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The Financials Pit Review
For the week of June 22nd, 2009
By PitGuru Frank LaMantia
S&P
The World Bank announced that the market was worse than they thought - and to expect more bad news. Many were predicting that the economy was going to shrink by 1.7%, and now they feel it will slump down to 2.9%. With so many variables in the recession no one can really put their finger on what will happen next. Are we going to have inflation or deflation? This is something that indicators do show to be in check, but this does not mean that these numbers can't change over the next 5 years. If Obama spends money at this rate, we may see hyper-inflation in this country. Those who think this is acceptable are mistaken. Hyper inflation means that one day a gallon of milk costs $8, the next week $30, and the following week, $300. Basically, the balance in all goods and services becomes out-of-whack and a great deal of panic sets in. Bernanke will be speaking on Thursday and will be very careful with the terminology he uses. The Fed may pat themselves on the back for a rebound in housing starts and unemployment numbers, but may wish to keep quiet about future forecasts. Remember: a recession can last for 2 years and shows signs of little to absolutely no growth for 5 or more years.
Tuesday, June 23rd, existing home sales will be announced and is forecasted to be around 4.85 million. Mortgage rates are rising, but warmer weather usually helps with sales of homes. This number may be accurate and could be better than expected. Wednesday, June 24th, will see the end of the Fed's two-day meeting and their policy statement. Durable orders and new home sales will be announced, which may affect the market. Goods may be kept on shelves longer than expected due to consumers being nervous about the world's economy. It is predicted to be down 1.1% and may go down further to -1.3%. New home sales may rise because of the small factors I discussed and may rise to 372k. Thursday the 25th, we should expect volume to be down until testimony is made. We also have initial jobless claims which the economy expects to improve. I feel it has to slow down - which is not a bad sign - but it may be a sign that small improvements will get our country back to its goals. Also, the number most are waiting for is GDP - which may show a slumping economy that could lead us down a path we don't want to go. The market expects -5.7% where I expect a number that may shock the markets of -6.0%.
Bonds
The bond market's indecisions may take a sharp swing depending on the actions by the Fed and the slumping stock market. Bond prices rose significantly on news that the stock market may be in a bad situation in the near future. The 30 yr rose .75 bps from last week and showed us that we may want to jump on the bond wagon this week or early next week depending on the Feds actions.
Currencies
The U.S. dollar continues to strengthen as fears grow. The Dollar Index is trading at 80.42 while the Euro dips to 1.38. The question is: do we really have faith in our dollar as the economy weakens?
The Energies Pit Review
For the week of June 22nd, 2009
By PitGuru Daniel Cronin
I think we may have seen the tip of the iceberg on Friday as energies sold off considerably at the end of the day thanks to Gasoline and its big increase in inventories on Wednesday's supply data. All energies came off hard even though the USD was weaker on Friday as Oil for August delivery closed to $70.02, down 3.7% for the week, inching closer to the $70 support level. Gasoline fell the most. down 5.3% to $1.9172 as inventories built more than 3 million barrels. Heating Oil was down only 2.2% to $1.8263. Trades started buying some Natural Gas last week, just on the fact of the huge disparity in price between CL and NG as this market moved higher by +3% to $4.193.
Right now on the Sunday night session, Crude is called lower by 20 cents to $68.882 as the USD is getting stronger up almost 7 tenths of a penny against the Euro/USD to $1.3870. This market looks like it wants to roll over and try to test the mid $65 range. DJIA is called lower this morning, helping out the situation. It is interesting to see that the N/Q wti spread traded up to 45 cents, but was the only spread that was positive on Friday. Q/U is now trading -90 and Dec9/Dec10 is at the -400 mark. We are also seeing the Arb's - which is the difference between wti vs. brent - trade lower as August is now below 50 cents. This is another sign of lower prices to come in the wti. We now must wait and see what economic data has in store for us this week.
The Softs Pit Review
For the week of June 22nd, 2009
By PitGuru Jurgens H. Bauer
Trends are clearly down as the soft commodity markets moved lower this past week. Speculators liquidated longs and initiated shorts sensing a growing vulnerability to the downside. While this is in contrast to the legitimate concerns over the threat of inflation and the potential debasement of the dollar, the dollar on the week seemed to find support. Overwhelmingly, heightened concerns over poor demand for the softs took center stage with growing concerns that the economy is faltering and not receiving positive news. It's one thing when indicators are not so bad; quite another that they are never good.
We can expect to see a much more selective approach toward investments the soft commodity complex. The traditional inflationary market basket approach is giving way to increased focus upon individual market forces; so while in a general sense food and energy sectors are still expected to be in demand, discretionary raw materials like cocoa and cotton may not be. Market participants seem to be reducing their exposure and open interest has fallen. Volumes have been obscured by the rolling of positions via spreads. Yet, while the worst may seem to be over, there is no evidence at this time to suggest prices can regain sufficient momentum to advance greatly without any new news.
