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Active overnight trading keeps traders awake!

Corn: December Corn futures traded higher in early trade, as traders gear up for a possible decline in the U.S. crop ratings last week. The USDA reported 62% of the U.S. Corn crop was rated good to excellent last Monday, down 2% from the prior week. Less than expected rainfall in parts of the Corn Belt may lead to a lower crop rating in this afternoon’s report. At the close of overnight trade, December Corn was trading at $3.38 ½, up 2 cents a bushel.

S&P 500 futures: More volatility is expected in the S&P 500 futures this morning, as traders reassess last week’s 87-point sell off in the S&P futures. Since the re-opening on Sunday, September e-mini S&P futures have traded in a nearly 15-point range, with over 200,000 contracts already being traded as of 6:30 am Chicago time. With no major economic reports out today, traders will look towards corporate earnings reports and any additional news on the sub-prime loan situation to gauge their trading decisions today. In early trade, September mini-S&P 500 futures are trading at $1461.00, up 3.00.

Treasury futures:
September 10-year Note futures are trading higher in early trade, following the lead of the European Bond market, as credit spreads continue to widen. This is causing a flow of funds into the Government Bond market, as traders and investors look for a “safe haven” to park funds. September 10-year Note futures are trading at 107-200, up 0-075.

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The market gives and the market takes away!

Today on Wall Street, the Dow lost 146 points to bring the average down to 13,211. The S & P 500 dropped 18 to end the day at 1455 while the Nasdaq gave up 37 to close at 2546. Even though most of the day was spent in positive territory, the bears won the battle today with a down market on bad news from the mortgage sector.

Bonds finished the day higher in value with the 10-year note closing with a yield of 4.74%. With news from the mortgage sector pushing the market down, bonds had an “end of day” rally in the last hour of the day.

In the world of economic news, consumer confidence beat expectations coming in at 112.6. This is the highest it has been in six years. Personal spending came in right at expectations at .1% and personal income came in slightly below expectations at .4%.

In Asia, the Hang Seng was up almost 2% at 23,023 and the Nikkei was down slightly at 17,318.

Economic Data Scheduled for Wednesday, August 1, 2007

(All times are U.S. Central Time)

U.S.
9:00 AM: ISM Index (Consensus 55.5)
9:30 AM: EIA Weekly Energy Stocks (Estimate CL -700k)

Canada
None

U.K.
3:30 PM: PMI Manufacturing Index (Consensus 54.0)

European Union
3:00 AM: PMI Manufacturing Index (Consensus 54.8)

Japan
None

Bulls charge ahead at the close!

Today was quite the sea saw battle between the bulls and the bears in the US stock market. In the end, the bulls won today’s battle. The Dow closed the day at 13,366 gaining 154 points. The S & P ended the day 10 points on the positive side of the fence while the Nasdaq closed at 2553, up 7 points.

In the news, pending home sales came out with a surprise increase of 5% for the month of June. This could be a leading indicator of new and existing home sales for the report coming out at the end of August. The ISM index came in below expectations at 53.8. The concensus was 55.5.

Bond yields were on the rise today as the 10 year note closed the day with a yield of 4.78%.

In the overseas markets, the Nikkei closed yesterday at 16,870 (down 2.19%) and the Hang Seng closed at 24,455 (down 3.15%).

Economic Data Scheduled for Thursday, August 2, 2007

(All times are U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims (Consensus 310K)
9:00 AM: June Factory Orders (Consensus +1.0%)

Canada
None

U.K.
6:00 AM: BOE Interest Rate Decision (Consensus 5.75%)

European Union
4:00 AM: June PPI Mom (Consensus +0.3%)
4:45 AM: ECB Interest Rate Decision

Japan
None

Two in a row!

The U.S. stock markets continued their late-day rally habits today, with all three benchmarks finishing to the upside. The Dow gained an even 100 points to finish at 13,463, while the S&P added 6 to close at 1472. The NASDAQ finished ahead 22 at 2575.

Initial Claims came in below expectations today at 307,000 versus estimates of 310,000. Factory Orders came in at .6%, well below the 1% expectation. Tomorrow will be a more active day on the economic calendar, with both Unemployment and Non-farm Payrolls set to be released.

Bonds had a relatively flat day, with the yield on the 10-year Note moving up 1 basis point from 4.76 to 4.77. The spread between the 2- and 10-Year Notes remains the same at 18 basis points.

Overseas, the Nikkei finished at 16,984 (up .67%) and the Hang Seng moved down less than .1%, closing at 22,443.

Economic Data Scheduled for Friday, August 3, 2007

(All times are U.S. Central Time)

U.S.
7:30 AM: July Non-farm payrolls (Consensus +135K)
7:30 AM: July Unemployment rate (Consensus 4.5%)
7:30 AM: July Average hourly earnings (Consensus +0.3%)
9:00AM: July ISM Non-Manufacturing Index (Consensus 59.5)

Canada
None

U.K.
3:30 AM: July Purchasing Managers Services Index (Consensus 57.4)

European Union
3:00 AM: July Purchasing Managers Services Index (Consensus 58.1)
4:00 AM: June Retail Sales MoM (Consensus +0.8%)

Japan
None

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All Eyes on Today’s Payrolls Report!

Treasury futures: September 10-year Note futures are down slightly in early trade this morning, as traders gear up for the Non-farm payroll figures for July. Estimates are for payrolls to have increased moderately with approximately 135,000 new jobs created. The unemployment rate should continue to remain steady at 4.5%, and average hourly earnings are expected to increase by 0.3%. In early trade, September 10-year Notes are trading at 107-135, down 0-015.

Stock index futures: Can we end the week on a high note? That is the question on stock index traders’ minds this morning after a wild trading week. The focus today will initially be on this morning’s jobs report, as steady job growth and moderate wage inflation are the expected outcome of today’s Labor Department report. However, concerns about the subprime loan situation will continue to garner attention. In early trade this morning, September e-mini S&P 500 futures are trading at 1479.50, down 2.25. Volume is a moderate 54,825 contracts as of 6:27 AM Chicago time.

Gold: December Gold futures look to end the week in positive territory, as moderate U.S. Dollar weakness and a continuing strike threat at three of South Africa’s biggest Gold producers is underpinning prices this morning. However, the China Gold Association announced yesterday that China’s Gold production was up 15% in the first half of 2007, producing 122.5 metric tons. In early trade, December Gold is trading at $677.00, up $0.40.

Economic reports out today:

(All times are U.S. Central Time)

7:30 AM: July Non-farm payrolls (Consensus +135K)
7:30 AM: July Unemployment rate (Consensus 4.5%)
7:30 AM: July Average hourly earnings (Consensus +0.3%)
9:00AM: July ISM Non-Manufacturing Index (Consensus 59.5)

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NFP for July comes in below estimates!

U.S. job growth slowed in July, rising by only 92,000 jobs, as the decline in manufacturing and construction jobs offset some of the gains in the service sector. The unemployment rate rose by 0.1% to 4.6%, and average hourly earnings rose by $0.06 cents, or 0.3%, to $17.45. The Labor Department also revised the June and May payroll figures lower by 6,000 and 2,000 jobs, respectively. Just after the figures were released, the September mini-S&P 500 futures are now lower by 5.25, to stand at 1476.50, and September 10-year Notes are trading at 107-180, up 0-030.

Crude and Copper Crumble; Ten Year’s Tank!

Energy complex: Energy futures are all trading moderately lower this morning as traders gear up for the weekly EIA energy stocks report due out at 9:30 AM Chicago time. Current estimates are for another solid build in energy products, with Gasoline inventories expected to have increased by between 700,000 and 1 million barrels last week. Distillates – which include Heating Oil – are expected to have increased by 1.5 to 1.8 million barrels. Crude Oil inventories, however, are expected to show a decline of 2 million barrels last week, with refineries operating at 93.7% capacity. In early trade, September Crude Oil is trading at $72.15, down $0.27, September RBOB Gasoline is trading at $1.9387, down $0.0055, and September Hearing Oil is trading at $1.9592, down $0.0049.

Copper: September Copper futures fell sharply in early trade this morning, after LME Copper stocks rose by 8,675 metric tons to stand at 114,275 mt, the largest increase since December of 2005. Most of the increase is thought to have come from China, where domestic prices are below that of the world market. In early trade, September Copper is trading at 342.75, down 7.90.

Ten-year Notes: Treasury futures continue to slide, after the Federal Reserve announced that it expects the U.S. economy to continue to expand, despite the housing market slowdown. In addition, the Treasury will auction $13 billion worth of 10-year Notes this afternoon, with pre-auction hedge selling likely to keep prices on the defensive. In early trade, September 10-year Notes are trading at 107-025, down 0-155.

Economic Data Scheduled for Wednesday, August 8, 2007

(All times are U.S. Central Time)

U.S.
9:00 AM: June Wholesale Inventories (Consensus 0.4%)
9:30 AM: Weekly EIA Energy Stocks report


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Bad Day For Bond Bulls!

Treasury Bond futures fell sharply this afternoon, as funds moved out of government debt and into stocks following yesterday’s FOMC announcement. In addition, futures were under pressure after the auction of $13 billion in new 10-year Notes drew a higher-than-expected yield of 4.855%. Indirect bidders – including foreign central banks – bought a 32.1 percent of the total, which was below expectations. Technical traders noted the September Bond contract moved below the 100-day moving average, which spurred some additional long liquidation. 108-07 is seen as the next support point for September Bonds, with resistance now seen at 109-22. September Bonds closed at 108-30, down 1-08.

September Japanese Yen futures tumbled to 2-week lows, as traders unwound risk aversion trades. A rally in global stock markets after the Federal Reserve declaration of moderate growth expectations for the U.S. economy was the catalyst for large speculative traders to re-enter so called “carry trades,” which put pressure on low-yielding currencies such as the Yen. Sell-stops were seen triggered once the September contract moved below the 100-day moving average, adding further selling pressure on the afternoon. 0.8337 is seen as support for the September Yen, with resistance found at 0.8514. September Japanese Yen futures closed at 0.8403, down 0.0073.


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Stocks shine while traders tarnish on Treasuries!

Stock index futures rose for the third consecutive session, with S&P 500 futures hitting nearly 2-week highs as traders returned to the equities markets. September S&Ps closed up 21.10 to end the session at 1503.50, while September Dow futures closed up 157 at 13705, and September NASDAQ 100 futures ended the day up 26.00 for an even 2000.00.

Treasury futures tumbled, as flight-to-quality buying ceased and a disappointing 10-year Note auction weighted on prices. September 30-year bonds closed at 108-30, down 1-08, and September 10-year Notes closed at 106-275, down 0-225.

Economic Data Scheduled for Thursday, August 9, 2007
(All times are U.S. Central Time)

U.S.
7:30 AM: Initial Claims for week ending Aug 4th(Consensus 310,000)

Canada
7:30 AM: June New Housing Price Index YoY (Consensus 0.7%)

U.K.
3:30 AM: Total Trade Balance for June (Consensus -3.900 billion)

European Union
3:00 AM: ECB publishes monthly report (Aug)

Japan
6:50 PM: July Domestic Corporate Goods Price Index MoM (Consensus 0.6%)


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Buyers Flock to Fed Fund Futures!

