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Saturday, December 15, 2007

Weekly US Economy and Currency

Weekly US Economy Update

There was a significant shift in investor attitudes during the week with at least a temporary shift in the trends that have dominated for the past few weeks. The dollar secured relief from stronger than expected US economic data while there was renewed selling pressure on low-yield, defensive currencies.

Following the latest FOMC meeting, the Federal Reserve cut the Fed Funds rate by a further 0.25% to 4.25% . The discount rate was also cut by 0.25% to 4.75%.In the statement accompanying the decision, the Fed stated that uncertainty over growth and inflation had increased. There were also comments that consumer spending and business investment and shown signs of weakening slightly while the housing adjustment was intensifying.
Core inflation was described as under control, but there was still unease over potential pressures and the inflation data was a cocnern. Headline producer prices also rose very strongly by 3.2% in November, the highest increase for over 30 years as energy costs increased, although the underlying increase was held to 0.4% for the month. The consumer inflation data was also higher than expected with a 0.8% headline increase and a 0.3% core increase.

As credit conditions remained very tight, the Federal Reserve announced a series of fresh liquidity injections. A wider range of collateral would be accepted and the interest rates would not be set at penal rate in an attempt to free up the credit markets.

Retail sales rose strongly by 1.2% in November while there was a 1.8% underlying increase. Although sales were boosted by a strong rise in gasoline sales, there was still a solid underlying increase which boosted confidence over spending trends.

The US trade deficit increased slightly to US$57.8bn for October after a revised US$57.1bn the previous month as higher oil prices put upward pressure on imports.

Weekly Currency Update

The German ZEW index weakened to the lowest level since 1993 at -37.2 while ZEW institute warned that the strong Euro was having a damaging impact with growth faltering.
The dollar weakened to lows near 1.4750 against the Euro, but then strengthened sharply to test important Euro support levels in the 1.45 region on Friday.

The Japanese Tankan index for major manufacturers fell to +19 in December from +23 the previous month which undermined confidence in the economy, although capital spending plans were revised up.

The yen hit selling pressure beyond the 111.0 level against the dollar and weakened to lows near 113.0 as carry trades found renewed buying support.

The Swiss National Bank left interest rates unchanged at 2.75% following the latest quarterly meeting, the first time rates had been left on hold for two years.

The bank upgraded its inflation forecast for 2008 slightly, although the bank expressed no urgency over the inflation situation. Bank chairman Roth also warned that the banking difficulties would have some negative economic impact.

A renewed interest in carry trades pushed the franc to lows beyond 1.67 against the Euro while the Swiss currency also weakened to 1.15 against the dollar.

The UK housing data remained weak with the RICS index recording a further drop to -40.6% in November from -23.4% previously which was the weakest reading for over two years as underlying confidence in the housing sector continued to deteriorate.

The labour-market data was firmer with unemployment falling by a further 11,000 for November. Headline earnings growth remained under control with a decline to 4.0% in the year to October from 4.1%.

Wider inflation fears were still a significant factor with inflation expectations rising to a nine-year high while headline output producer prices inflation was also at a 5-year high, although the core data was more favourable with a 2.1% annual increase.


Sterling secured further support weaker than 0.72 against the Euro over the week while general dollar strength pushed the UK currency back to lows around 2.0250 against the US currency from a peak above 2.05.

