Fundamentals

The U.S. job market at the end of 2008 was dismal to say the least, according to the ADP U.S. private sector survey for December. The survey released yesterday had 693,000 jobs lost last month, which was well above the 515,000 job loss expected by traders. Though the figure was much worse than expected, it should be noted that this survey was done using a new methodology, that its designers hoped would better reflect the figures released by the Bureau of Labor Statistics. The ADP employment figures have been notorious for undercounting the number of jobs lost in the past, so analysts will be eager to see if the changes made by ADP will provide a better estimate of the Non-Farm Payrolls (NFP) figures which also includes government jobs. Yesterday's report has led many to revise downward the estimate for Friday's NFP release to a loss of between 600 and 700 thousand jobs in December, opposed to the 500,000 loss before the report was released. This will be the 12th consecutive month that payrolls were cut, with a total of well over 2 million jobs lost in 2008. All this gloom and doom has put a halt to the recent rally in the stock index futures markets, with the March E-mini S&P 550 futures winning streak having ended at 8 consecutive sessions. Stocks have recovered a bit to start the year, as optimistic investors have put some money back into stocks in hopes of an economic rebound in 2009, spurred by a renewed economic stimulus package proposed by the incoming Obama administration that is hoped will create 3 million new jobs. However, that optimism may be short-lived if the Labor Department reports a larger-than-expected job loss and traders start to believe that corporate earnings reports will be dismal in the coming months, despite the efforts coming out of Washington.

Technicals

Looking at the daily chart for the March E-mini S&P 500 futures, we notice that the recent rally was stalled less than 30 points below the near term highs made back on November 10th at 959.50. Since that time, prices have consolidated, with the brief exception of a two-day sell-off back in late November. Volume has been lighter than average during the recent rally, which put into question the sustainability of the up-move. Though prices remain above the 20-day moving average, there looks to be formidable resistance at 959.50 and again at 1006.25, highlighted on the included chart. Should prices fall below support at the 20-day moving average currently at 889.50, a test of the low end of the consolidation near the 803.00 level is possible.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Not all commodity markets are suffering from deflation, as Coffee futures made 2-month highs last week. Apparently traders have shifted their focus away from the economic malaise most of the world is experiencing and started to focus on actual market fundamentals. High quality Arabica Coffee is becoming scarce, causing buyers to pay a premium for near-term supplies. The outlook for next season's production from Brazil is bullish, as CONAB is estimating the new-crop between 36.9 and 38.8 million bags vs. 46 million bags produced last year. Analysts attribute much of the production decline estimate to next year's crop being in a "down" year for the production cycle. A lower than anticipated crop out of Columbia has also supported prices, as supplies there remain extremely tight. Looking at the most recent Commitment of Traders report, we notice large non-commercial traders holding a net-short position of nearly 7000 contracts as of January 6th, with the March contract closing well above the 20-day moving average last week and near-term resistance being taken out. It may not take long for trend-following commodity funds to start moving from a net-short position to a net-long one. If so, Coffee prices may continue the uptrend as this fresh buying enters the market.

Technicals

Looking at the daily chart for March Coffee, we notice the large price spike that occurred on Tuesday of last week on extremely high volume. This set the stage for the rally to continue, as short-covering buy stops were triggered and short-term momentum traders moved to a bullish bias. The 14-day RSI has turned positive with a current reading of 59.15. Despite the large up-move last week, prices closed well off their highs on Friday, as light profit-taking by weak bulls and some commercial selling capped the day's gains. The November 10th high of 121.15 is seen as the next resistance point for March Coffee, with support found at the 20-day moving average currently at 111.05.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

