covering of some of those short positions. Chinese demand continues to be strong, with the International Copper Study Group forecasting a 340,000 ton Copper deficit for the first half of 2007, due mostly to the voracious appetite for base metals in China. The next resistance point for December Copper is seen at 363.10, with support found at the 50-day moving average of $341.10. December Copper closed at 357.55, up 12.75.

Wheat futures closed sharply lower this afternoon, as profit-taking selling and unwinding of Corn/Wheat spreads pressured the market. With little new fundamental news out today, traders began to focus on the demand picture, with the notion that high prices will start to curtail export demand, especially after India announced that its Wheat stocks were adequate at current levels. Today’s sell-off allowed the December contract to briefly trade down the 30-cent limit, as sell stops were seen being triggered below the recent lows of $8.53 ¾. Traders also reported a moderate amount of Corn/Wheat spreading taking place, as large speculative accounts continue to unwind their spreads. $8.28 is seen as the next support point for December Wheat, with resistance found at $8.76. December Wheat closed at $8.45, down 24 cents.

Mike Zarembski, Senior Commodity Analyst

FCB09192007.jpg

Economic Calendar

Economic Data Scheduled for Thursday, September 20, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims – week ending 9/15 (Consensus 320k)
9:00 AM: Leading Indicators for August (Consensus 0.0%)
11:00 AM: Philadelphia Fed (Consensus 2.5)

Great Britain
3:30 AM: M4 Money Supply for August (MoM) (Consensus 0.8%)
3:30 AM: Retail Sales for August (MoM) (Consensus 0.0%)

Canada
None

European Union
None

Japan
None

September 20, 2007

Your European Vacation Just Got a Bit More Expensive!

Euro Currency: December Euro Currency futures climbed to a new all-time high this morning, as traders continue to sell the U.S. Dollar against the major currencies ahead of Federal Reserve Chairman Ben Bernanke’s appearance today before Congress. He is expected to comment on the risks to economic growth due to the U.S housing crisis. In early trade, December Euro futures are trading at 1.4053, up 0.0074.

Treasury futures: The Treasury yield curve continues to grow steeper, with the Two-year/Ten-year Note spread widening as much as 57 basis points – the widest spread since spring of 2005. The moves in the yield curve can be traced to expectations that recent Fed interest rate cuts and a slumping U.S. Dollar will raise inflation prospects. The longer end of the yield curve is normally more sensitive to changes in inflation expectations. Current cash market yields are 4.56% for the Ten-year Note and 4% for the Two-year Note in morning trade in London. In early trade, December Two-year Note futures are trading at 109-115, down 0-075, and the December Two-year Notes are trading at 103-1475, down 0-0050.

Crude Oil: Oil futures continue to post gains, as U.S. Crude stockpiles continue to fall. In yesterday’s EIA energy stocks report, Oil inventories fell by a larger than expected 3.8 million barrels last week. In addition, supplies in Cushing, Oklahoma – the delivery point for the NYMEX WTI Oil contract – fell by 1.7 million barrels to 18.3 million barrels. Traders continue to bid up prices in anticipation of increasing demand and the possibility of tight supplies going into the winter. In early trade, November Crude Oil is trading at $80.68, up $0.45.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Thursday, September 20, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims – week ending 9/15 (Consensus 320k)
9:00 AM: Leading Indicators for August (Consensus 0.0%)
11:00 AM: Philadelphia Fed (Consensus 2.5)

MTW09202007.jpg

Bulls Regaining Their Chocolate Craving

Cocoa futures are starting to rise again after a nearly month-long sell-off in August saw prices fall by over $300 per ton. Continued wet weather in the West African growing regions has made conditions ideal for the spread of Black Pod disease, a fungus that spreads quickly on Cocoa pods during periods of excessive rains and humidity and lack of sunshine. Growers in Ghana have reported more cases of the disease recently, and analysts are starting to figure in lower crop prospects for 2007-08 due to the mediocre weather conditions so far this season. In addition, continued civil unrest in Cameroon has hurt the Cocoa market in that country, which is also supporting the bullish case. Though speculative accounts are already holding long positions in the Cocoa market, the size of the net-long position is not as large as it was during the highs made in July, which may signal additional fresh buying entering the Cocoa market should the recent rally continue.