Weekly Expected Economic Data
Week of December 17 - December 21
Date IST ET Release For Consensus Prior
Dec-17 19:00 9:30 Current Account Q3 -$183.0B -$190.8B
Dec-17 19:00 9:30 NY Empire State Index Dec 21 27.4
Dec-17 19:30 10:00 Net Foreign Purchases Oct -$26.4B
Dec-18 19:00 9:30 Housing Starts Nov 1190K 1229K
Dec-18 19:00 9:30 Building Permits Nov 1150K 1170K
Dec-19 21:00 11:30 Crude Inventories Dec-14 NA -722K
Dec-20 19:00 9:30 GDP-Final Q3 4.90% 4.90%
Dec-20 19:00 9:30 Chain Deflator-Final Q3 0.90% 0.90%
Dec-20 19:00 9:30 Initial Claims Dec-15 NA 333K
Dec-20 20:30 11:00 Leading Indicators Nov -0.10% -0.50%
Dec-20 22:30 13:00 Philadelphia Fed Dec 8 8.2
Dec-21 19:00 9:30 Personal Income Nov 0.50% 0.20%
Dec-21 19:00 9:30 Personal Spending Nov 0.50% 0.20%
Dec-21 19:00 9:30 Core PCE Inflation Nov 0.20% 0.20%
Dec-21 20:30 11:00 Mich Sentiment-Rev. Dec 74.3 74.5

Tuesday, December 11, 2007

FOMC Meeting

Regarding the FOMC meeting, we expect a 25 basis points cut of the FF target rate, most likely accompanied by a bigger 50 basis points rate cut of the discount rate. The market has trimmed back its expectations for a 50 basis points cut, that were still rated more than even at the start of last week. Currently, the market discounts still a 30% chance on a 50 basis points rate cut. Two weeks ago, it looked that a clash between markets, desperately looking for lower rates, and the Fed hinting that no immediate rate cut was needed (October Minutes, talk of some governors like Plosser) was imminent. However, at that time, the top of the brass band (Kohn & Bernanke) stepped in, saying that financial conditions had worsened sharply since the previous meeting and hinting the Fed would act to contain the stress. It clearly improved sentiment (equities rebounded) and suggested to some in the markets that the Fed might go for a 50 basis points cut to get ahead of the curve (especially re-garding the credit problems). However, Bernanke, very much looking for a broad consensus, will probably try to build consensus for a 25 basis points in an attempt to keep most governors on board. This was the main reason we stick to our 25 basis points call. Recent eco data, payrolls-ISM, do not point either to the need for a big shot. Money market strains and difficulties at some big US banks on the other hand suggest that a bigger cut in the discount rate would be appropriate (even a 50 basis points cut in the FF would from this angle be not so silly). Also Kohn hinted that the previous cut of the discount rate had not had the expected result and so we might see the Fed making the discount window facility more attractive by narrowing the spread with the FF rate. If the Fed goes 25, we suspect that the statement will leave the possibility of more easing open, without going so far as to hint for another rate cut. With signs that credit

Wednesday, December 5, 2007

OPEC to keep production steady

OPEC to keep production steady

OPEC has decided to keep output ceilings steady, Libya's chief oil official said Wednesday. Other delegates said the 13-nation group will meet again in January to review that decision.

The announcement by Shokri Ghanem appeared to reflect OPEC concerns that it would be counterproductive to raise production ceilings at a time when prices have retreated about 10 percent from recent record highs.

There was no immediate formal confirmation. But just hours before Ghanem's comments, a three-nation OPEC advisory panel foreshadowed such a decision by recommending maintaining the status quo.

Reduced demand growth forecasts from both OPEC and the International Energy Agency have pushed prices down recently, along with the extra oil reaching markets from the last OPEC production increase and expectations of increased output from the United Arab Emirates.

A new U.S. intelligence report concluding that Iran halted its nuclear weapons development program in 2003 is also helping to keep a lid on the market. While oil prices are still up nearly $40 from the start of the year, they are down about 10 percent from the record near $100-a-barrel levels established last month.

Source: Bloomberg

Tuesday, December 4, 2007

Crude Oil - Opec Meeting

Petroleum markets brace for OPEC meeting –

The petroleum markets are nervously awaiting tomorrow’s OPEC meeting in Abu Dhabi. The market seems to be roughly split on the question of whether OPEC will raise its production. The reality is that Saudi Arabia is the only country with any significant excess capacity, which means OPEC’s decision as usual hinges mostly on what Saudi Arabia wants to do. The Saudi oil minister said last Friday that, “There is absolutely ample supply. The price movement has nothing to do with the fundamentals of the market.” That suggested that Saudi Arabia is not in favor of raising production since according to the Saudi oil minister’s view, supply is not the problem. OPEC as a whole is also concerned that the global economy may be on the brink of a downturn, which would mean that a sudden glut of oil could emerge if OPEC were to increase production at the same time as the global economy and oil demand turn lower. Since posting a record h igh of $99.29 two weeks ago, crude oil futures have sold off by a total of about $12 per barrel.