Volatility has emerged in short-term interest rate futures, with word that the European Central Bank (ECB) injected 94.8 billion Euro – or $130 billion – into short-term rate markets after the London interbank offer rate jumped over 50 basis points today. The U.S. Federal Reserve added $24 billion into the repo market to meet the increased demand for cash today. This news spooked interest rate traders, with September Fed Fund futures surging as high as 94.900 after closing yesterday at 94.775. Today's 12.5 basis point range is quite large for near-term Fed Fund futures outside of a surprise announcement on interest rates by the Federal Reserve. Longer-term Treasury futures also gained some buying support from "flight-to-quality” buyers, as well as short-covering by momentum traders after the sharp sell-off in Bond prices this week. September Fed Fund futures closed at 94.875, up 0.100.

Natural Gas futures soared to highs for the month, as a smaller-than-expected storage build coupled with an increased chance for an above-normal hurricane season had traders in a buying mood. This morning, the EIA announced in its weekly Gas storage report that 42 billion cubic feet (bcf) of Gas was put into storage last week, well below the average pre-report estimate of a 53 bcf build. Also supporting prices was today's revised NOAA outlook on this year's hurricane season, which now sees an 85% chance for an above-normal season, up from 75% in its May outlook. Out of the 13 to 16 tropical storms expected to develop, between 7 and 9 may become hurricanes according to NOAA forecasters. Large speculators have been holding a large net-short position in Natural Gas futures, with the most recent Commitment of Traders report showing a net-short position totaling 122,719 contracts as of July 31st. Additional strength may be coming from the unwinding of long Crude Oil/short Natural Gas spreads that were popular with commodity funds this summer. Support for September Natural Gas is now seen at the 20-day moving average of 6.324, with resistance found at the July 31st highs of 6.684. September Natural Gas closed at 6.586, up 0.366. Written by Mike Zarembski, Senior Commodity Analyst

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Bonds Take a Breather!

After a nearly 2-month rally, Bond futures are taking a breather after last week’s volatile trade. This morning, September Bonds are trading slightly in the red, as traders gear up for the release of the July Producer Price index. The consensus estimate is for a rise of 0.1% in the headline number, with the so-called “core” index – which excludes food and energy costs – rising by 0.2% versus a 0.3% rise in June. Traders’ expectations have been lowered for this morning’s report due to weaker equity markets, as well as a lower-than-expected rise in U.K. consumer prices. Flight-to-quality buying of Bond futures has been limited by the actions of central banks throughout the world, which have been adding liquidity to market to help stem a short-term liquidity crunch. Chart watchers will notice that the 20-day moving average is poised to cross above the 110-day moving average, which if confirmed could spark additional buying by technical traders.

Looking at the chart for the September Bond contract, we notice a potential symmetrical triangle pattern forming. Normally this pattern signals a rest period in the continuation of the current trend – combined with the potential moving average crossover, this should peak the interest of technical traders in the near-term. The 14-day RSI has moved into neutral territory with a current reading of 50.99. 109-27 is seen as near-term resistance for the September Bond, with support found at the recent lows of 108-20. In early trade, September Treasury Bond futures are trading at 109-13, down 0-02.


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Are Energy Markets Starting to Heat Up?

Energy Futures: After dropping as low as $70.10 on Friday, September Crude Oil futures are trying to make a comeback and are higher in early trade this morning. Today’s focus will be on the weekly EIA energy stocks report, with traders looking for around a 2 million barrel drop in Crude stocks last week. Gasoline stocks should show a modest 400,000-barrel decline, and Distillates – including Heating Oil – are expected to show a 1 million barrel rise. Refinery utilization is expected to rebound by 0.5%. In addition to this morning’s report, a tropical depression in the Gulf of Mexico is expected to become a tropical storm, and traders are nervous that it may affect refinery operations on the Texas coast. In early trade, September Crude Oil is trading at $72.94, up $0.56.

Two-year Note futures: September Two-year Note futures prices soared to highs not seen since 2005 on the weekly continuous chart, as traders renewed speculation that the Federal Reserve will cut interest rates once or possibly twice by the end of the year. Continued fallout from the subprime loan situation and falling stock indexes have traders looking towards the Government debt markets with expectations that yields will continue to move lower. In early trade, September Two-year Note futures are trading at 102-247, up 0-030.

Platinum: Lead month October Platinum dropped to lows not seen since June for the lead month contract, as a higher U.S. Dollar – particularly versus the Euro – has some traders looking for lower precious metal prices as investment demand starts to decline. Spillover weakness from lower Gold and base metals prices is also contributing to Platinum’s recent sell-off. In early trade, October Platinum is trading at $1268.00, down $9.00.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Wednesday, August 15, 2007

(All times in U.S. Central Time)

U.S.
7:30 AM: July CPI (Consensus 0.1%, Core 0.2%)
8:15 AM: July Industrial Production (Consensus 0.3%)
8:15 AM: July Capacity Utilization (Consensus 87.1%)
9:30 AM: EIA Energy Stocks report

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Commodities Crash, But For How Long?

It was hard to find much green on the commodity quote boards today as liquidation selling pummeled nearly every commodity sector. Some of the highlights (or lowlights): December Cotton closed down the 300-point limit, September Lumber was down 9.50, November Soybeans were down 40 cents, December Gold was down $21.40, October Live Cattle was down 2.07, September Crude Oil dropped $2.33, and the list went on an on. The continuing shakeout from the credit crisis has spurred a flight to liquidity, with traders and investors looking to seek refuge in short-term government debt. Fundamentals were largely ignored in many markets, as forced liquidation of positions took center stage with margin calls looming. However, as of 2:46 PM Chicago time, the S&P 500 futures have staged a bit of a rally, and if they can finish unchanged or higher, we may see a different outcome in the commodity markets tomorrow.

Soybean futures were hit hardest in the grain complex sell-off this afternoon, with the most-active November contract falling the 50-cent limit at one point in the session to its lowest levels since mid-May. The entire commodity complex had been under pressure today due to the continued rush for liquidity in the wake of recent financial turmoil. Also weighing on the Soybean products was the improved chances for rainfall in the Midwest, including previously parched sections of the region. U.S. weekly Soybean exports came in at 313,300 metric tons for the week ending August 9th, with 236,000 mt for the 2006-07 marketing year. Soy products were not immune from the sell-off, as December Bean Oil posted triple-digit losses on the back of sharply lower Crude and Malaysian Palm Oil futures, and December Soy Meal broke through near-term resistance at the 20- and 100-day moving averages. The next support point for November Soybeans is seen at the psychologically important $8.00 level, with resistance found at the 100-day moving average of $8.34. November Soybeans closed at $8.14 ½, down 40 cents.


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Fed Rate Cut

The Federal Reserve has announced a 50 basis point cut in the discount rate to 5.75%.

This news has sent U.S. Stock Index futures soaring, with e-mini S&P 500 futures up over 20 points as of 7:28 AM.

Not So Calm Before the Storm?

Energy futures: Prices are sharply lower in the energy complex to start the week, as forecasters are now expecting Hurricane Dean to track south of the main Oil-producing areas of the Gulf of Mexico. The current track is expected to bring Dean through the Yucatan Peninsula and on to central Mexico. October Crude Oil is currently trading at $71.06, down $0.76, and October Natural Gas is trading at $6.668, down $0.455.

Short-term Interest Rate futures: The Federal Reserve’s surprise announcement of a cut in the discount rate on Friday has traders increasing the odds that the Fed Funds rate will be next on the chopping block when the Fed reconvenes on September 18th. Fed Fund futures are now pricing in a 64% chance of the Fed cutting rates to 4.75% at the September 18th meeting, up significantly from almost no chance last week. In early trade, September Fed Fund futures are trading at 95.055, down 0.010.

Gold: December Gold futures have turned positive in early trade this week, as concerns about inflation have sparked moderate buying interest. The statement released after the Fed’s unexpected 50 basis point cut in the discount rate did not mention its concern for fighting inflation, but instead focused on its attempt to control the recent short-term credit crunch. In early trade, December Gold is trading at $668.10, up $1.30.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Monday, August 20, 2007

(All times in U.S. Central Time)

U.S.
9:00 AM: Leading Indicators for July (Consensus 0.3%)


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Daily Roller Coaster Ride Continues on Wall Street

The rollercoaster ride continued on Wall Street today, as the S&P 500 finished down less than a point after being as low as 1430 (14 points in negative territory), while the Dow gained 42 points and the NASDAQ added 3. Over in the bond market, the 10-year Note climbed in value with a closing yield of 4.64%, and the 30-year Bond finished at 4.98%, widening the gap in the yield curve.

The markets spent the day still digesting the Federal Reserve’s lowering of the discount rate by 50 basis points last Friday. This week’s trade will reveal how the market is reacting to that move, as well as whether investors believe the Fed will hold its stance on not cutting the Fed Funds rate.

In the Asian markets, the Nikkei is coming off of a 3% gain from its last session, while the Hang Seng ended recent trading with a gain of nearly 6%.


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Grains Gain Despite More Rain!

Soybeans: Soybean futures rallied in overnight trading, as traders reacted to the USDA crop progress report showing 54% of the U.S. Soybean crop was rated good to excellent, down 2% from last week. In addition, drought conditions in China’s main Soybean growing region may lower output this year and cause a rise in Chinese Soybean buying later this year. At the end of the overnight session, November Soybeans were trading at $8.33, up 5 ¾ cents.

Wheat: Chicago Wheat futures continued to climb in early trade, as U.S. exports soared despite relatively high prices. The USDA reported 45.7 million bushels were inspected for the week ending August 16th, nearly three times the amount at this time last year. At the end of the overnight session, December Wheat was trading at $696 ½, up 5 ½ cents.

Two-year Note futures: Traders are starting to believe that the Federal Reserve will lower interest rates at their next meeting on September 18th, which is sending a bid through the short end of the yield curve—the most affected by a Fed Funds rate cut. This has sparked a climb in September Two-year Note futures in early trade, leaving them hovering just below contract highs of 103-112 set on Thursday of last week. In early trade, September Two-year Notes were trading at 103-082, up 0-040.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Tuesday, August 21, 2007

(All times in U.S. Central Time)

U.S.

None


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Bulls Regain the Lead

Wall Street finished on the upside today, as the Dow posted a 145-point gain. The S&P 500 added 16 points, while the NASDAQ gained 31. Over in the bond pit, the 10-year Note finished slightly to the downside.

In the news, rumors persist that the Fed will lower rates at its September 18th meeting, but it remains to be seen if these rumors will hold true. New Home Sales coming out later this week and Existing Home Sales coming out on Monday may provide an indication of what will happen in September. Tomorrow, we look forward to Initial Claims.

Overseas, the Nikkei finished down slightly (.7%), while the Hang Seng ended its last trading session 2.84% to the upside.

Economic Data Scheduled for Thursday, August 23, 2007
(All times in U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims week ending 8/18 (Consensus 320k)

Canada
None

European Union
1:00 AM: (Germany) Gross Domestic Product QoQ 2nd qtr (Consensus 0.3%)

Japan
10:00 PM: BOJ Interest Rate Decision

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Are New Home Sales Going to Surprise?

Treasuries: Traders will be watching the Bonds today with New Home Sales set to be announced at 9:00 AM Chicago time. With the expectation at 825,000, we will see if there is a rush to Bonds after the announcement, business as usual, or reason to get out of the Treasuries. Last month’s Housing Starts number did give an indication that we may get some good news today in the housing market, but building permit numbers were down from expectations a month earlier. In the early going, the 10-year Note is trading higher.