Looking at the daily chart for December Cocoa, we notice prices moving above the 50-day moving average in early trade. This appears to have sparked additional momentum buying and triggered buy stops above the $1907 resistance level. In fact, prices are now trying to test the 100-day moving average at $1940 – a close above this key indicator could shift momentum further into the bullish camp. However, the 14-day RSI has moved into overbought territory with a reading of 79.17. The next major resistance point is seen at the July 31st highs of $1982, with support at the 20-day moving average of $1830. In early trade, December Cocoa is trading at $1938, up $38.

Mike Zarembski, Senior Commodity Analyst

DFS09202007.jpg

Inflation Fears Spur Run-up in Commodities

Soybean futures continue to their strong price surge, with deferred months trading above the $10 per bushel level, as concerns about tight inventories and reports that China will lower import duties have traders in a buying mood. The USDA reported U.S. Soybean export sales totaled 513,600 metric tons for the week ending September 13th, in line with expectations. Dry weather conditions in northern Brazil may affect Soybean plantings, with forecasts calling for the dryness to persist possibly through the early parts of October. With the Soybean harvest about to begin in earnest, there is little sign of harvest pressure selling so far, which is surprising given the relatively high price at which November futures are trading. Support is also found from the rise in overall commodity futures prices, especially with a weak U.S. Dollar and inflation concerns in light of the Fed’s shift in focus from fighting inflation to preventing a weakening of the U.S. economy due to the housing slump. $10 is seen as the next resistance point for November Soybeans, with support found at $9.52 ¾. November Soybeans closed at $9.89, up 18 cents.

Cocoa futures soared to 7-week highs this morning, as continued weakness in the U.S. Dollar against the British Pound and fresh technical buying propelled prices higher. Concern about the spread of Black Pod disease in the West African growing regions was fundamentally supportive to the market. In addition, the December March Spread continues to widen with the December contract now trading at a $25 premium to the March contract, which traders are taking as a sign that near-term demand is strong. An overall rally in commodity prices was also a factor in today’s gains. $1982 is seen resistance for December Cocoa, with support found at $1830. December Cocoa closed at $1971, up $71.

Mike Zarembski, Senior Commodity Analyst

FCB09202007.jpg

Economic Calendar

Economic Data Scheduled for Friday, September 21, 2007
(All times in U.S. Central Time)

U.S.
None

Great Britain
None

Canada
7:30 AM: Retail Sales for July (MoM) (consensus 0.0%)

European Union
3:00 AM: PMI Manufacturing for September (consensus 53.9)
3:00 AM: PMI Services for July (consensus 57.6)

Japan
None

September 21, 2007

Traders Getting Juiced Up Over Metals

Gold: Continued U.S. Dollar weakness and near-record high Oil prices have traders and investors flocking to the Gold market, with spot Gold hitting 27-year highs in Asia this morning. The run-up is causing fresh buying in Gold futures, with the December contract trading as high as $747.10 in early morning trade. With traders still looking for further interest rate cuts by the Federal Reserve this year, speculation that inflation will accelerate is helping the cause of Gold bulls. Currently, December Gold is trading at $743.60, up $3.70.

Platinum: October Platinum soared to nearly 2-month highs during trade in Tokyo, as a weak U.S. Dollar makes Platinum more affordable for non-Dollar buyers. Johnson Matthey Plc. reported that world Platinum demand has risen by 1.2% so far this year, with Europe accounting for just over 1/3 of global demand. In early trade, October Platinum is trading at $1338.50, up $9.90.

Orange Juice: November Orange Juice futures rallied to highs not seen since mid-August, as traders begin to cover short positions before next month’s first official estimate of Florida orange production. Low FCOJ stocks and a declining tree count in Florida are also supportive to prices. However, slack retail demand is keeping a lid on further gains. In early trade, November Orange Juice is trading at 126.20, down 0.20.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, September 21, 2007
(All times in U.S. Central Time)

U.S.
None

Canada
7:30 AM: Retail Sales for July (MoM) (consensus 0.0%)


mtw_20070921.jpg

Bulls Stampeding for the Exits as Bonds Break Down

Bond bulls had already had a rough week with the market moving off its recent highs, and then came the surprising 50 basis point rate cut by the Federal Reserve to signal an end to the recent bull run. So far for the week, December Treasury Bond futures have dropped almost 3 full points, as fears mount that the Fed is not through with its rate cuts for the year, which has weakened the U.S. Dollar and brought fears of rising inflation back to the forefront. The long end of the yield curve is especially affected by inflation concerns, which has caused a sharp run-up on long-term rates as compared to the short end of the curve. Technical traders note that the recent sell-off sent Bond futures prices below the key 20- and 50-day moving averages, which caused momentum traders to switch to the short side of the market. With no economic reports out today, Bond traders will focus their attention on the four speeches scheduled by Fed officials today for clues to their rationalization for the aggressive 50 basis point cuts in the Fed Funds and Discount rates this week.