The market has moved lower on technical long liquidation pressure and increased concern about lower oil demand from high oil prices and weaker global economic growth. Oil prices also moved lower on the possibility that OPEC tomorrow might decide to raise production a notch. OPEC at their last meeting in September decided to increase their official production quota by 500,000 bpd. In fact, OPEC production (excluding Iraq) rose by +305,000 bpd in October from the previous month, with 100,000 bpd of that increase coming from Saudi Arabia. Since OPEC has yet to fully implement their previously announced 500,000 bpd increase, OPEC members may believe it is premature to announce another hike.
Source - Bloomberg

Copper – Fundamentals Remain Bearish : Kamlesh Jogi

Copper – Fundamentals Remain Bearish

We have seen a short covering in Copper prices last week and market pushed down as Contract rollover and expiry settlements are over in International and national exchange.
I personally expect market to remain bearish in Short run and expect market to touch Rs. 220 per kg in MCX feb 2008 Contract.

Fundamentals:

· Copper fell in London, tracking stock markets lower, on concern slowing U.S. economic growth will curb demand for industrial metals. Nickel and zinc also dropped.

· The MSCI World Index of stocks fell 0.2 percent. Federal Reserve Bank of Boston President Eric Rosengren said yesterday U.S. expansion will be ``well below'' its long-term pace for two quarters. The U.S. is the world's second-largest user of copper and aluminum after China.

· Copper, which tends to track movements in global growth, is poised for the smallest gain in six years as bad debts in the U.S. housing market have slowed bank lending and curbed consumption in the world's largest economy.

· Japanese manufacturing orders, driven by residential and office construction, may drop 17 percent in a year because of declining housing starts, said Takashi Ishizawa, a real-estate analyst at Mizuho Securities Co.

· A housing slump will probably erode demand for industrial metals, including copper and nickel, according to the Japanese Electric Wire and Cable Makers' Association and the Japan Stainless Steel Association.

· Copper stockpiles monitored by the LME declined 1,325 tons, or 0.7 percent, to 188,175 tons, it said in a daily report, the biggest one-day drop since Sept. 17. They have jumped 44 percent since the end of September.

Technical Levels:

MCX Feb 2008 contract is having major resistance level at 272.90 and 283.10 while major support is seen at 259.10 and on the break of the same market may test the level of 242 and 220.

Recommendation;

Traders are advised to create short position on small pullback, market may give small up side correction/Short covering, can be used as Selling opportunity. Traders should become more cautious if market breaks major resistance levels.



Author:

Kamlesh Jogi
Commodities research Analyst

Mail me at: kamleshjogi@gmail.com


Disclaimer: Keep reasonable stop loss levels, follow them very strictly and keep trailing the stop loss. The information contained in this article is collected from reliable sources and believed to be true. Opinions expressed are those of the individual, and readers are urged to exercise their own judgment in trading.

Monday, November 26, 2007

How Long Will Oil Be Priced in Dollars? : By Stephen Clayson

How Long Will Oil Be Priced in Dollars? By Stephen Clayson


LONDON (ResourceInvestor.com) -- With few exceptions, oil is priced in dollars, even when it is produced in countries with diverse economies and major currencies, rather than petrostates with little going on except oil production.

In the latter case, oil that was priced in the local currency would leave it subject to unpredictable swings in response to global oil prices and the output of the country in question.




As it is, a great deal of oil is produced in countries with little to underpin their economies besides oil, so pricing the black stuff in an international currency makes sense, especially when that currency is that of the primary buyer of the oil concerned. It makes things simple for the buyer and lets the seller take its revenue in a major currency.