S&P e-mini: The S&P 500 is just coming off of its starting point for 2007. Although we did dip into negative territory for a while last week, the stock market has since gained some ground back to the positive side. The S&P never quite hit its lows for the year from back in March, but it did come close. Traders will be watching to see whether the market will consider where we have been support, or will it test the yearly lows from March? The S&P e-mini contract was trading down 3 points at 6:00 AM Chicago time.

Coffee: Coffee is holding its own of late. It could have continued to drop earlier in the summer, but instead managed to hold on around the 110-115 mark, and has remained more or less range-bound between 110-120 for the summer. Are we seeing a bottom forming or is Coffee due for a breakout to the downside in the next few weeks? In early trade, Coffee was slightly higher this morning.


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Jump on the Boat with the 10-Year Note?

Yield is the key word these days with long-term investors. Considering all of the uncertainty in the markets, having a steady paycheck every month doesn’t seem like a bad thing to a lot of investors. As a long-term fixed income investor, no matter what the Fed does with interest rates, you still get a check every month. The downside is that the value of your bond may decrease in value due to interest rate risk. That brings us to today’s topic – the 10-year Note.

We are at an interesting technical point with the Note right now. With prices currently testing March levels, a bullish market could be just on the other side of this resistance. Making things even more interesting is the upcoming Fed meeting on September 18th. There is increasing speculation that the Fed will announce a quarter-point cut to 5%, most likely leading to lower yields on Bonds as a whole. So where does that leave the 10-year Note? The next few weeks will tell the tale.

Currently, September 10-year Note futures are trading at 108-220.

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Can 30-year Bond Futures Continue Their Rally?

Treasury Bond futures prices have remained strong, with the September contract hitting highs not seen since May, despite signs that the Fed will cut rates at its September 18th meeting and shift from its main stance of fighting inflation. Even Friday’s surprisingly strong New Home Sales figure for July could not spark a sell-off in the long end of the yield curve. Flight-to-quality buying was most likely responsible for the initial Bond rally earlier this month, but with fears of a lingering short-term credit crunch starting to abate, we would expect Bond prices to start to tumble, especially given the rally in equities futures the past week. So what is keeping Bond prices up? First, large speculators continue to hold a net-short position in 30-year Bond futures, with the most recent Commitment of Traders report showing large speculators holding a net-short position of 73,867 contracts, up 43,783 contracts as of August 21st. This may signal that last week’s rally was mostly due to short covering buying or unwinding of spreads against 10-year Note futures, where large speculators are holding a large net-long position. The second factor might be the market’s opinion that the world economy may start to slow more rapidly, with the fall-out from a weak U.S. housing market spreading throughout the globe. The market’s reaction to this morning’s Existing Home Sales figure for July may hint at the near-term trend in Bond futures prices – a stronger-than-expected figure will confirm a bump in housing sales on the heels of Friday’s new home sales surprise, while a weaker figure will add fuel to the argument that the U.S. housing slump continues and that the Fed will be forced to lower rates at its September meeting.

Looking at the daily chart for September Bond futures, we notice the bull move that started at the June lows continues nearly unabated, with prices well above the major moving averages and the trendline drawn from the June 13th lows. The 14-day RSI remains strong with a current reading of 65.19. The next resistance point for September Bonds looks to be at the May 11th highs of 112-02, with major resistance seen at the May 8th highs of 112-11. Support is seen at the 20-day moving average of 110-04. In early trade, September 30-year Bond futures are trading at 110-28, up 0-01.

Mike Zarembski Senior Commodity Analyst.


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Bears Make Their Move on Housing Data

The U.S. stock markets had a pullback today on disappointing Existing Home Sales data. The Dow dropped 56 points, the S&P lost 12 and the Nasdaq ended the day 15 points in negative territory.

Treasury bonds finished higher today, as traders are still fearful of the housing market. The 10-year Note yield dropped 5 basis points from last week to close with a yield of 4.58%.

The Existing Home Sales figure was the big news on Wall Street today. Although the number came in near expectations, it still wasn’t a cause for celebration. The inventory of unsold homes hit a 16-year high, meaning that at the existing rate, there is a nine month supply of unsold homes on the market.

In overseas trading, the Nikkei gained .32% while the Hang Seng added 2.86% in its last trading session.

Tomorrow, we look forward to Consumer Confidence, as well as the FOMC minutes.

Economic Data Scheduled for Tuesday, August 28, 2007

(All times in U.S. Central Time)

U.S.
9:00 AM: Consumer Confidence for August (Consensus 104.5)
1:00 PM: FOMC minutes from August 7th meeting

Great Britain
None

Canada
None

European Union
3:00 AM:(Germany) IFO-Business Climate for August (Consensus 105.2)

Japan
None

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NASDAQ Refuses to Budge

While the Dow dropped 50 points and the S&P lost 6, the NASDAQ refused to give in to the bears today, closing with a 2-point gain. Bonds had another positive day, as the 10-year Note finished with a 4.51% yield.

Initial Claims surprised traders today with a 334,000 post versus expectations of only 320,000. The help wanted index, however, came in right at expectations at 25.

Traders will be anxiously awaiting comments from Federal Reserve Chairman Ben Bernanke tomorrow, in addition to Personal Income, Personal Spending, and PMI.

Across the Pacific, the Nikkei closed up .88% and the Hang Seng ended its last trading session ahead by 2.02%.

Economic Data Scheduled for Friday, August 31, 2007

(All times in U.S. Central Time)

U.S.
7:30 AM: Personal Income for July (Consensus 0.3%)
7:30 AM: Personal Spending for July (Consensus 0.3%)
7:30 AM: Core PCE Inflation for July (Consensus 0.2%)
8:45 AM: Chicago PMI for August (Consensus 53.0)
9:00 AM: Factory Orders for July (Consensus 3.0%)
9:00 AM: University of Michigan Consumer Sentiment for August (Consensus 83.0)

Great Britain
4:30 AM: Gfk Consumer Confidence for August (Consensus -7)

Canada
None

European Union
4:00 AM: Consumer Confidence for August (Consensus -2)
4:00 AM: Unemployment Rate for July (Consensus 6.9%)
1:00AM: (Germany) Retail Sales for July MoM (Consensus 0.5%)

Japan
None

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Stock Indexes Higher as President Attempts to Help Subprime Mortgage Holders

Stock Index Futures: Sharp gains are seen in U.S. Stock Index futures market this morning, as President George Bush will announce a plan to help subprime mortgage holders. It is believed the President will allow the Federal Housing Administration to guarantee loans for borrowers who are delinquent, which should help to avoid foreclosure and even allow refinancing of the loans at more favorable terms. Index traders are reacting positively to the news, as it should help ease the recent credit crunch brought on by the subprime loan situation. In early trade, September e-mini S&P 500 futures were trading at 1477.75, up 16.25.

Treasury futures: President Bush’s plan to help subprime mortgage holders is doing no favors for Treasury bulls, as traders start to price in a reduced chance of multiple Federal Reserve interest rate cuts. The short end of the yield curve has been particularly hard hit this morning, with December 2-year Note futures trading lower by 0-0850, at 102-3150.

Wheat: The historic $8 per bushel level didn’t put up much of a fight in overnight trade, as Chicago Wheat prices stormed to another new all-time high price of $8.07 ¾ for the December contract. With below-average production from most of the world’s leading Wheat exporters, world Wheat ending stocks are expected to be at 26-year lows for the 2007-08 marketing year. Now traders are starting to fear that dry conditions in Australia and Argentina – both among the Southern Hemisphere’s leading Wheat producers – will cut yields there as well. India’s State Trading Corporation is tendering for a large amount of Wheat, with some analysts believing India may be in the market for as much as 700,000 tons. Paris million Wheat futures also made new-all time highs this morning, rising by 7% to 272 Euro per ton. At the end of the overnight session, December Chicago Wheat was trading at $8.05 ¼, up 20 ¾ cents.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Friday, August 31, 2007

(All times in U.S. Central Time)

U.S.
7:30 AM: Personal Income for July (Consensus 0.3%)
7:30 AM: Personal Spending for July (Consensus 0.3%)
7:30 AM: Core PCE Inflation for July (Consensus 0.2%)
8:45 AM: Chicago PMI for August (Consensus 53.0)
9:00 AM: Factory Orders for July (Consensus 3.0%)
9:00 AM: University of Michigan Consumer Sentiment for August (Consensus 83.0)


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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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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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$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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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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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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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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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)

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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 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

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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

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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)

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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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Employment Figures in the Spotlight for Bond Traders

Treasury Bond futures are trying to make a comeback after the pounding they took just two weeks ago, as equities recovered and the yield curve steepened to deliver a one-two punch to reeling Bond bulls! Traders now turn their focus to this Friday’s release of the September non-farm payrolls report. This morning, outplacement firm Challenger, Gray & Christmas announced that U.S. corporations cut 71,739 jobs in September, down 9.7% from the prior month. Also out later this morning is the employment estimate from ADP, which is expected to show that U.S. payrolls – excluding government hires – rose by 80,000 jobs last month. Any signs of a recovery would normally weigh on Bond prices, as signs of stabilization in the U.S. economy may allow the Fed to ease off the gas pedal and start to reassert its focus on fighting inflation. Should the recent recovery in Bond prices stall, some technical traders look for the possibility that a head and shoulders top might be forming on the daily charts. If so, the days of relatively low long-term interest rates might be on the wane.

Looking at the daily chart for December Bonds, we notice the recent rally off the 9/20 lows starting to stall near the 20-day moving average. The ADP payrolls estimate was just released, showing a gain of 58,000 jobs in September. Bond traders showed little reaction to this news, with only a slight sell-off seen in Bond futures just after the release. The 14-day RSI is moderately strong, with a current reading of 60.16. 112-10 is seen as near-term resistance, with support found at the 50-day moving average near 110-30. In early trade, December Bond futures are trading at 111-31, down 0-01.

Mike Zarembski, Senior Commodity Analyst

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Factory Orders Peak Traders’ Interest Ahead of Tomorrow’s Payrolls Report

Ten-year Notes: Interest rate traders are focused on tomorrow’s September non-farm payrolls report, but will have to digest what is expected to be a weak U.S. factory orders report first. The Commerce Department is expected to announce that factory orders in August fell 2.8%, according to a Bloomberg survey of economists. This compares to a 3.7% rise in July. In early trade, December Ten-year Note futures are trading at 109-105, down 0-045.

Copper: After a run to contract highs yesterday, December Copper is giving back some of its recent gains this morning, as officials of Southern Copper Corp. agreed to meet with workers at its Peruvian mines to try to settle the strike that started on October 2nd. Traders should expect trading to remain light in coming days, with China – the world’s largest consumer of Copper – on a weeklong holiday. In early trade, December Copper is trading at 373.20, down 2.15.

Euro Currency: December Euro Currency futures are little changed, as traders await an announcement by the European Central Bank on interest rates. The ECB is expected to leave rates steady at 4%, dashing hopes for a 25 basis point increase due to credit market concerns. In early trade, December Euro Currency futures are trading at 1.4127, up 0.001.

Mike Zarembski, Senior Commodity Analyst

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All’s Quiet Before the Payrolls Report

S&P 500 futures: There is a slight bid on e-mini S&P 500 futures this morning, as traders gear up for a rebound in non-farm payrolls in September. Expectations are for payrolls to have increased by 100,000 jobs in September, a sharp rebound from the loss of 4,000 jobs in August. However, many believe that an increase in government jobs will account for the bulk of any rise, as private sector job growth lags behind. In early trade, December e-mini S&P 500 futures are trading at 1556.25, up 4.00.