Looking at the daily chart for December 30-year Bond futures, we notice only the 100-day moving average stands in the way of declaring the recent bull market in Treasury futures over. Currently, this key moving average comes in around the 109-12 area, which will now be looked at as support for the market. The 14-day RSI has moved into oversold territory, with a reading of 25.70. Should the 109-12 support hold, it would take a close above the 20-day moving average near the 112-08 level to allow Bond bulls to regain control. In early trade, December 30-year Bonds are trading at 110-05, down 0-03.

Mike Zarembski, Senior Commodity Analyst

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Bears Going Hog Wild Despite Recent Commodity Run-up

Hog futures are bucking the trend of higher commodity prices this week, with the lead month October contract falling to lows not seen since October of 2006 as weak wholesale pork demand and lower pork cutout values continue to weigh on futures. Packer bids are seen falling as well, with dealers reporting prices steady to $1 lower. October Hogs continue to trade at a steep discount to the CME Lean Hog index, with Wednesday’s value coming in at 64.72. This week’s sharp price drop has sent the 14-day RSI to vastly oversold levels, with a current reading of 13.15. High grain prices have some traders fearing that producers will start liquidating some of the Hog herds, which would put near-term pressure on prices as supplies increase. Support for October Hogs is seen at $60.00, with resistance found at $63.50. October Lean Hogs closed at 61.35, down 1.02

Wheat Futures ended the week on a high note, as export sales continue despite near-record Wheat prices. Sales of 700,000 tons of Wheat to Iraq and 100,000 tons to Algeria started the session on an up note. Speculative buyers then entered the fold, especially after the December contract moved above yesterday’s highs of $8.61 ¼. There is talk that Russia will impose limits on grain exports, which if true would force more business to the U.S., especially with a weak Dollar making U.S. exports more attractive. Weather forecasts continue to call for little moisture in the Wheat-growing regions of Australia, which will not help the already struggling crop. Support for December Wheat is seen at $8.28, with resistance found at $8.98. December Wheat closed at $8.72, up 22 cents.


fcb_20070921.jpg

Economic Data Scheduled for Monday, September 24, 2007

(All times in U.S. Central Time)

U.S.
None

Great Britain
None

Canada
None

European Union
4:00 AM: Industrial New Orders for July (MoM) (Prior 4.4%)

Japan
6:50 PM: Bank of Japan minutes

September 24, 2007

Futures Education from Industry Professionals

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Pork on sale

Lean Hog futures continue to buck the trend of higher commodity prices, as lower cash hog prices and higher slaughter figures keep futures prices under pressure. Last week’s hog slaughter totaled 2,242,000 head, up nearly 5% from last year. Producers have not decreased their breeding stocks as much as expected, despite sharply higher feed costs. Friday’s USDA monthly cold storage report was deemed bearish, as ham stocks hit a record 146.9 million pounds -- 6.7 million pounds above the previous high. Pork Belly stocks came in at 22.681 million pounds, which was well above pre-report estimates. Commodity funds have been net-long Lean Hog futures, but the recent sharp break in prices has been partly due to the liquidation of long positions by these large, speculative accounts. Though October Hogs are trading well below the CME 2-day Lean Hog index, traders continue to sell the October contract, with spreaders moving out of October and into the December contract, as expiration of the October futures comes near.

Looking at the daily chart for October Lean Hogs, we notice prices accelerated to the downside once support at 65.00 gave way last week. Prices remain well below all the major moving averages, but the 14-day RSI has moved into extreme oversold levels with a reading of 12.77. With Friday’s bearish cold storage report out, some weak bears may cover their short positions, especially if prices open lower on Monday morning. This may cause a short-covering rally if buy stops can be triggered. 60.00 is seen as support for October Hogs, with resistance found at 63.50. October Lean Hogs closed on Friday at 61.35, down 1.02.