This past week coffee prices were down over ten cents. That is twenty-five cents down in two and a half weeks. Talk that Brazil's seasonally "off year" crop is set to be the largest ever combined with seasonal and speculative selling pressure fueled the decline. This flush job seems to be too much and over done. Look for a potential bounce and keep aware of weather developments.
Sugar prices ended the week only slightly lower, but current supplies are thought to be adequate. This removes some of the bullish tone. Additionally, the urgency to own dollar-denominated commodities has taken a back seat. Look for prices to trade sideways to lower this coming week.
Cocoa prices were down a little over 200 points on the week. I've been a bear - and still am - but don't have a position; still looking lower.
Cotton prices were under pressure this past week, with December dropping almost 450 points to close at 56.38 cents and the July/Dec spread dropping below 500. Speculators appeared to be net sellers, liquidating longs and going short. Open interest has fallen since the trade has bought back some shorts as well. This trade buying stems from business getting done and export numbers ought to improve. The technical picture now is bearish; and that combined with renewed concerns over the economy is weighing heavily on cotton prices. Housing - which has always been a key to the cotton market - has been suffering already and now things could get worse as interest rates increase. There remains some optimism among sources that with the lower prices exports will benefit. There is also some justification that crop problems could give rise to higher prices. Remember, more than half of the US crop is focused in Texas, and dry planted acreage there looks to be headed toward abandonment. Seasonal lower prices may provide useful opportunities as there are signs of stronger than expected growth in other parts of the world - India and China in particular.
The Metals Pit Review
For the week of June 22nd, 2009
By PitGuru Daniel Cronin
Precious metals sold off last week as we see an increase in the USD trading now below the $1.39 level. Gold was down only .5% to $935 while Silver fell more, about -4.4% to $14.220/oz on the COMEX. Platinum down -3.7% to $1,211/oz, and Copper -4.6% to $227/pound.
With the USD called higher this morning - trading up 7 tenths of a penny to $1.3865 - we will likely see Gold test the recent low around $927 and try and push through that number this week. Silver has been losing its value much more than Gold, so if anyone wants to play the short side I recommend Silver over Gold right now. Silver was down 4% more than Gold last week and will likely look to do the same this week. Platinum hanging around the $1,200/oz support level by a thread and I believe prices here will start to break to the downside. Copper is called lower this morning by three cents to $2.23 and there is big support at the $2.20 mark. The equity market is called lower this morning, pushing this market down and if we break the $2.20 level next stop would be the 50 day moving average, which is at $2.15. Not a bad time to try and pick some up around these levels as this is key support, but put a close stop as one does not want to try and catch a falling knife here.
The Grains Pit Review
For the week of June 22nd, 2009
By PitGuru Matthew Pierce
The previous week saw a continued downside correction with perfect weather and a ho-hum demand scene to boot. Macro markets are all over the map with the US dollar swinging wildly. The world's eye remains on Iran with that situation's direction the direction of crude oil. The last big macro factor is the impending nuclear missile test by N. Korea. A successful test should support crude oil prices as world tensions increase.
The fundamental side, as stated is almost perfect. Rain makes grain and now that we have all but fringe elements in the ground (and emerged) there is little immediate threat. Driving between Chicago and Cincinnati this weekend I saw a varied level of development with part of the crop exceeding 36" and scattered fields less than 6" tall. The varied development increased as I traveled SE with the OH river basin wet (to say the least). It remains way too early to quantify any losses, but we can afford so few losses that everything is worth noting. The beans crop is young with no obvious issues to note. The SRW crop is just about to be harvested and looked great - I mean great. It appeared as if a blanket was gently swaying in the wind.
Looking to the week ahead, we have to continue watching macro markets with the fundamental side quiet until the acreage report a week from Tuesday. This week ends with July option expiration, so watch the daily wires this week for mentions of OI levels.
Macro markets need to watch the US dollar and crude with underlying elements such as copper pointing to a slowdown in construction. This is a bearish signal with the N. Hemisphere in the midst of summer. Overall macros are in a lurch with a mess in Iran not helping.
Looking at spreads, we see July fading off with the Q/X spread moving to prominence. This spread will start Monday at 116 with plenty of widening potential if crush demand remains. I doubt meal basis can hang in there at current levels pointing to lower demand, which in turn point to lower crush margins and in turn lower bean demand. Corn wheat spreads are chopping around with the trade looking for a reason to go long wheat. I like the sentiment but I am waiting to see a volume bid before I'll join the party.
Overall, weakness is the key word to end June. There may be some fireworks on option expiration, but I feel the trade will retain a calm downside demeanor heading into the all-important acreage report coming out on June 30th. Retain a slight downside bias this week with a close eye on macros with further tensions in Iran and N. Korea sure to help crude rally.
Frank LaMantia (S&P and Currency trader), Matthew Pierce (Grain Floor Trader), Daniel Cronin (Energy & Metals Broker) and Jurgens Bauer (Softs Floor Trader) are the Gurus for the Weekly Pit Review published on http://www.pitguru.com/ by Futures Press, Inc. - hear their audio market commentary, learn more about them and sign-up for the Weekly Pit Review by visiting http://www.pitguru.com/
Disclaimer: Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading.