Dollar Index: December Dollar index futures are trading moderately lower, as traders look for the unemployment rate to rise by 0.1% to 4.7% in today’s jobs report. Traders expect the manufacturing, construction, and financial services sectors to be a drag on employment, keeping alive the possibility of further interest rates cuts in the remaining weeks of 2007. In early trade, December Dollar Index futures are trading at 78.280, down 0.100.

Treasury futures: After closing near the highs of the session yesterday, Treasury futures are moderately lower as traders await the non-farm payrolls report. Average hourly earnings are expected to increase by a moderate 0.3% – the consensus figure for almost every month. If the report shows a bigger increase in wages, Treasuries may be on the defensive as wage inflation creeps back into the spotlight. In early trade, December Ten-year Note futures are trading at 109-180, down 0-02.

Mike Zarembski, Senior Commodity Analyst

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What Credit Crunch?

Copper: Copper futures are bucking negative news this morning to move higher in early trade. Workers for Southern Copper Corp. ended their weeklong strike after agreeing to let the government set wages. In addition, LME Copper stocks rose by 1,775 metric tons this morning. However, fund buyers took advantage of an earlier price dip to purchase Copper. 3-month Lead futures made a new all-time high of $3,860 per ton this morning. In early trade, December Copper is trading at 366.75, up 4.35.

Two-year Notes: Yields on Two-year Notes continue to rise, as the risk premium for buying Treasuries wanes. Also affecting yields was the reaction to the release of the Fed minutes from its September 18th meeting, which gave no indication that interests rates will be cut again after the 50 basis point reductions last month. In early trade, December Two-year Note futures were trading at 103-0600, down 0-0100.

Japanese Yen: December Yen futures continue to hover near 8-week lows, as traders re-establish so-called “carry trades.” Risk appetites appear to have increased, as traders look for higher-yielding assets in which to invest their borrowed funds. However, Yen futures continue to hover just above the 100-day moving average at 0.8556, which should act as support. In early trade, December Japanese Yen futures were trading at 0.8584, down 0.0020.

Mike Zarembski, Senior Commodity Analyst

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Bernanke Rocks the Market

e-mini S&P – Comments by Ben Bernanke yesterday sucked the life out of equities in the early going and the market was unable to recover, with the S&P posting a second consecutive day of double-digit losses. The Fed Chairman warned investors that while the Central Bank’s rate cuts will help the economy, the Fed cannot “insulate investors from risk,” and noted that the slumping housing sector is likely to continue its drag on the economy. DataQuick Information Systems also released data showing that southern California home sales declined by nearly 30 percent in September, with the lowest number of units sold since the company began tracking housing data in 1988. The market will have more housing data to digest with today’s release of Housing Starts and Housing Permits at 7:30 AM CST. The figures are expected to come in at 1.285 and 1.3 million, respectively, both down from August. Also hitting the newswires, Citigroup, JPM and Bank of America announced that they have set up a rescue fund of sorts to bail out global credit markets at the behest of the Treasury Department. The fact that such a fund was set up probably adds more fear than comfort to the marketplace, at least among small investors. The spike in Crude Oil prices has also weighed on the market in the first two days of trading this week. Technically, the December e-mini continues to stay in an uptrend, but the close below the 18-day MA may signal that a near-term high is in place. The RSI and slow stochastics are both in neutral territory, which leaves room for more downside before the market ventures into oversold territory. Support comes in at 1530.00 and 1500.00, while resistance can be found at 1566.00 and all-time highs of 1586.75.

Wheat – Wheat finished lower overall, but did bounce back late in the day to avoid a technical breakdown. Lack of positive fundamental news seems to have taken the wind out of the Wheat market's sails, leading to this most recent wave of selling. Unwinding of long Wheat / short Corn spreads after Friday's supply and demand report and continued profit-taking helped push things to the downside, even as traders have largely shrugged off the news that heavy rains have set back early winter Wheat planting. December Wheat held above the critical 830 mark, which if violated would have confirmed a head and shoulder reversal pattern. Wheat found solid support around 815, which also happens to be in the neighborhood of the 50-day SMA, and the strong close formed a bullish hammer, which may give Wheat a slight bullish short-term technical bias. The momentum indicator showed almost no change from the previous trading session and registered a bearish -40.50. Both the RSI and slow stochastics are showing oversold levels, which could give the market a lift. Support comes in at 815 and the 38.2 Fibonacci retracement support of 765.25, while resistance can be found at recent highs of 890 and 911.25.

10-year Notes – The treasury markets have retreated since the surprise rate cut in August drove 10-year Note yields down to 21-month lows of 4.3 percent. Traders have been reluctant to jump into the treasuries despite credit fears and weakening economic indicators. This hesitance has been based on a number of wildcard factors, including inflation fears stoked by rising energy prices and the growing belief that the Fed may shift gears and raise rates. Last Friday's PPI data showed contained inflation, but traders are looking for follow-through in this morning's CPI release. The housing report may not make much of an impact on the market unless there is a huge surprise one way or the other. December Notes have weakened technically, with prices trading below the 50-day SMA for the over a week. A close below 108-00 may spark selling and trigger stops. Support can be found at 108-00 and 106-13, while resistance comes in at 109-06.5 and 109-30.

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More Fed Watching

Dow Jones – Stocks mounted a comeback in late trading yesterday, as optimistic traders hoped that the Fed would once again slash rates at the end of the month. Housing starts were at the lowest levels in 14 years, and the CPI report showed that inflation is tame for the time being. Meanwhile, S&P also downgraded a host of sub-prime debt last year. The release of the Fed's Beige Book – which showed slower growth in the 3rd and 4th quarters – really sparked the equity markets late in the day. All of this unimpressive economic data leads many to believe that the Fed will take action, especially given Ben Bernanke's recent comments about the housing sector being a drag on the economy and the inability of the Fed to insulate investors from risk. The late rally stopped what could have been a technical breakdown on the December Mini-Dow chart yesterday, as the market was able to hold above support at 13830. Momentum is showing positive divergence from RSI, suggesting a possible recovery in the coming days. The RSI is showing oversold levels in early trading, which may be a prelude for a Friday bounce. Traders will keep an eye on the 9 and 18-day SMA, which are very close to crossing on the downside. Support comes in at 13830 and 13550, while resistance can be found at 14085 and 14237.

Bonds – The Bond market was strong yesterday and in overnight trading, as disappointing economic data keeps rolling in. Bonds have not been the defensive play recently because of a weak greenback and investors choosing to look elsewhere – mainly commodities – to address their inflation concerns. The weak Dollar has played a key role in all of this, with large treasury market players China and Japan seeking alternatives. The belief that a rate cut is coming and fresh sub-prime fears in the minds of fixed income traders have boosted December Bond prices by more than a point and a half over the last two days. December Bonds also have some positive technical factors going for them. The slow stochastic indicator showed an upward crossover, and the momentum indicator has outpaced the RSI. Also, the market looks as though it may be confirming a breakout from the wedge pattern it has been forming since the beginning of September, which could push prices above recent highs of 114-08. Support comes in at 111-05 and 110-00, while resistance comes in at 112-10 and 113-00.

Coffee – Coffee is trading lower overnight on weak technicals and ample rains in Brazil. Brazil is forecast to receive light to moderate rainfall, which will aid budding in the new crop. Forecasts for two cold fronts expected to hit the growing region within the next week and a half helped to slow the price decline yesterday. With neither front expected to be particularly severe, traders have opted to take profits and adopt the wait and see approach before reacting. Technically, Coffee remains weak and is currently trading below the 128.00 support area. Traders are paying attention to the key 125.00 support area which if violated could send prices below 120.00, possibly toward the mid-teens. Resistance can be found at 133.25 and 138.50. Momentum stands at a weak -1.80 and the RSI is a neutral 36 percent coming into trading. The RSI has dipped into oversold territory, suggesting that the decline may stall or even get a bounce at 125.00.

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Techs save the day

E-mini NASDAQ – Stocks rebounded mid-session, as investors flocked to the tech sector as a safe haven of perceived strong earnings going forward, especially with the Christmas shopping season nigh. After the close, tech heavyweights Apple and Texas Instruments both posted earnings that topped street estimates, with Apple blowing away estimates of $0.86 a share with a $1.01 post. Banking shares managed to rebound somewhat on news that Bear Stearns has forged a strategic alliance with a Chinese bank to get a stronger foothold in the lucrative Chinese investment banking sector. The FDIC warned that the subprime squeeze will get worse before it gets better, with the number of resetting ARM mortgages expected to peak in the second quarter of next year. There are now rumblings that the credit card and auto loan industries will be the next to feel the pinch, as home mortgages are generally a priority over other debt for consumers. Unlike the broader market, the NASDAQ mainly looks technically sound, not backing down from recent highs and trading above the major moving averages this morning. Momentum remains strong at a healthy +92.00 and the RSI is neutral at 44 percent. Support comes in at 2125.00 and 2075.00, while resistance can be found at 2175.00 and 2200.00

Crude Oil – Crude Oil dropped for the second consecutive session as traders took profits. Turkey has reiterated plans to invade the Iraqi Kurdish region, with the Turkish prime minister recently commenting that no foreign power (read: the U.S.) will dictate what the nation does in its own security interests. What remains to be seen is the scope of the conflict. In addition to Turkey and Iraq, heavily Kurdish regions exist in Iran, Syria, and Armenia, which could also be drawn into a conflict. On the fundamental front, Crude Oil inventory data has been bearish recently, and many traders are looking for another build in Wednesday EIA report. A slowing economy could weaken demand, and traders still have Chinese industrial production on tap later this week. December Crude Oil is showing overbought readings on both the RSI and slow stochastic indicators, which suggests that the market will either labor going higher or may break down a bit. Momentum is very strong at a robust +5.76 coming into trading and the indicator is showing very slight bullish divergence from RSI. Support can be found at 84.75 and 82.45, while contract highs at 88.49 may act as resistance.

Bonds – The treasury markets took a pause yesterday to cool off after December Bonds gained almost three points over the prior three trading sessions. There was some profit-taking yesterday, and many traders were reluctant to add to their positions ahead of the FOMC meeting next week. Bond traders may also be reluctant after several failed rallies over the past year. The FDIC warning over subprime debt helped he market avert a broader sell-off, but Bonds have not felt their classic “flight to quality” effect recently due to the weaker Dollar. Bond technicals could also be blamed for the pause yesterday, as the market is extremely overbought on the RSI and slow stochastics, with the stochastics close to crossing over to the downside. Yesterday's indecision led to a spinning top pattern, which suggests some negative short-term bias. Support comes in at 112-10 and 111-13, while resistance can be found at 113-16 and 114-08.