Mike Zarembski Senior Commodity Analyst


dfs_20070924.jpg

El Peso Mexicano subió contra el dólar de Estados Unidos

(The Mexican Peso Gains Against the U.S. Dollar)
Mexican Peso: December Peso futures are trading near two-month highs in early trade, after Banco de Mexico kept interest rates steady at 7.25% of Friday, but maintained a “restrictive bias” which is leading traders to believe that the Bank will raise rates later this year due to rising inflation concerns. The interest rate differential between Mexico and the U.S. has risen to 2.5%-the highest since April of last year. In early trade December Mexican Peso futures were trading at 90775, up 75.

Crude Oil: Oil futures were moderately lower to start Sunday night trading, as workers returned to Oil facilities in the Gulf of Mexico after tropical storm threats have passed. In addition, a senior Iranian official said that current market fundamentals would not support Oil prices above $80 per barrel, as the current market backwardation will cut demand. In overnight trade, November Crude Oil was trading at $81.34, up $0.28.

Wheat: Chicago Wheat futures start the week where it left off on Friday with a sharp rally, as continued dry weather in Australia has traders looking for a further decline in Wheat production. Wheat futures in Australia hit a record A$492 per metric ton today, as weather forecasts now call for continued dry weather for the next 10 to 14 days. In overnight trade, December Wheat was trading at $8.90, up 16 cents.


Mike Zarembski Senior Commodity Analyst

Economic Data Scheduled for Monday, September 24, 2007
(All times in U.S. Central Time)

U.S.
None

Great Britain
None

Canada
None

European Union
4:00 AM: Industrial New Orders for July (MoM) (Prior 4.4%)


mtw_20070924.jpg

September 25, 2007

Russian Tariffs May Sweeten Sugar Bulls’ Outlook

Sugar: Sugar futures are moderately higher this morning as speculation that Russia will raise import duties this week is sparking a bid on raw Sugar futures. This news may be enough for October Sugar futures to finally move above stiff resistance at 10 cents per pound before the October contract expires on Friday. In early trade, October Sugar is trading at 9.92, up 0.04.

Precious Metals: Both Gold and Silver futures are trading sharply lower this morning, as a moderate rally in the U.S. Dollar and lower Oil prices have traders taking profits in the metals sector. In the past six weeks, December Gold has gained nearly $100 per ounce, so a moderate correction is not surprising. In early trade, December Gold is trading at $730.40, down $8.90, and December Silver is trading at $13.395, down $0.245.

Orange Juice: November FCOJ futures continue their climb, hitting six-week highs in early trade as speculative buying and weather concerns have supported prices. Traders are watching two tropical disturbances – one near the Windward Islands, the other near the Cape Verde Islands – for possible tropical storms formation. Orange juice stock in cold storage fell to 760.37 million pounds in August, down from 888.84 million pounds last year. In early trade, November Orange Juice was trading at 132.50, up 1.75.

Mike Zarembski, Senior Commodity Analyst


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Will Harvest Pressure End the Corn Rally?

Corn futures have been upstaged this year by the surging Wheat and Soybean markets, even as U.S. producers did their jobs and produced a near-record Corn crop to meet the demands from both the ethanol and livestock industries. However, December Corn hit a three-month high yesterday, as speculative buying – most notably by commodity funds – has helped to break Corn futures out of their bearish posture. There is some talk among traders that Corn acreage will be lower next season as producers look to take advantage of relatively high Wheat and Soybean prices in 2008 and dedicate more acres to those crops. This is beginning to be played out in the December 2008 contract, where prices are well above $4 per bushel as Corn fights to retain acres from competing grains. Near-term, traders should keep an eye on hedge selling on any rallies in December 2007 Corn, as the U.S. harvest continues. The USDA reported that 22% of the U.S. Corn crop was harvested versus only 12% last year, and 80% of the crop was rated as mature, well above the five-year average of 65%. Among the largest Corn-producing states, Illinois reported 46% of its crop harvested versus 13% last year, Iowa had only 7% harvested, and Minnesota only 9%. Though both of these states were still above the five-year averages, the size of this year’s crop is so large that harvest pressure will continue to be a serious factor on Corn prices as they continue to harvest the crop.

Looking at the daily chart for December 2007 Corn futures, we notice yesterday’s rally above $3.80 was met with strong selling pressure which forced Corn prices to end the session on a down note. Some moderate selling continued in the overnight session as well. However, Corn continues to hold above the 100-day moving average, which is a bullish sign for momentum traders. Commodity funds are holding a large net-long position in Corn futures, with the most recent Commitment of Traders report showing these large speculators net-long 164,457 contracts as of 9/18. Small speculators are net-short 114,240 contracts, which may add fuel to the bull run, especially if buy stops are triggered should December Corn trade above resistance at Monday’s highs of $3.80 ½. Support is seen at the 100-day moving average, currently at $3.62 ¼. At the end of the overnight session, December Corn was trading at $3.72, down 1 ½ cents.