The situation of primary buyer of the world’s oil is the situation the U.S. has found itself in for quite a few decades now, and in fact the U.S. remains the single largest oil consuming nation. So the fact that oil is priced in dollars is unsurprising.

The result is that virtually every country in the world needs to hold dollars in order to buy oil on the world market. The same goes for large commercial oil buyers. This need for dollars has been a big factor in conferring the premium on the dollar that it has long enjoyed, but is now in the process of losing.

The eurozone economies considered as a whole come a close second to the U.S. in oil consumption, but China probably could tear past both in the coming years.

With the dollar slipping downhill, there is a case for sales to be made in another currency, the most obvious candidate being the euro. Although the oil price moves with the dollar, there is now an unhelpful amount of uncertainty about the nominal price.

Indeed, oil’s approach to within spitting distance of the psychologically huge $100 a barrel mark, although underwritten by extremely firm global demand, is as much about the falling dollar as it is about geopolitical uncertainty. Viewed in euros, the real oil price looks much less scary.

Pricing in euros should make no odds to most of the world’s big oil buyers. And once that switch is made, why not follow suit for the other commodities? Perhaps initially to euros, but then to renminbi as China becomes the biggest buyer of pretty much everything and the renminbi becomes a free-floating international currency.

Iran already sells oil in euros and is leading a push for wider adoption within OPEC. Iran was also planning to set up a euro-denominated oil bourse, although all seems to have gone suspiciously quiet on this front of late. However there is no reason why the idea couldn’t be revived. And if the cause of euro oil sales is taken up by a country less reviled than Iran, then it could see wider adoption.

Venezuela is also an advocate, but like Iran, is not well respected internationally. Saudi Arabia is against any move away from the dollar given its close alignment with the U.S., as well as its large dollar reserves, the value of which will be hurt by a move away from dollar oil sales. Looking outside the Gulf, Russia seems like another large producer that might have little reluctance to start selling oil in euros.

Tied up with this is the issue of the numerous petrostates that peg their local currencies to the dollar. The Kuwaitis have already abandoned their dollar peg in favour of a trade weighted basket that includes the euro in a significant way, and their Gulf neighbours will likely go the same way eventually. Once this is the case, then the logical next step is to sell some oil in euros.

Looking to what this means - even with the base metals complex taking a nasty knock this week, the ongoing degradation of the dollar will assure the gold market of a lively time. And the ongoing shift in the balance of economic power in favour of Asia means that the base metals look pretty decent in the long term. The probable end of dollar oil pricing is just one more dollar bearish factor among many.

Saturday, November 24, 2007

Copper

Copper rose the most in a week after inventories plunged in China, the world's biggest user of the metal.

Stockpiles monitored by the Shanghai Futures Exchange dropped 21 percent to 44,855 metric tons this week, marking the biggest decline since the week ended Jan. 25. Copper, used in pipes and wires, has more than tripled in the past four years as demand grew in China, the world's fastest-growing major economy.

Chinese copper use rose 38 percent in the eight months ended Aug. 31, the International Copper Study Group said on Nov. 16. Demand will continue to rise as the Chinese economy accelerates, said Patricia Mohr, an analyst at Scotiabank Group in Toronto.
Copper also rose as U.S. equities rebounded, easing concern that the U.S. economy is deteriorating. The Standard & Poor's 500 Index climbed as much as 1.7 percent. Industrial metals have the highest correlation among all commodities to the equity market, according to Deutsche Bank AG.

Copper still dropped 5.3 percent this week on speculation that slower economic expansion will curb demand in the U.S., the world's second-largest copper consumer.

Federal Reserve officials this week cut their 2008 U.S. growth forecasts, predicting the economy will expand by 1.8 percent next year. Copper has dropped 20 percent since reaching an 11-month high on May 4 as a slump in U.S. housing slowed the economy and reduced metals usage.