Commodity Analyst, Rob Kurzatkowski

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Treasury Safety Net

Bonds: Bonds rallied toward early-September highs on Merrill Lynch’s subprime write-downs and a home sales report that showed the housing market reeling. The Merrill news sent stocks lower on the open after the company reported a staggering write-down of $7.9 billion, with just under $21 billion of mortgage-based debt outstanding. Existing home sales dropped an eye-popping 8 percent, almost double consensus estimates. Certain key higher-priced real estate areas – namely the Northeast and Southern California – were hit especially hard due to the inability of purchasers to get approval for jumbo loans. Fed Governor Kroszner, speaking before the House Financial Services Committee, stated that mortgage reform should not hurt the mortgage securitization sector. This is setting up an investor versus homeowner showdown in which neither side, or the overall economy, will benefit. Laws enacted to protect consumers would, in all likelihood, lead to a devaluation in mortgage-backed debt resulting in further write-offs of bad debts and, ultimately, more difficulty for homeowners seeking financing. On the other hand, leaving borrowers without a safety net could cause more damage over the long haul, given the fact that the number of loans resetting will not peak until the second quarter of next year, at which time a record number of foreclosures is possible. Government debt could act as a safe haven for investors, provided inflation remains low. The market came close to its September 10th highs, but traders were reluctant to push prices higher ahead of the FOMC policy meeting next week. Fed Fund futures have priced in a 100 percent chance of a rate cut, leaning toward a quarter point. Technically, December Bonds look bullish on the daily chart, but the market is very overbought at the moment. The overbought conditions and Fed uncertainty may be setting the stage for some consolidation or possibly a small retreat. Last week’s breakout from a descending triangle is measuring a move to 116-00. Momentum remains strong, coming in at +3-06. Support can now be found at 113-00 and 112-10, while resistance comes in at 114-08.

Crude Oil: Petroleum traders got a shot in the arm today from the weekly inventory numbers. Crude Oil imports slowed by over a million barrels a day over the last week, and ending stocks were down over 5 million barrels versus estimates of a million barrel rise. Distillates also surprised, as Gasoline inventories fell by almost 2 million barrels versus estimates of a 1 million barrel rise, and Heating Oil and Diesel showed a draw of 1.85 million barrels. Turkey was said to have hit Kurdish targets along the Iraqi border, pushing the market higher prior to the EIA and DOE releases. Fundamentally, Crude is trading well above where supply and demand would dictate, and the recent Turkish crisis has combined with commodity and hedge funds putting fresh money into the market to push prices toward the $90 mark. For now, any new developments – positive or negative – in regard to the Iranian nuclear program and/or Turkey-Kurd crisis could affect prices violently. December Crude made new intraday highs overnight, reaching 88.99. Momentum showed some bullish divergence from the RSI and price over the past three days, suggesting upside technical bias. December Crude is at overbought levels, which could hamper rallies. Support comes in at 84.85 and 82.50, while resistance may be found at 90.00.

Copper: Copper suffered another day of losses yesterday on the poor global economic outlook. The disappointing housing data kept prices from rallying with the rest of the precious metals market. Copper has followed Crude Oil and Gold higher this morning, as the U.S. Dollar continues to flounder and equities recover. China did increase its own output of the base metal by 24 percent on the year and all is quiet on the labor front, which could hold back price advances. After confirming a double top, the market has broken down, but has yet to reach the measured move of 20 cents from the breakout. Momentum continues to lag behind both price and RSI, suggesting that more downside may lie ahead. Support comes in at 341.00 and 339.00, while resistance can be found at 357.50 and 361.50.

Rob Kurzatkowski, Commodity Analyst

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Supply Concerns Keep Crude on the Move

Crude Oil – Crude Oil continues to climb this morning on news that Mexican production in the Gulf of Mexico is expected to drop by 600,000 barrels a day due to a storm. Friday, gunmen kidnapped oil workers in oil-rich Nigeria – the second attack in less than a week. Traders are genuinely concerned about supply for the first time in a long time due to the sharp drop in weekly Crude Oil inventories and a suggestion that OPEC isn't making good on its pledge to increase output by 500,000 barrels a day beginning in November. Geopolitical tensions remain unchanged, with Turkey continuing to battle Kurdish rebels and Iran thumbing their nose at the rest of the world with regards to the country's controversial nuclear program. Crude Oil continues to follow through on the bullish flag pattern confirmed on Thursday. The market is giving overbought readings on the RSI and stochastic indicators, but this has done little to slow the market given all of the outside fundamental factors. Momentum is climbing and showing bullish divergence from RSI, suggesting this rally may not be short-lived. Support comes in at 88.50 and 85.00, while resistance may be found at 95.00 and 97.50.

S&P – Index futures are higher again this morning on expectations that corporate earnings will remain strong. The focus has been the booming tech sector and petroleum companies, who figure to benefit from rising Crude Oil prices. Traders are looking to the Fed to slash interest rates on Wednesday, with the focus on how much – not if – the central bank will lower rates. The market shrugged off very disappointing economic data last week with the thinking that earnings will remain strong through early next year, at which time the interest rate cuts should make their way through the economy. The December e-mini S&P is trading just below the key psychological 1550.00 mark, and a solid close above the level could bring more buyers into the market. A close above1550.00 would also push the market above all major moving averages for the first time in over two weeks. Momentum is showing bearish divergence from RSI, which suggests that the recent rally may begin to fade. Support comes in at 1525.00 and 1500.00, while resistance can be found at 1550.00 and 1573.50.

Bonds – Bond futures are slightly lower in quiet trading this morning, as traders await Wednesday's Fed decision. Bond traders have been optimistic about the upcoming FOMC meeting, with many now expecting a half point cut. The reason for this optimism is that the FOMC has been seen as very consumer conscious, and housing has clearly been on the Board's mind. This type of thinking could be setting fixed income traders up for a letdown, with the central bank likely sticking to quarter point cuts to stave off inflation. A half point cut may be too much for Bond traders as well, as the Dollar would likely plummet, which would decrease demand for USD-denominated investments, including treasuries. December Bonds failed to advance beyond early September highs and the market remains overbought, even after a third consecutive negative session. Momentum has been flat to lower and has been moving in lockstep with the RSI indicator. The market has found some support in early trading at the 9-day moving average. Support comes in at 112-10 and 111-13, while resistance comes in at 113-20 and 114-05.

Rob Kurzatkowski, Commodity Analyst

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Early Indecision

10-Year Notes – Treasuries got a lift last week from weaker economic data, a Fed rate cut and subprime woes that began to seep from brokerage and investment banking into commercial banking as well. The "flight-to-quality" effect may be short-lived in 5- and 10-Year Treasury Notes, however, as both domestic and overseas funds have poured into these offerings, which may curb further advances. A weak Dollar could also curb overseas demand for U.S. investments, likely leading traders to shift funds into physical commodities. With the departure of Citigroup's Charles Prince, two major banking executives in as many weeks have become casualties of the recent mortgage downturn. With more disclosures likely in the coming weeks and months, treasury prices may find further support, even if the Fed opts not to lower rates at its December meeting. Last week's decision to cut rates by a quarter point seemed forced on the Fed to keep the markets happy, and the one dissenting vote makes future cuts no sure thing. December Notes broke out to new highs, but the market is trying to test the newly established 111-00 support area in early trading. Short-term direction may be difficult to predict given the conflicting technicals, with slow stochastics showing overbought levels, but momentum continuing to show bullish divergence from RSI. Support comes in at 110-25 and 110-00, while resistance can be found at 111-25 and 112-07.

Crude Oil – Crude Oil is slightly lower overnight as tensions ease between Turkey and Kurdish rebels. The Kurdistan Worker's Party freed eight Turkish soldiers captured last month and Turkish Prime Minister Erdogen is meeting with President Bush to discuss the conflict. The Dollar is weaker this morning, which has kept the losses modest. The slumping greenback has helped catapult Crude Oil and commodities in general, due to lower cost and inflation concerns. The drop in supply over the last few weeks has opened some eyes, but reserves remain within the 4-year average. Crude Oil remains strong technically, and the chart has not shown any indication of a reversal unfolding. The market remains overbought, which could slow upward momentum. Support comes in at 93.70 and 90.00, while the market may run into resistance at 96.00 and 100.00.

E-mini S&P – Stocks will start the week in negative territory on continued subprime concerns. The Citigroup board is bringing former Treasury Secretary Robert Rubin in to help right the ship and send a strong message to investors. It could also be interpreted as a message that troubles in the subprime sector are here to stay for some time. Large commercial banks like Citi could be hit especially hard in the second quarter of next year when ARM loans peak, as borrowers delay or renege on payments for auto and credit card loans. The December e-mini S&P broke down last week, despite closing above the 1550 resistance area on Wednesday. Momentum is beginning to show positive divergence from RSI, suggesting some short-term upward bias. The ESZ07 is currently trading below the 9-, 18-, and 50-day moving averages and further weakness could bring a downward crossover of the 18- and 50-day averages, which would be bearish longer-term. Support comes in at 1500 and 1460, while resistance can be found at 1525 and 1550.

Rob Kurzatkowski, Commodity Analyst

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Bulls Cast Their Vote With the 10-Year Note

The 10-year Note recovered today from a pullback over the last couple of sessions. On Monday of last week, the Fed hinted that a rate cut might be coming at its December meeting, sending stock prices higher. However, Bonds didn’t follow suit, perhaps because there was so much money going into the stock market that had to come from somewhere – namely Bonds. A second potential reason is that the 10-year market was on such a hot streak that it needed a pullback and last week was it.

On the chart, we see that prices have been above both the 15- and 25-day moving averages for almost a month, and haven't touched the 25-day line since mid-October. This market has been on fire lately for the bulls – from a technical standpoint, sustainability is the main question at the moment.

But other questions need to be asked:

The Fed certainly plays a big part in this, but how much of this rumor has already been priced into this market?

If the Fed does indeed make a move, how much more will it move rates either up, down or sideways?

Will the continued subprime problems attract investors to a "safe haven?"

How much longer will real estate investors wait to come into the market, considering the housing slump has been the main driver of the rate cuts in the first place?

Mike Tosaw, Director of Education

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OPEC Indecision

Crude Oil – Crude futures are slightly lower this morning, with traders reluctant to make a move before the December 5th OPEC meeting. There is a great deal of indecision among analysts on what the next move by the cartel will be due to conflicting statements and infighting. Yesterday's drop in the USD contributed to a late rally after trading lower for much of the day. Today figures to be another choppy, indecisive trading session ahead of the OPEC meeting and next week's FOMC policy statement. January Crude managed to hold above the 50-day, after flirting with the moving average in early trading. The 9 and 18-day averages did cross over to the downside, which can be seen as bearish in the intermediate term. Momentum is showing some bullish divergence from the RSI, which suggests a slight upward bias in the near-term. Support comes in at 87.85 and 85.00, while resistance can be found at 90.00 and 93.05.

Bonds – Bond futures continue to trend higher on continued financial worries. There are worries that the Bank of Scotland may be the newest victim of the recent credit trap. Also, there are concerns that consumers with good credit may be impacted by the subprime crisis. The recent move higher, despite a rebound in the stock market, suggests that fixed income traders are betting on a rate cut next week and not next month from the Fed. Yields are currently at the lowest levels in over 3 years. March Bonds seem to be breaking out of recent congestion in the early going today, and the next major test for the market may be the 109-00 mark. Momentum is showing bullish divergence from the RSI, suggesting bullishness in the near-term. Support comes in at 117-25 and 117-00, while resistance can be found at 118-30 and 119-14.

Wheat – March Wheat edged lower for the second consecutive day in a very choppy trading session. The bullish news that Argentina and Russian may have tight export supplies and the poor growing weather across the southern plains in the US was tempered by lackluster export data, which may be attributed to the slight rebound in the USD. New crop futures finished lower for the first time in a week, and spreads between old crop and new crop may widen as farmers try to capitalize on higher grain prices. The International Grain Council projected that the 2008-2009 Wheat stocks will rise after three consecutive years of output lagging behind demand. March Wheat (old crop) rejected advances above the $9 mark last week. This could be a bearish signal for the market, although March futures seem to have found solid support in the 860 area. The market is currently overbought, after making a solid run since mid-November, which suggests a negative to sideways bias for the market. Support comes in at 860 and 825, while resistance can be found at 900 and 950.