Mike Zarembski, Senior Commodity Analyst

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Oil Futures Unstable Above $80

Oil futures slid to one-week lows this afternoon, falling below the $80 per barrel level as production resumed in the Gulf of Mexico after a storm threatened to move in. Traders also believe the recent run at new all-time highs was overdone, especially with concerns about the health of the U.S. economy given the turmoil surrounding the U.S. housing market. Traders noted a rash of sell-stops were triggered once the November contract fell through psychological support at $80 per barrel. Despite today’s sharp decline, prices may rebound tomorrow, especially if the weekly EIA energy stocks report shows a larger-than-expected drawdown in U.S. crude inventories last week. Current estimates are for Oil stocks to have declined by 2.2 million barrels last week. $77.30 is seen as the next support point for November Oil, with resistance found at $80.55. November Crude Oil closed at $79.53, down $1.42.

Mike Zarembski, Senior Commodity Analyst

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September 26, 2007

Oil’s Well for Crude Bulls Again

Energy futures: November Crude Oil rebounded above the $80 per barrel level in the early going as traders gear up for another decline in U.S. Crude inventories. This morning’s weekly EIA energy stocks report is expected to show Oil supplies fell by between 1.8 and 2.2 million barrels last week. Traders will also be watching the inventory figures for Cushing, Oklahoma – the delivery point for NYMEX Crude Oil futures. Recent inventory declines and solid demand are responsible for the continued backwardation of the WTI Oil market – wherein near month contracts trade at a premium to deferred month contracts. Backwardation signals that users are willing to pay a premium for immediate supplies. Gasoline inventories are expected to show a moderate increase of between 100,000 and 300,000 barrels. Distillates – which include Heating Oil – are expected to show a 1 million barrel gain. In early trade, November Crude Oil is trading at $80.11, up $0.58.

Coffee: Profit-taking selling hit the December Arabica Coffee futures market in early trade, after an 8-month high was reached yesterday. Dry weather in the main Coffee growing regions of Brazil has been chief among the reasons for the recent price rise. However, origin sellers came out on yesterday’s rally, leading weak bulls to start to book profits on their long positions. Brazil’s Coffee exports have started to increase, with the Green Coffee Exporters Council reporting exports totaling 1.214 million bags so far this month, up from 915,873 bags last month. In early trade, December Coffee was trading at 129.95, down 3.15.

Dollar Index: Short covering buying emerged in December Dollar Index futures, as bears sought to book profits ahead of this morning’s release of U.S. durable goods orders for August. The consensus is for a decline of 3.5% last month, as buyers of big-ticket items held back their purchases due to uncertainly in the U.S. economy. In early trade, the December Dollar Index was trading at 78.450, up 0.255,

Mike Zarembski, Senior Commodity Analyst

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The Other Dollars

Not every Dollar currency is in the dumps. The Australian and New Zealand Dollars are performing quite well, with traders moving funds down under to capture the wide interest rate differentials between the U.S. and these countries. Currently, Australia’s short-term rates are 1.75 points higher than the U.S. and New Zealand’s are a whopping 3.5 points higher! The outlook for a weakening U.S. economy has traders looking for additional interest rate cuts in the U.S. this year, which furthers the appeal of investing in Australian and New Zealand government debt, with the countries’ stability and relatively high yields attracting investors. Traders in these so-called “carry trades” also favor the Aussie and Kiwi against the Japanese Yen and the Swiss Franc – the most popular “borrowed” currencies.

Looking at the daily chart for the December New Zealand Dollar, we notice prices continuing to hover near 6-week highs. Prices seem to be tracking closely to the 100-day moving average, and a weekly close above this key moving average would be considered a friendly sign towards the Kiwi. However, the 14-day RSI is hovering in overbought territory, with a current reading of 73.27. Resistance is seen at the recent highs of 0.7430, with major support found at 0.7173. In early trade, December New Zealand Dollars are trading at 0.7384, up 0.0020.