The recent bullish stampede by Soybean traders hit a brick wall yesterday in the guise of the USDA Crop Production/Supply Demand report. The USDA surprised traders by raising U.S. Soybean ending stocks to 225 million bushels, vs. 205 million bushels last month. Many analysts were looking for stocks to remain unchanged or even drop from last month's totals, as export demand has been solid -- especially from China, whose exports were up nearly 22% in 2008. However, the USDA raised U.S. Soybean production estimates by 38 million bushels and lowered Soybean Crush estimates by 30 million bushels -- mostly due to weak Soybean Meal demand. These figures combined with very bearish supply and demand figures for Corn gave buyers very little reason to bid for Soybeans, and prices closed down the 70-cent limit in the main old-crop months up to July 2009. Since December 5th, March Soybeans have gained nearly $3.00 per bushel, as traders began to put a "weather premium" into prices as South American growers in Brazil and Argentina have been struggling with below normal moisture. Large non-commercial traders have been aggressively adding to their net-long positions, with the most recent Commitment of Traders report showing that these large speculative accounts added 3,278 contracts to their existing long position for the week ending January 6th. Now that the USDA report is out and the up-trend has been seriously damaged by Monday's steep declines, it will be interesting to see whether the large speculative traders will try to defend their long positions or begin to liquidate, which could cause further sharp declines as sell-stops are triggered and key support points are put to the test.

Technicals

Looking at the daily chart for March Soybeans, we notice a modest rally attempt yesterday after prices fell to nearly 2-week lows. The uptrend line drawn from the December 5th lows has been penetrated, and Tuesday's rally attempt failed to close above this key support point. Technical traders who look for divergences between prices and the 14-day RSI will notice the bearish divergence that formed just one day before the USDA report was released! The next support point for March Soybeans is seen at the 20-day moving average, currently at 941.25, with resistance at Monday's high of 1060.25.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Crude Oil futures continue to deflate at an astonishing rate since the "bubble" burst in July, as the global recession continues to hurt demand. OPEC has once again lowered its estimate for global demand by an additional 20,000 barrels per day in 2009 to 85.66 million barrels. This lack of demand has caused U.S. Oil stocks to soar, with the EIA reporting that Crude inventories increased by 1.14 million barrels last week to stand at 326.6 million barrels. This current lack of demand has caused Crude Oil futures spreads to collapse, with near-month futures falling faster than the deferred contract months. Current demand is so weak that Oil futures are now trading in a contango, which is where near-term futures trade at a lower price than more distant months. These Crude spreads have widened to such a great extent that some large trading firms have actually begun leasing oil super tankers to store oil, and then sell deferred futures to lock-in the higher prices available longer term. Oil storage in Cushing, Oklahoma, the delivery point for the NYMEX futures contract, rose by 2.5% last week to stand at 33 million barrels. In a sense, this contango in oil spreads is acting like a sort of "reverse bubble", and we can see the havoc wreaked on the Oil market when the bullish Oil bubble burst in July. With more and more large traders continuing to bear spread Oil futures, the set-up exists for a sharp correction in these spreads should Oil demand begin to grow or a major supply disruption take place as these speculative accounts rush to unwind their bearish trades.

Technicals

Looking at the daily chart for March Crude Oil, we notice prices falling to 2-week lows after the bearish EIA energy stocks report. The situation in the soon-to-expire February contract is even more bearish, as traders roll-out of their contracts to avoid taking delivery. The Feb/Mar spread as of this writing has fallen to an $8.50 Feb discount to the March contract. Prices have once again fallen back below the 20-day moving average after the brief short-covering rally failed last week. Momentum continues weak, with the 14-day RSI reading 41.20. The next support point for March Crude is seen at the 12/29 lows of 40.57, with major support at the contract lows of 38.00. Resistance is seen at the 20-day moving average near the 45.10 level, with major resistance at the recent highs made on 1/6 at 54.74.

Mike Zarembski, Senior Commodity Analyst

Fundamentals

Despite being one of the favorite "buy side" currencies for "carry-trade" investors, the New Zealand Dollar (Kiwi) continues its slump, as the ongoing global slowdown has traders in a risk adverse mode. Not helping the Kiwi's cause was the release of a government report showing consumer prices falling in the final quarter of 2008. With inflation fears waning, traders are speculating that the Reserve Bank of New Zealand (RBNZ) will cut rates by up to 100-basis points at their next meeting on January 29th. Just last week Standard and Poor's lowered its outlook for the country's foreign currency rating to negative from stable, citing its non-domestic debt levels and rising current-account deficit. Even though the benchmark rate stands at an attractive 5%, traders are hesitant in placing carry-trades with the New Zealand Dollar versus the extremely low yielding currencies like the Japanese Yen and U.S. Dollar due to concerns that the RBNZ will be forced to continue to lower rates as commodity prices continue to fall and the country's growth rate tumbles. However, once signs that the global recession may be starting to recede, traders will once again flock back to the Kiwi.