Rob Kurzatkowski, Commodity Analyst

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Heating Oil Cools Down

Heating Oil – Heating Oil futures followed Crude Oil lower on the strengthening U.S. Dollar and economic uncertainty after a disappointing U.S. housing report. Turkey withdrew troops from northern Iraq after a brief incursion, which also helped spark the late sell-off. Weather models are forecasting warmer-than-average temperatures over the next month, which should keep demand for Heating Oil soft, but inventories at the lower range of seasonal averages have been more than enough to offset the weak demand. Today's inventory figures are expected to show a drawdown of 400,000 barrels of distillates. January Heating Oil has found support at the 2.54 mark in early trading, but the market has fallen below both the 9- and 18-day moving averages, which suggests a negative near-term bias. The close below the 18-day may be more significant, as it could indicate that a near-term high is in place. Momentum is beginning to fall at a brisker pace than the RSI, offering further evidence of a negative predisposition. Support comes in at 2.5100 and 2.4450, while resistance can be found at 2.5915 and 2.6700.

Wheat – Wheat futures dropped a day after climbing to record highs on a rebounding greenback and falling energy prices. Global stocks remain at the lowest levels in over thirty years, but recent rains across the winter Wheat-growing regions may improve crop conditions, a possibility which helped trigger a late sell-off. The rebound in the U.S. Dollar also adversely affected the grain markets, as did the drop in the petroleum sector, which led to widespread weakness in commodity prices. Early weather models are suggesting another dry year across much of the summer growing region in 2008, which may offset some the high planting projections. Much of the selling pressure seen over the past two days can be attributed to profit-taking and the generally overbought conditions in the market. March Wheat failed to establish support at 960, leading to a short-term negative technical bias. Momentum has moved lower over the last two trading sessions, but remains robust. Support comes in at 940 and 911, while resistance can be found at 980 and contract highs of 1009.50.

Ten-Year Notes – Fixed income futures got a boost from the weak housing figures, as traders hoped the data would force the Fed's hand in lowering rates. The rebound the market has seen over the past three trading sessions may be a bit of an aberration, as further rate cuts would be needed to support higher prices. The treasury markets have not experienced the “flight to quality” effect that we have seen in the past due to overseas investors' reluctance to acquire debt instruments until the Dollar shows more stability. There is also no indication that the Fed will abandon its new plan to inject liquidity into the banking sector directly, instead of via the broader market. Steep declines in the equity markets and commodity weakness may bring buyers back to the market. March Notes saw a reversal pattern develop as a result of Monday's trade, but what remains to be seen is whether this is a longer-term recovery. Despite the market trading higher for the third straight day, momentum is falling, suggesting a negative near-term outlook. Support comes in at 112-04.50 and 111-23.50, while resistance can be found at 113-05.50 and 113-29.

Rob Kurzatkowski, Commodity Analyst

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Energy Traders Eye Inventory Figures

Crude Oil – Oil futures are higher ahead of this morning's EIA inventory report, which is expected to show a drop of 2 million barrels for the week. After falling sharply over the past two months, inventories are expected to be at their lowest levels in three years. Militants in the Oil-rich nation of Nigeria have threatened attacks, adding to the already strong buying interest. It appears that the extremist group may be targeting the nation's Oil supply according to communications from the group's leader. The drop in U.S. inventories over the past two months has offset slower demand amidst the glacial economic pace of late. February Crude remains bullish on the daily chart, but the market may be at a turning point. Rallies above the $98 mark could spur buying activity, while sell-offs below support at $95 could trigger stops and increase the speed of the correction. Momentum continues to outpace the RSI, which is bullish in the near-term. Support comes in at 95.21, 94.09 and 92.93, while resistance may be found at 97.49, 98.65 and 99.77.

S&P – Stocks are looking to recover this morning after suffering yet another setback yesterday. The e-mini S&P has only been able to close in positive territory once this year, and even that was a meager gain of just 0.25. Yesterday's pending home sales figures were much worse than expected – coming in at -2.6 percent versus expectations of -0.6 – hinting that the housing slump may be far from over. The market was looking for a weak figure to force the Fed's hand in lowering rates, but the size of the decline irked many traders. Rumors that Countrywide may be declaring bankruptcy – vehemently denied by the company – sent the markets tumbling late in the day and underscored the uncertainties that remain in the credit markets. Consumer credit came in much higher than expected, which puts the Fed in an interesting predicament. Consumers are racking up debt at breakneck speed, which, along with inflationary commodity prices, gives the central bank a disincentive to lower rates. On the other hand, economic figures are increasingly ominous, indicating a need for lower rates. Fed fund futures point to a 31 percent chance of a quarter point rate cut and a 68 percent chance of a half point cut. March e-mini S&P futures closed below support at 1420, suggesting the market may see continued selling pressure in the near-term. The RSI and stochastic indicators are somewhat supportive for the market, currently showing oversold conditions. Support comes in at 1380.75, 1364.50 and 1336.00, while resistance may be found at 1425.50, 1454.00 and 1470.50.

Bonds – Bond futures are slightly higher this morning, supported by uncertainty in the equity markets. Due to the poor performance of stocks in recent weeks, fixed income products and commodities have seen strong capital inflows in a flight-to-quality scenario. Bonds may see selling pressure in the coming weeks if commodity prices remain strong, due to inflation concerns. Something will have to give, as these markets typically have an inverse price relationship and the correlation seen over the past several weeks has been atypical. March Bonds are overbought on the daily chart, but momentum remains strong nonetheless, signaling the possibility of more upside. Prices are approaching late November highs, which may bring consolidation or a small correction. Yesterday's price action formed a spinning top candlestick, signaling a possible short-term reversal. Support comes in at 117-22, 117-02 and 116-16, while resistance may be found at 118-28, 119-14 and 120-02.

Rob Kurzatkowski, Commodity Analyst

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Surprise Rate Cut Buzz is Short-Lived

Dow – Continued economic uncertainty and a downward earnings estimate revision from Apple have pushed stock index futures lower pre-open. Yesterday’s surprise three quarter point rate cut from the Fed managed to temporarily soothe investors’ worries, but many traders viewed the move as several weeks too late. Stocks tumbled in Europe, as central bankers at the Bank of England and European Central Bank only hinted at future rate cuts while traders were banking on similar emergency action from the two. Today will likely be another volatile session, compounded by the fact that there are more big names – Motorola, eBay, Pfizer and General Dynamics among them – reporting quarterly earnings. There has been some pre-market chatter suggesting that all of the previously mentioned companies may post disappointing figures or revise future earnings downward. The panic selling seen yesterday caused the March Mini Dow to break through near-term support. The cash index fell below the key weekly support area of 12,100, which would be seen as bearish over the near term if the market is unable to rally beyond the figure. One positive that can be taken from yesterday’s sell-off is that the cash Dow did come close to reaching the downside target of the head and shoulders pattern created on the weekly chart. The move suggests that the market may be in store for more of a harsh, quick correction than an extended slump. Support comes in at 11500 and 11250, while resistance can be found at 12400 and 12550.

Sugar – The Sugar market has been on the same wild ride as stocks in recent days. After spiking as high as 13.09 in the March contract, the market has since dropped 150 points. The ICE exchange restricted a large Sugar trading company from Brazil from placing orders, which led to some panic selling as rumors swirled of a large block sell order. Fundamentally, world supplies of the sweetener remain on the high side, suggesting that the recent upward move may have been due to “hot money” entering the market and needing to find a home, as well as funds trying to balance commodity portfolios. The extreme volatility the market has seen over the past three sessions seems to have scared away some traders and resulted in a relatively tight range this morning. The pattern on the daily chart suggests a bearish engulfing reversal with wild price moves typically seen in “boom and bust” markets. March futures did manage to hold above support at 11.30, which is somewhat encouraging for bulls. Momentum has taken a sharp turn lower and is continuing to drop even as the RSI has stabilized. Support comes in at 11.30 and 10.75, while resistance can be found at 11.70 and 12.45.

Bonds – The Bond market is sharply higher again this morning, as traders begin pricing in the next rate cuts from the Fed. The three quarter point cut was already partially priced into the market, although it came a week earlier than traders were expecting. Mounting sentiment suggests that fixed income traders are banking on further expansionary policy from the central bank in the near future if the economy does not show some signs of improvement. The treasury market has seen solid inflows of funds due to the sell-off in equities, and further selling in overseas markets could attract further inflows of cash. Traders have been averse to corporate paper and bonds, making U.S. government debt obligations more attractive. Yesterday’s gains signaled a breakout above recent highs of 120-12 in the March Bond contract. Momentum is outpacing the RSI indicator, which points to the possibility of even more upside to the market. March Bonds are now approaching overbought levels, which could inhibit upward price movement and trigger some profit-taking. Support now comes in at 120-12 and 119-07, while resistance may be found at 122-16 and 113-08.

Rob Kurzatkowski, Commodity Analyst

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Big Ben, IMF Report in Focus

Dow – Stocks posted strong gains yesterday, with the Dow recording a gain of over 300 points on a stronger-than-expected ISM number and signs that the subprime fiasco may be nearing an end. Futures have retreated in overnight trading on a lower growth forecast for the U.S. economy from the International Monetary Fund, which reduced its outlook to 0.5 percent for the year. More troubling than the U.S. outlook, however, is the fact that the IMF slashed its global growth outlook to 3.7 percent from 4.1 percent and suggested that there is a one in four chance of a global recession. Today's factory orders report is expected to show a drop of 0.8 percent, which is also weighing on the market early. Traders will focus most of their attention, though, on the testimony of Federal Reserve Chairman Ben Bernanke before the Joint Economic Committee, which is his first such engagement since the proposed financial oversight plan was laid out. The Fed has worked overtime to try to keep banks and the credit markets liquid and his testimony on these subjects will be keenly watched. June mini Dow futures broke out of a sideways-to-lower consolidation pattern on the daily chart and closed above the near-term relative high close. This suggests a possible test of the next relative high of 12722, with a close above this level possibly signaling a longer-term recovery. Support comes in at 12330, 12032 and 11870, while resistance can be found at 12790, 12952 and 13250.

Gold – Gold futures jumped this morning on the IMF report, which signals weakness in the global economy and makes the metal appealing once again as a “safe haven” investment. The report was especially skeptical of the U.S. growth outlook, sending the greenback lower and commodity prices higher. Gold has had its share of struggles recently due to the recovery in the equity markets, which along with a slight rebound in the Dollar has pulled capital away from commodities and led to a collapse in Gold prices. Failure to make further advances in the major stock indexes could result in a recovery in precious metal prices. If economic data continues to surpass analyst expectations and the U.S. economy shows signs of recovery, it could lead to a larger sell-off in Gold, as traders would continue to pull their funds out of commodities and buy equities. Also, this scenario could lead to a larger-scale recovery in the U.S. Dollar, resulting in overseas money leaving the precious metals market. The daily June Gold chart shows a bearish reversal from contract highs, but has not given an indication of bear market conditions to this point. Closes below 860 could signal that the bull run may be over, and sell-offs beyond 830 would signal a technical bear market. Support comes in at 867.50, 847.20 and 818.10, while resistance can be found at 916.90, 946.00 and 966.30.