Bullion - Gold n Silver

Gold jumped 3.3 percent, capping the biggest weekly gain since July 2006, as the dollar's decline to a record against the euro and climbing energy costs sparked demand for the metal as a hedge against inflation.

The price of gold has surged 29 percent this year, and the dollar is down 10 percent to the lowest ever against a basket of six currencies, including the euro and the yen. Crude oil closed above $98 a barrel, and heating oil climbed to a record.

The dollar dropped to a record $1.4967 against the euro, the weakest since the single European currency's debut in 1999. Gold has rallied during five of the past six bear markets for the dollar.

The dollar index on ICE Futures U.S., formerly the New York Board of Trade, measures the U.S. currency against the weighted values of the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. The index touched 74.484 today, the lowest ever.
Gold also gained on heightened speculation that the Federal Reserve will lower borrowing costs. Interest-rate futures indicate a 98 percent chance the Fed will lower its benchmark lending rate by a quarter point to 4.25 percent at its December meeting.

The central bank lowered the benchmark rate by 0.25 percentage point to 4.5 percent on Oct. 31, driving gold to a 27-year high of $848 on Nov. 7.

Silver futures for December delivery climbed 31.5 cents, or 2.2 percent, to $14.735 an ounce. The metal is up 14 percent this year.

Crude Oil

Crude oil futures rose in New York, reaching a record closing price above $98 a barrel, on concern fuel stockpiles will drop as the heating season gets under way.

Futures have surged 21 percent in the past two months as the dollar fell and U.S. inventories declined. Supplies of crude oil and distillate fuel, a category that includes heating oil and diesel, fell last week, according to an Energy Department report on Nov. 21. Transactions were lighter than usual today as some traders took a long Thanksgiving holiday weekend.

The Organization of Petroleum Exporting Countries will load 24.5 million barrels a day onto tankers in the four weeks to Dec. 8, compared with 23.8 million barrels in the month ended Nov. 10, Oil Movements said. It will be OPEC's 14th consecutive increase and the biggest this year, according to the company, which tracks shipments.

OPEC, which produces more than 40 percent of the world's oil, is scheduled to discuss crude-oil production for the first quarter of 2008 at a meeting in Abu Dhabi on Dec. 5.

Weekly US Economic Calendar

Week of November 26 - November 30
Date IST ET Release For Consensus Prior
Nov-27 20:30 11:00 Consumer Confidence Nov 91.5 95.6
Nov-28 19:00 9:30 Durable Orders Oct 0.00% -1.70%
Nov-28 20:30 11:00 Existing Home Sales Oct 5.00M 5.04M
Nov-28 21:00 11:30 Crude Inventories Nov-23 NA -1071K
Nov-28 12:30:00 15:00 Fed's Beige Book
Nov-29 19:00 9:30 GDP-Prel. Q3 4.80% 3.90%
Nov-29 19:00 9:30 Chain Deflator-Prel. Q3 0.80% 0.80%
Nov-29 19:00 9:30 Initial Claims Nov-24 NA 330K
Nov-29 20:30 11:00 New Home Sales Oct 750K 770K
Nov-30 19:00 9:30 Personal Income Oct 0.40% 0.40%
Nov-30 19:00 9:30 Personal Spending Oct 0.30% 0.30%
Nov-30 19:00 9:30 Core PCE Inflation Oct 0.20% 0.20%
Nov-30 20:15 10:45 Chicago PMI Nov 50.5 49.7
Nov-30 20:30 11:00 Construction Spending Oct -0.20% 0.30%

US Economy and Currency Update

US Economy Last Week

The Organization for Economic Cooperation and Development said yesterday that losses from U.S. subprime mortgages could eventually total $300 billion, based on an estimated 14% default rate. Mortgage resets are expected to peak in May of 2008 so more will be known as time unfolds. The June eurodollars were unchanged at 96.19.