Mike Zarembski, Senior Commodity Analyst

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ICE Coffee Rally Turns Cold

December Coffee futures posted sharp losses this morning on speculative selling after yesterday’s run-up to 8-month highs failed to hold. Origin selling was seen near yesterday’s highs of 135.00, which stopped the bullish momentum in its tracks and caused some moderate speculative selling. Today, however, speculators were running for the exits during European trading hours on the ICE electronic platform. Sell stops were seen being triggered below 130.00 in the December contract, with little roaster buying to stop the declines. Coffee exports out of Brazil have increased this month, with higher prices drawing producers to the market. Support for December Coffee is seen at 126.80, with resistance found at 133.25. December Coffee closed at 128.60, down 4.50.

Another new-all-time high was made in Chicago Wheat futures this afternoon, with the December contract trading as high as $9.17 ¼ for the lead month contract, as talk of further Wheat tenders and continued dry conditions in Australia sent bears running for the exits. Algeria purchased Hard Red Winter Wheat, and traders report Morocco, Jordan, Iraq, and Pakistan as potential buyers in the near future, despite high prices. World Wheat stocks are at multi-decade lows, with little recovery expected out of Australia as drought has ravaged crops again this year. New all-time highs were reached in Kansas City and Minneapolis Wheat as well. Chicago Wheat futures ended the session up the 30-cent limit in all months through May of 2008. December Wheat closed at $9.17 ¼, up 30 cents.

Mike Zarembski, Senior Commodity Analyst

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September 27, 2007

Are Grains Becoming the “Kings of Commodities”?

Wheat: Chicago Wheat futures prices continue to defy gravity, rising sharply higher in overnight trading after Wednesday’s limit-up move trapped bears trying to pick a top in the market. Continued strong demand and deteriorating crop prospects in Australia are among the key fundamental reasons behind this historic climb. The Australian Bureau of Statistics reported that Wheat stocks in storage owned by the major grain companies fell by 20% in August to stand at 2.8 million metric tons. At the end of the overnight session, December Wheat was trading at $9.35 ¼, up 18 cents.

Soybean Meal: December Soybean Meal futures jumped to contract highs in overnight trading, following the strong performance of Wheat and Soybean futures. Asian buyers are substituting Soybean Meal and Corn for use as animal feed, as high Feed Wheat prices are causing users to seek alternatives. U.S. Soybean Meal exports are expected to total somewhere between 75,000 and 150,000 metric tons last week. At the end of the overnight session, December Soybean Meal was trading at $288.90, up $4.10.

Soybeans: New-crop November Soybeans surged in overnight trade, surpassing the $10 per bushel level as Beans battle it out with Wheat for acreage next season. Brazilian producers are behind in their Soybean plantings so far this season due to dry weather. Traders are looking for strong Soybean export totals this morning, with estimates ranging from between 500,000 to 800,000 metric tons. At the end of the overnight session, November Soybeans are trading at $10.01 ¾, up 11 cents.

Mike Zarembski, Senior Commodity Analyst

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Follow the Leader

Corn futures prices are trying their best to keep pace with the skyrocketing Wheat and Soybean markets as the battle for next season’s acreage begins. The growing demand for ethanol, combined with solid animal feed demand, gave producers ample reason to plant Corn this year. And plant they did! With just under a quarter of the U.S. Corn crop harvested so far this year, reports indicate that Corn yields are coming in above earlier estimates, which may send the actual size of the Corn crop past the most recent USDA estimate of 13.3 billion bushels. If this holds, it would be the largest crop on record. According to the National Agricultural Statistics Service, producers are expected to harvest the most Corn acres since 1933. However, prices continue to rise despite harvest pressure selling, as December Corn moved to 3-month highs this morning. This is a case where Corn is being carried along with Wheat and Soybean prices to prevent the spreads from becoming too far out of line. Demand for Corn will continue to grow, with Asian feed buyers switching to Corn from Feed Wheat for animal feed. This morning’s USDA weekly export sales are expected to come in somewhere between 600,000 and 1.5 million metric tons last week. Traders should keep their eyes on the new-crop 2008 contracts for the grains to see how the battle for acreage is playing out.

Looking at the daily chart for December 2007 Corn, we notice the rally in the overnight session sent Corn prices to highs not seen since the last week of June. Prices have moved well above the major moving averages, and momentum is on the rise. However, the 14-day RSI has moved into overbought territory – though only modestly – with a current reading of 74.75. The next area of resistance is not seen until the $3.90 area, with support found around the recent lows near $3.68. At the end of the overnight session, December Corn closed at $3.81, up 6 cents.