Technicals

Looking at the daily chart for the March N.Z. Dollar, we notice the abrupt end to the nearly 6-week rally last week. Notice the price really accelerated to the downside once the market closed below the 20-day moving average. The 14-day RSI has not yet reached oversold territory, with a current reading of 33.76. Support is seen at the contract lows of 0.5164, with resistance seen at 0.5560.

Mike Zarembski, Senior Commodity Analyst

Gold futures are higher for the third consecutive session, after the Dollar pulled back against the Euro in overnight trading. Despite the US currency's strength in recent weeks, Gold has remained resilient due to continued uncertainty in the US and UK banking systems. The market has reacted to Citigroup's plan to split into at least two units by pummeling bank shares. News that State Street's unrealized losses on its bond portfolio almost doubled sent financial shares into a tailspin yesterday, and indications that investors pulled more that $10 billion in assets from Merrill Lynch in the fourth quarter has done little to ease concerns. Large banks have used bailout funds to finance their acquisitions of other banks, instead of writing-off toxic debt and providing mortgage relief as originally intended. This has resulted in increased leverage for the sector, which is counterproductive and increases risks of bank collapses substantially. In the UK, the bank nationalization program has been disastrous for shareholders, and some market observers have suggested that the ambitious program has put the nation's treasury on the brink of collapse. These developments have made precious metals all the more attractive as a safe haven, but at the same time, lessened the appeal as an inflation hedge, as further banking collapses could suffocate economic growth. Industrial use of the metal is expected to remain weak through at least 2009, but Gold's demand as an investment continues to grow. Holdings in the SPDR Gold Trust have eclipsed 800 tonnes for the first time, a clear indication that investors' appetites for risky investments has eroded. The aggressive actions taken by central banks around the globe has resulted in devaluated currencies, making Gold attractive long-term. Long-term price outlooks for the metal suggest that prices may eventually eclipse the record $1,100 an ounce level set last year, but this may not happen until 2010 or beyond.

Rob Kurzatkowski, Senior Commodities Analyst

Fundamentals

Deflationary fears are not in the minds of Cotton bulls, as prices climbed to 12-week highs on Tuesday. The most important factor driving speculators back into the Cotton market is the concern that U.S. acreage dedicated to Cotton production will once again be cut, as producers switch to planting Soybeans this spring. If true, then it appears that both U.S. and world Cotton ending-stocks will fall, as Chinese acreage is expected to decline as well. Speaking of China, it looks like China has been in the market for Cotton, as U.S. exports have increased during the past couple of weeks. Traders have noted that certified Cotton stocks eligible for delivery against futures have fallen sharply, with expectations that most of this supply is headed for China. As prices begin to recover, additional speculative interest has been coming in on the long side of the market, with the most recent Commitment of Traders report showing that combined large and small speculators are holding a combined net-long 14,409 contracts as of January 20th. However, producer hedge selling, which has been light of late, may start to appear given the recent rally. In fact, the sell-off that occurred after yesterday's highs may be a sign that commercials may want to begin to lock-in prices on this upswing.

Technicals

Looking at the daily chart for March Cotton, we notice a few signs that the recent rally might be getting a bit tired. First, notice how the 100-day moving average seemed to stop the rally in its tracks. Trading volume was very light yesterday, which may be a signal that no fresh buying was found, despite the fact that volume moved to 12-week highs earlier in the session. The 14-day RSI also failed to make a new high yesterday, signaling a possible shift in momentum. 52.40 is now the next resistance point for March Cotton, with support found at 46.90.

Mike Zarembski, Senior Commodity Analyst