10-Year Notes – Notes fell sharply yesterday, as money flowed into the equity markets at the expense of commodities and treasuries. The recent rebound in equity prices from lows has put some pressure on Note and Bond prices, leading to sideways congestion on the daily chart. Today's testimony by Bernanke will give traders better insight into the Fed's mindset and may give a clearer picture of what the central bank's interest policy may be in the near-term future. If the testimony is dominated by talk of inflation and recovery, it would likely be seen as bearish for interest rate instruments. On the other hand, if the session is marked by talk of economic uncertainty and the housing and credits crises, it would likely be seen as Bond and Note friendly. Yesterday's close below recent lows of 117-26.5 can be seen as bearish short-term, but June T-Notes have chart support at 117-14, 116-21 and 116-05 to buffer the downside. The 9-day moving average looks to be crossing the 18-day to the downside, which is a bearish signal short-term. Support comes in at 117-01, 116-11 and 115-10, while resistance can be found at 118-24, 119-25 and 120-15.

Rob Kurzatkowski, Commodity Analyst

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Job Contraction

S&P – The March Non-Farm Payroll report showed a loss of 80,000 jobs, underscoring the weakness in the labor market. The report included a downward revision of the February figure from a loss of 63,000 jobs to a loss of 76,000. The unemployment rate surged to 5.1 percent from 4.8 percent the prior month. Stock index futures sold off sharply immediately after the release of the data, but have bounced back to positive territory. While the recovery in the index futures defies common logic, traders may actually be pleased with the report, believing the Fed may continue injecting liquidity via rate cuts. Banking stocks got a boost in pre-market trading, which seems to go along with this mindset. Traders may also have been prepared for the report after yesterday’s large initial claims figure and are now looking beyond the report, hoping for an economic recovery later this year. If the market continues to move higher, the June e-mini S&P may show a breakout from a two-day bull flag pattern. A breakout could signal that the market may be ready to attack early February highs of 1402.50. Momentum continues to outpace both price and RSI, suggesting near-term strength. Support comes in at 1362.75, 1352.00 and 1344.50, while resistance can be found at 1381.00, 1388.50 and 1399.25.

Crude Oil – Oil futures have bounced back after selling spurred by the release of the payroll report. The demand outlook continues to look weak based on the data, but the possibility of a reversal of the recent upturn in the U.S. Dollar is friendly to commodities. The Oil market continues to play off of the currency markets instead of fundamental data. Even though the last two EIA reports were supportive of petroleum prices, the market is well off of highs because of the resurgence of the greenback. The daily and weekly May Crude Oil charts show consolidation and indecision. It is apparent when looking at the chart that there is reluctance to push prices beyond $110 a barrel, but at the same time, bulls seem to step up the buying pressure when the contract flirts with $100 on the downside. A breakout of this congestion will likely determine the direction of the market over the next several months after either the bulls or bears gain a decisive edge. Support comes in at 102.55, 101.26 and 99.32, while resistance can be found at 105.78, 107.72 and 109.01.

Bonds – Bond futures got a lift from the payroll report, as traders flocked to safer investments. While the report can be seen as very Bond-friendly, the implications for the U.S. Dollar may stymie treasury buying from overseas investors. Overall, the report could stop the recent slide in Bond prices. The solid economic data earlier this week hinted toward the Fed possibly pausing rate cuts, or at the very least being less aggressive with them. This report may change that mindset among traders. June Bonds found support at 117-00 and are currently trading above chart resistance at 118-23. Closes above 118-23 and 119-19.5 may be seen as bullish in the near term. Support comes in at 117-05, 116-25 and 115-28, while resistance can be found at 118-14, 119-11 and 119-23.

Rob Kurzatkowski, Commodity Analyst

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Market Googled

S&P – Stock index futures got a lift after Google beat the Street and defied earlier reports that its paid click business was cooling. The company posted profits of $4.84 a share (excluding special items) versus analyst estimates of $4.55 a share – news that sent the company's stock as much as $80 higher in extended hours trading. Citigroup reported a loss of $5 billion for the quarter due to write-downs of $12 billion and a 48 percent decrease in revenues. While the loss of $1.02 a share missed Street estimates of a $0.95 loss, the company will continue to “divest non-strategic assets," according to CEO Vikram Pandit, meaning the company will try to package and sell its more risky investment products. Investors took news of Citi going back to its core business as a positive and shares were higher in European trading. Dampening the relatively upbeat Citigroup announcement, analysts have suggested that Merrill Lynch may need a capital infusion to stay afloat, citing the fact that the company has already used up most of the capital it raised in 2007. With no major economic releases, corporate earnings and option expiration may lead to volatile, choppy trading for much of today's session. June e-mini S&P futures have flirted with near-term highs at 1389 in early trading, but closes above 1402.50 may be needed to spark extended rallies. Momentum is starting to turn lower despite today's rally, suggesting it may be running out of steam. Support comes in at 1362.25, 1352.50 and 1346.25, while resistance can be found at 1378.50, 1384.50 and 1394.25.

Eurodollars – Eurodollar futures are lower for the fifth consecutive session on technical weakness and changes in interest rate outlooks. Interest rate traders have shifted their outlook on Fed policy this week, with the rate cut bias going from half a point down to only a quarter point. With energy and food prices rising at their fastest pace in 17 years, the central bank may be forced to address the inflation issue, meaning less aggressive interest rate policy. The sharp rise in commodity prices can be directly attributed to two factors: tight supplies and a weak U.S. currency. While the Fed can do little to address the first issue, moderation of its recent aggressive rate-cutting policy can lead to stability in the greenback and aid in slowing down the commodity freight train. June Eurodollars broke support at 97.26, which has aided in accelerating the downside move. The next significant chart support areas are found at 96.835 and 96.40, suggesting further declines may be possible. Momentum has begun to move lower at a slower rate that the RSI, suggesting the market may find some stability in the near term. Support comes in at 97.0250, 96.9275 and 96.7925, while resistance can be found at 97.2525, 97.3875 and 97.4825.

Crude Oil – Oil futures are lower this morning on profit-taking and stabilization in the U.S. Dollar. Here too, the possibility that the Fed may begin backing off of its aggressive rate cutting strategy in order to shore up the slumping greenback can be viewed a negative for energy prices. On the other hand, fundamentals have improved recently and the driving season is beginning to approach, making a price collapse in energy prices unlikely in the near term. Technically overbought conditions and lack of fresh news has led to profit-taking over the past two sessions. Momentum remains flat – despite the market being lower this morning – suggesting near-term strength. Support comes in at 114.15, 113.45 and 112.75, while resistance can be found at 115.55, 116.25 and 116.95.

Rob Kurzatkowski, Commodity Analyst

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Pipeline Shutdowns Spark Crude

Crude Oil – Crude Oil futures have pared over a third of yesterday's losses on two major pipeline shutdowns. BP is temporarily closing down the Forties Pipeline System – which supplies the UK with 40 percent of its Oil – due to the work stoppage at the Scottish Grangemouth refinery. Although the stoppage is said to be for only 48 hours, in reality it takes over a week to fully restart a pipeline. Militants in southern Nigeria have also sabotaged one of Shell's major pipelines, marking the second such attack this week. It appeared that the market was ripe for a profit-taking sell-off prior to the news of the shutdowns, but the market seems to keep finding fresh news to push prices higher over the past few weeks. Prices still may ease going into the close given the solid gains this week, which could indeed lead to profit-taking after all. The June Crude Oil chart was signaling a strong reversal possibility prior to today's rally. Yesterday's sharp sell-off followed the inability of the market to post solid gains on Wednesday which, when coupled with overbought levels, seemed to be pointing lower. Now it appears that June futures may continue their uptrend, provided we do not see a sell-off below yesterday's low of 114.25. Support comes in at 114.11, 112.15 and 110.06, while resistance can be found at 118.16, 120.25 and 122.21.

Gold – Gold futures are down once again this morning on the continued recovery in the U.S. Dollar. Investment in the yellow metal has been lackluster over the past several weeks, with investors forsaking commodities in favor of stocks. Traders are now betting that the Fed will at the very least pause rate cuts after next week's policy meeting, which does not bode well for precious metal prices. The rising cost of food may force the central bank to rethink its interest rate policy, especially with the increased press coverage that food inflation has received recently. This may cause some backlash against the Fed politically, as many analysts have partially blamed the bank for this phenomenon. The technical outlook for June Gold may be turning positive if the market is able to hold relative lows at 876.30. The market sold off to 880 in the early going before making a recovery, suggesting buyers are waiting for an opportunity to get in at relatively cheap prices. Momentum has made moves to the upside, diverging from price and RSI, and suggesting the possibility of a reversal. Support comes in at 880.10, 870.80 and 856.20, while resistance can be found at 904.00, 918.60 and 927.90.

Bonds – Bonds may be poised for their biggest three-day decline since early February and their biggest two-week loss in almost 26 years. With traders now thinking that the Fed may pause or completely stop cutting rates after next week's FOMC meeting, Bonds have suddenly lost their appeal. According to many experts, the worst of the credit crisis may have passed, which suggests the Fed will be much less aggressive in the future. The weak greenback only adds to the downside pressure for Bonds, with overseas entities shying away from U.S. treasuries because of the currency risk. June Bonds look bearish on the daily chart, having confirmed a downside breakout from a bearish pennant pattern on the daily chart. The breakout suggests that the market may test February 20th lows of 113-31. Support comes in at 115-13, 114-23 and 113-27, while resistance can be found at 117-00, 117-28 and 118-18.

Rob Kurzatkowski, Commodity Analyst

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Credit Crisis Clearing?

Dow – Dow futures are slightly higher in overnight trading on positive credit market comments from Hank Paulson and the Bank of England. The U.S. Treasury Secretary suggested that the credit crisis was “closer to the end” and indicated that the economy is still growing at a very modest pace, backed up by yesterday's 0.6 percent advanced GDP figure. The BOE repeated the assessment that the worst may have passed, noting that appetite for risk and confidence will eventually make their way back into the credit markets. England's central bank also pointed out that balance sheet losses may be overstated due to “large discounts for illiquidity and uncertainty." Stock indexes have made decent progress of late, while fixed income and commodity markets – aside from energies and grains – seem to have faltered, suggesting that capital is returning to the equity market. Yesterday's FOMC statement was fairly neutral for the market. The quarter point rate cut was exactly what the market was expecting and the statement signaled the end of rate cuts, but was not as hawkish as many had expected. The June Mini Dow continues to trade above resistance at 12,770, signaling that the market may be beginning an up-trend. Price action is very sluggish and momentum is relatively flat, hinting that the market may labor in moving higher. Support comes in at 12725, 12642 and 12500, while resistance can be found at 12949, 13090 and 13173.

Crude Oil – The Oil market is trading lower this morning on a stronger U.S. Dollar. Exxon is resuming talks with Petroleum & Natural Gas Senior Staff Association of Nigeria in hopes of ending a weeklong strike that has cut over 800,000 barrels a day in production. Yesterday's EIA data suggests the U.S. is well supplied with Crude Oil, but Gasoline supplies remain uncertain ahead of the busy summer driving season. The FOMC statement was not as bearish for Oil prices as many had expected, with the Fed failing to emphasize inflation. Nonetheless, the central bank looks like it will at least take a break from its rate-cutting cycle, which may hurt demand. June Crude offered further confirmation of a short-term reversal from a spinning top formation. Yesterday's close below the 18-day moving average indicates that a near-term high may be in place. Momentum seems to be rebounding slightly this morning, despite the bearish price action, which can be seen as somewhat positive. Support comes in at 112.27, 111.09 and 108.87, while resistance can be found at 115.67, 117.89 and 119.07.