Mike Zarembski, Senior Commodity Analyst

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Crude Bull Market is “Well Oiled”

November Crude Oil futures surged to contract highs this afternoon, rising by over $2 per barrel as a weaker U.S Dollar and solid near-term demand has Oil bulls flexing their muscles. The continued drawdown of oil inventories in Cushing, Oklahoma – the delivery point for the NYMEX Oil contract – to 21-month lows is supporting near-term futures prices. The weaker U.S. Dollar is sparking inflation fears and benefiting commodity prices, including those in Crude Oil. Oil futures also found support from a surging Heating Oil market, with traders fearing that below-average refinery rates will prevent an adequate buildup of Heating Oil supplies as the winter season approaches. The next resistance point for November Crude is seen at the all-time highs of $83.90, with support found at the 20-day moving average, currently at $78.11. November Crude Oil closed at $82.89, up $2.59.

Cotton futures climbed to 2½-month highs this afternoon, as speculative buyers added to existing long positions. The sharp rally in the grain complex and a general rise in commodity prices due to a weak U.S. Dollar were also seen as supportive for Cotton futures. December Cotton traded as high as 6750 before a late session profit-taking selling spree caused prices to close well below the day’s highs. The battle for acreage next season is keeping the December 2008 Cotton contract active, with new contract highs being made at 7550. Cotton must compete with Wheat, Corn, and Soybeans for production on flexible acreage. The next resistance point for December Cotton is seen at 6800, with support found at the recent lows of 6430. December Cotton closed at 6662, up 67.

Mike Zarembski, Senior Commodity Analyst

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September 28, 2007

Traders put their investment pedal to the metals

Gold: Lead month December Gold looks poised to end the week on a high note, with a weaker U.S. Dollar, near record high Oil prices, and concerns that continued weakness in the U.S. housing market will force the Fed to continue to cut interest rates all supportive factors for the yellow metal. Gold futures are trading at their highest levels since 1980 on the monthly continuous charts. In early trade, December Gold is trading at $745.00, up $5.10 per ounce.

Platinum: January Platinum futures continue to climb, moving closer to the $1400 per ounce level, as traders are looking for increased purchases by investors as well as automakers in the coming months. A London traded Platinum ETF continues to gain in popularity, with investment up 16% this month according to the issuer. Today is the first notice day for the October Platinum contract, so spread trade is expected to be active as traders switch their positions over to the January contract. In early trade, January Platinum is trading at $1383.00, up $10.00.

Copper: A potential strike by workers for Southern Copper Corp. in Peru are keeping Copper prices buoyant going into the final trading day of the third quarter. The strike scheduled to begin on October 2nd, is expected to shut production from the fifth largest Copper producer in the world. The strike comes at a time when world Copper stocks are tight, with exchange stocks at the three major Copper exchanges in London, Shanghai, and New York totaling less than 5 days of global consumption. In early trade, December Copper is trading at 368.10, up 3.30.

Mike Zarembski Senior Commodity Analyst

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Traders warming up to hot chocolate

Cocoa futures have made impressive gains the past several sessions, after breaking out from a 5-plus week long consolidation pattern. Increasing concerns about the spread of black pod disease has sparked traders’ interest in Cocoa, with the main crop of the Ivory Coast now feared to have been afflicted. If the disease does become widespread, this could seriously undermine the potential surplus expected for the 2007-08 marketing year. Following a global Cocoa deficit for the 2006-07 season, a bumper crop was anticipated this year to help offset tight supplies and higher world prices -- especially for high quality Cocoa. A weaker U.S. Dollar is also supportive to Cocoa futures prices in New York, as arbitrage traders buy New York Cocoa futures vs. the London market. However, with prices now well past the $2000 per ton level, if the spread of black pod turns out to be minor, prices could be in for a steep drop as speculators rush for the exits.

Looking at the daily chart for December Cocoa, we notice prices trading well above the major moving averages, as well as the 20-day moving average starting to move above the 50-day average. This bullish sign signals that short-term momentum favors Cocoa bulls. However the 14-day RSI has moved well into overbought territory with a reading of 81.63. Trade may turn volatile this morning, as large traders position themselves for the start of the fourth quarter. The next resistance point for December Cocoa is seen at $2054, with support found at the week’s low of $1973. In early trade, December Cocoa is trading at $2040, up $9.

Mike Zarembski Senior Commodity Analyst

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