The Conference Board's index of leading indicators was down .5% in November, weaker than expected. Only three of the ten indicators showed a positive gain with stock prices being the strongest component. Of course, stock prices have not held up since then. The June eurodollars closed up .12 at a new contract high of 96.19.
The U.S. Labor Department said that jobless claims were down 11,000 last week to 330,000.

The U.S. Census Bureau said that housing starts were at an annual rate of 1.229 million units in October, up 3.0% from September's pace and down 16.4% from a year ago. Building permits were down 6.6% in October. March lumber ended down $1.00 at $278.50.

Federal Reserve said that they expect real U.S. GDP to increase 2.45% in 2007, but lowered their estimate for 2008 from 2.62% to 2.15%. They also expect the core rate of inflation to average 1.87% in 2008. The June eurodollars were down .005 at 96.07.
Analysts from Goldman Sachs advised their clients to sell Citigroup, saying that they may have to write down $15 billion of bad mortgages over the next two quarters. Also, a disappointing earnings forecast from Lowe's is pushing the stock market lower. The December U.S. T-bonds closed up 21/32nds at a new contract high of 116.07/32nds.


The National Association of Homebuilders said that their sentiment index was unchanged at 19 in November, the lowest reading since it began in 1985.
Canada's corporations posted C$46.0 billion of after-tax operating profits in the third quarter, up 6.7% on the quarter and up 11.3% from a year ago. Results were especially strong in the banking and oil industries. The December Canadian dollar was up .0023 to $1.0144.

Currency Update Last Week

The U.K.'s Office for National Statistics reduced its estimate of real GDP growth in the third quarter from .8% to .7%. From a year ago, real GDP was up 3.2%. The December British pound ended down .0026 at $2.0585.
In the Euro area (13), industrial new orders were down 1.6% in September, but up 2.0% from a year ago.

Japan's exports hit a record high 7.52 trillion yen in October, up 14% from a year ago. The December Japanese yen finished up .0088 at a new contract high of .9230, helped by its new status as the currency with the least exposure to subprime mortgages.

Retail sales in Canada were down .2% in September, but up 5.4% from a year ago. Excluding autos, sales were up .1% on the month. The December Canadian dollar fell .0049 to $1.0121.

The Bank of England voted 7 to 2 to keep its rates unchanged at the latest meeting.
Consumer prices in Canada were up 2.4% in October from a year ago, down from a 2.5% gain in September. The December Canadian dollar ended down .0006 at $1.0170.
Canada's wholesale sales were up 1.1% in September, stronger than expected. The December Canadian dollar fell .0086 to $1.0176.

Friday, October 12, 2007

LME Inventory

LME DATA:
COPPER UP 2300,
TIN DOWN 15,
LEAD UP 50,
ZINC DOWN 200,
ALUMINIUM UP 1625,
NICKEL DOWN 258,

Impact: Data is negative for Copper, Lead and Aluminium, While positive for Tin, ZInc and Nickel.

Wednesday, October 10, 2007

US EONOMY UPDATE

Dollar softens further across against most currencies into US session.Technically speaking, break of intraday support levels indicates last week's recovery in the greenback has likely completed and further downside will likely be seen. Though, price volatility may be limited as the economic calendar is light, with wholesale inventory featured only. Low yield majors, the yen and swissy remains pressured in crosses.BoJ will announce rate decision in the coming Asian session and is widely expected to keep rates unchanged at 0.50%. Meanwhile, the Swissy is weighed down by SNB Roth's comment yesterday that the bank has no plan to raise rates again from the current 2.75%.

Currecny Update

Dollar remains pressured against most currencies after FOMC minutes. While further rate cut is generally expected by the end of this year, opinions are still divided on whether that will be delivered in the Oct or Dec meeting. Unsurprisingly, recent market turmoil and credit tightening were the main focus of the meeting the members judged loosening monetary policy was an appropriate response to the tightening in credit. Even though, there is no specific plan for further rate cuts and "further actions would depend on how economic prospects were affected by evolving market developments and by other factors", members are generally concerned that "outlook for economic activity as characterized by particularly high uncertainty, with the risk to growth skewed to the downside." On inflation, the members "recognized that incoming data on core inflation continued to be favorable, and they generally were a little more confident that the decline in inflation earlier this year would be sustained." Though, "inflation risks could be heightened if the dollar were to continue to depreciate significantly."

