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

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

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

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

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)

Japan

None

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

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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Senior Commodity Analyst
optionsXpress

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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%

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

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)

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%)

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

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

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

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

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

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

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)

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

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)

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

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)

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

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

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

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

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

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)

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

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

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

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)

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

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

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 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

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

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

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

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

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)

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

$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

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

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

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)

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 mom