Dollar Index – The Dollar Index is trading higher this morning, aided by beliefs that the Fed may be done cutting rates. The June Dollar failed to get a lift from the FOMC statement yesterday, as currency traders were looking for a heavier emphasis on inflation. With the recent rebound in the stock market and a credit crisis seemingly nearing its end, the U.S. may receive an infusion of overseas funds to help support prices. The daily June Dollar chart is consolidating after rebounding from contract lows, suggesting prices may have more upside potential. The crossover of the 9- and 18-day moving averages to the upside is a positive development, and the contract is currently trading above the 50-day moving average – solid advances beyond the average may signal a reversal of the downtrend. Aiding the bullish technical sentiment, momentum is showing bullish divergence from RSI and remains above the zero line. Support comes in at 72.49, 72.26 and 71.86, while resistance can be found at 73.12, 73.53 and 73.75.

Rob Kurzatkowski, Commodity Analyst

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Greenback Attack

Gold – Gold futures have failed to keep up with the booming energy market, dropping sharply in overnight trading on a stronger U.S. Dollar. Gold bulls were hoping that today's Akshaya Tritiya festival – a day when Hindus traditionally purchase precious metals – would help fuel demand for the yellow metal. Indian imports of the metal have fallen for seven straight months, fueling speculation that the recent downtrend in Gold prices may fuel cash market buying. With little evidence to this point that Indian demand has increased enough to impact prices, traders have once again shifted their focus toward inflation and exchange rates. Kansas City Federal Reserve President Thomas Hoenig suggested that the central bank may be forced to increase interest rates to combat inflation, a statement that promptly sent the Dollar higher and precious metals sharply lower. June Gold rejected resistance at the 890 level yesterday and in early trading, which can be seen as bearish in the near term. Prices may have to cross this technical threshold before the technical bias favors the bull camp. Momentum is showing bearish divergence from the RSI indicator, suggesting the market may have a difficult time gaining upward traction. Support comes in at 872.00, 866.40 and 860.10, while resistance can be found at 883.90, 890.20 and 895.80.

Corn – Corn prices are higher in overnight trading on higher energy prices. The rising cost of Crude Oil and improved outlook for gasoline demand has fueled speculation the demand for ethanol will rise. The delayed plantings in the U.S. have also supported prices, as only 27 percent of the U.S. crop has made its way into the ground versus 45 percent a year earlier. The low seedings figure may impact yields and trim output even more than previously thought. Nonetheless, longer-term risks to price remain, with the EU expected to increase production of Corn, Wheat and Barley and the Fed suddenly shifting to a hawkish policy. If the U.S. currency's exchange rate appreciates, it could impact export demand. The December Corn chart remains in an uptrend, but failure to establish new contract highs on bullish news may cause some traders to become disenchanted. Momentum is showing bullish divergence from the RSI, underscoring the fact that the market is still technically vulnerable. Support comes in at 612.25, 601.25 and 588.25, while resistance can be found at 636.25, 649.25 and 660.25.

Dollar Index – KC Fed President Hoenig's remarks about inflation and Fed policy helped drive the greenback's rally. His talking points reflect a similar outlook to many private sector economists, suggesting that inflation is not a temporary risk to the economy. Emerging giants China, Russia and India are building infrastructure at a rapid pace and people's food tastes in these nations has shifted to include more meat, which requires higher grain usage. At the same time, fuel costs are rising at the quickest pace in some time. This trend is not likely to shift and in all likelihood will only get stronger, leaving the Fed with only one option – strengthening the U.S. Dollar. Simply raising interest rates is not the answer, as it would only bolster the greenback to a certain degree. Current U.S. account deficits show that the economy is still consuming far more than it is producing, an issue which must be addressed if we are going to return to a “strong Dollar” policy, similar to that of the Clinton administration. The speech by Hoenig is a step in the right direction, but the Fed will need to take steps to shore up confidence in the battered currency. The June Dollar's close above resistance at 73.105 can be viewed in a positive light, but the market may need to rally beyond the relative high of 73.90 before stronger buying pressure steps in. Momentum continues to show bullish divergence from the RSI, suggesting the market may test the 73.90 high. Support comes in at 72.88, 72.59 and 72.28, while resistance can be found at 73.48, 73.79 and 74.08.

Rob Kurzatkowski, Commodity Analyst

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Not A Gold Start

Gold – Gold prices are sharply lower for the second consecutive session on falling Crude Oil prices and gains in the Dollar Index. Iran's foreign minister stated that talks with the West over its nuclear program took a much more positive tone, leading to the slide in Oil prices. Meanwhile, the ECB's policy statement did not have the extremely hawkish tone that most traders were looking for and was not particularly forward-leaning, which is unusual given the generally forthright nature of the bank. Most traders are still looking for further tightening by the end of the year, but now there is an air of uncertainty, especially after German industrial production showed another unexpected decline. In addition to the outside market keeping Gold prices depressed, technicians seem disappointed in the fact that the August contract was unable to advance beyond resistance at 947.70, the April 17th relative high close. Prices tumbled before the RSI gave an overbought reading and the indicator has fallen more sharply than the momentum indicator, which can be seen as positive over the mid-term. Support comes in at 924.70, 915.90 and 903.20, while resistance can be found at 946.20, 958.80 and 967.70.

Dollar Index – The September Dollar Index has bounced back from recent lows – which came dangerously close to testing all-time lows – on poor manufacturing data from Germany and a vague ECB policy statement. A slowdown in the Eurozone may help the Dollar over the long haul, especially if the ECB continues in its tightening policy, further stymieing growth. An extended recovery may be difficult to come by, though, as the market has largely lost faith in the Federal Reserve's ability to keep inflation in check. The bounce from recent lows is encouraging for the Dollar, but technicians would like to see rallies beyond recent highs at 74.75. Even then, traders may be skeptical of the Dollar's ability to hold after signaling several false breakouts. Momentum has struggled to stay above the zero line and is showing negative divergence from RSI, both of which can be seen as negative near-term. Support comes in at 72.49, 71.90 and 71.50, while resistance can be found at 73.48, 73.88 and 74.47.

Corn – Corn prices tumbled overnight on warmer weather moving into the flooded Midwest. Traders are expecting the warmer weather to aid in taking the flood levels down and possibly boosting yields. The flip side to this coin, though, is that roots may be exposed due to the flooding and susceptible to heat stress if the hot weather persists. To put it simply, farmers are hoping for warmer than usual, but not extremely hot weather. It will take some time to sort out exactly how much crop was damaged in recent flooding, making the next couple of weeks prone to extreme volatility. The December contract finds itself in a vulnerable position technically, with the market trading dangerously close to support at 735. The sharp run-up to current levels leaves the market with little support until 655.50. On a positive note, the market has recovered from overbought levels and we are still within shouting distance of highs. Support comes in at 756.25, 725.50 and 704.00, while resistance can be found at 808.50, 830.00 and 860.75.

Rob Kurzatkowski, Commodity Analyst

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Traders Looking for the Safety Net

Bonds – The meltdown in global equity prices has sent traders scrambling to the relative safety of U.S. treasuries. Commodity prices have been much lower for the most part over the past week, due to worries about the growth prospects for the global economy. Nonetheless, continued inflationary pressures may curb traders' appetites for treasuries, which typically underperform other investments in periods of high inflation. Going forward, the markets will likely take their cues from economic indicators to determine direction. If growth continues to slow in emerging markets, it could signal the current high inflation environment may moderate, making government debt attractive. On the other hand, if these markets are not cooling at the pace previously thought, investors may flock to commodities at the expense of bonds. The upward crossover of the 18 and 50-day moving averages and close above resistance at 116-26 can be viewed as a bullish for the September contract in the mid-term. Momentum continues to outpace both price and RSI, adding to the bullish sentiment. The RSI indicator is currently at overbought levels, which may temper some of this bullish enthusiasm. Support comes in at 116-20, 116-01 and 115-20, while resistance can be found at 117-19, 118-00 and 118-19.

Copper – Copper prices are slightly lower this morning, despite reports that workers at Freeport's Cerro Verde mining strip in Peru plan to strike at the end of this week. The market was sharply lower yesterday ahead of the news before a big rally. Today's lack of enthusiasm may be attributed to growing LME stocks and slowing Chinese demand. Outside forces – in the forms of lower Crude Oil prices and a stronger U.S. Dollar – also have depressed prices. The market will be monitoring the worker unrest at the Peruvian mine to determine what, if any, impact it would make on supply. At the moment, it appears that supplies are ample, but an extended strike may cause end users to begin hording the base metal to ensure supplies, which could drawdown LME stocks. Thus far, the market has been unable to build off yesterday's strong close, which put the September contract right at the 50-day moving average. Closes above the average and near-term resistance at 3.75 may be needed to reverse the recent slide, but a close above 3.85 may be needed to swing the market favor to the bulls. Support comes in at 3.67, 3.60 and 3.56, while resistance can be found at 3.78, 3.82 and 3.89.

Rob Kurzatkowski, Commodity Analyst

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Sour Crude

Crude Oil – Oil fell sharply yesterday after comments by Fed Chairman Ben Bernanke indicating that risks to economic growth had increased. While this news is not exactly new, the amount of economic cheerleading being done by Bernanke, Treasury Secretary Hank Paulson and President Bush recently is probably an indication that all is not well. Demand has already shown signs of a slowdown, and threats to the supply side – namely the Iranian nuclear standoff and unrest in the Niger Delta – have kept prices near all-time highs. OPEC has slashed its demand outlook for a sixth consecutive month and also indicated that the trend will likely continue into 2009, citing a possible global economic slowdown. Today's EIA inventory report is expected to show Crude Oil inventories dropping 2.2 million barrels, while gasoline inventories are expected to be flat and distillates are expected to show a build of 2 million barrels. It would not be surprising to see the distillate number come in much lower than the consensus estimate, as the U.S. has been exporting a great deal of diesel fuel in recent months. August Crude Oil is close to confirming a bearish double top formation on a close below 135.34 that measures 123.50 to the downside. Bears may be hesitant to jump on the signal, though, as they have been burned on false bearish technical signals in the past. Traders instead may be looking for longs to liquidate positions first before they test the waters. Support comes in at 134.20, 129.65 and 123.39, while resistance can be found at 145.01, 151.27 and 155.82.

10-Year Notes – Note futures are higher this morning on lower stock index futures and a slide in commodity prices. The previously mentioned economic cheerleading being done by the Federal government and the poor performance in equities has traders looking for a safe haven to put their money, making treasuries attractive. The market may have gotten ahead of itself several weeks ago by pricing in higher interest rates later this year, but the latest recent banking crisis may inspire the Fed to keep rates low. A breakdown in commodity prices could lead to more money flowing into treasuries, as it would be an indication that inflation may be subsiding and would give fixed income an apparent advantage over commodities in terms of profit potential. This is unlikely to happen quickly due to continuing demand for raw materials in emerging markets and the possibility that some unforeseen geopolitical event might spark a rally in Oil prices. September T-Notes were unable to hold the bulk of yesterday's early gains, setting up a possible bearish pattern on the daily chart. A close above yesterday's high of 116-02 could negate the possible bear pattern and get the market back into bull mode. Support comes in at 114-29, 114/12 and 113-25, while resistance may be found at 116-00, 116-19 and 117-04.

Rob Kurzatkowski, Commodity Analyst

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