Saturday, October 6, 2007

Where do you expect GOLD prices on this Diwali???

Where do you expect GOLD prices on this Diwali???

Enter your vote today! A new poll has been created for thecommoditytalk group:

Where do you expect GOLD prices on this Diwali???
o Above 10500
o Range 9200-9800
o Below 9000
o Can't predict

To vote, please visit the following web page:http://groups.yahoo.com/group/commoditytalk/surveys?id=1931261

Note: Please do not reply to this message. Poll votes arenot collected via email. To vote, you must go to the Yahoo! Groupsweb site listed above.

Thanks!

Kamlesh Jogi

Nymex Crude Oil

Source: Future Source
Nymex crude traded in a narrow range earlier in the day on Friday, holding on to the 1.9% leap noted in the previous session, as market participants waited for fresh cues to move prices. Nymex crude slipped by almost a dollar as dollar strengthened after the positive job's data eased expectations that Fed may impose another cut in interest rates and on lack of immediate threat to the energy infrastructure in the Gulf of Mexico from storm activity.
Dollar rose after reports noted that Non-farm payrolls rose 110,000 in September. Also August data was revised to an 89,000 rise from a previous estimate of a 4,000 decline. Earlier, the August report showed the first decline in jobs in four years, sparking concerns that the US subprime mortgage problems were affecting larger economy.
Concerns that US subprime market woes may affect larger economy induced US Fed to impose a sharper than expected cut in interest rates. Oil prices rallied last month when the Fed cut rates more than forecast, because it was expected this would aid economic growth and therefore energy demand.
While the stronger jobs data bode well for the economy, oil traders have been focusing on dollar movements in recent weeks and a slump in the currency has been a factor in helping push prices to their record. A weaker dollar gives oil producers extra incentive to drive prices higher. It also renders dollar-denominated crude oil cheaper in other currencies
Nymex crude fell earlier this week following some correction in the market after the rally witnessed last week however the losses were recouped on Thursday as funds indulged in buying after the dip in prices and also as US weekly petroleum report noted an unexpected decline in gasoline and distillate stocks.
Easing storm concerns, The US National Hurricane Center said Friday it did not expect any of six Atlantic low pressure systems it is watching to develop into a tropical cyclone Friday.
Yesterday, Nymex crude Nov. contract settled at $81.22 per barrel with a decline of 22 cents and traded in a range of $80.51 to $81.68 per barrel.
Over the week, front month contract noted a decline of 44 cents or 0.5% and moved in a range of $78.87 to $81.75 per barrel. It noted a 4 cent rise in the previous week. Nymex crude slipped over last week after noting five weekly gains
Yesterday, ICE Brent crude Nov. contract settled at $78.90 per barrel with a decline of 7 cents and traded in a range of $78.17 to $79.21 per barrel.
Over the week, front month contract noted a decline of 27 cents or 0.3% and traded in a range of $76.56 to $79.54 per barrel. It dropped by 13 cents in the previous week
Middle-East crude oil Dec. contract on ICE ended yesterday at $74.51 per barrel with a decline of 3 cents while Oman crude oil contract for Dec. delivery on Dubai Mercantile Exchange ended yesterday at $75.47 per barrel with a gain of 32 cents.
As per the COT report, speculators for Nymex light sweet crude oil futures trimmed their long and short positions but continued to be net long for the week ended Oct. 2. They raised their net long position by 12906 contracts or 29.6% in the report week after trimming it by 19.6% in the previous week.
Nymex crude front month contract noted a modest fall over last week after jotting five straight weekly gains. As per a survey by Bloomberg, crude oil prices may decline in the coming week on speculation that US inventories will rise because of refinery maintenance and increased OPEC output
While there are no immediate storm concerns, the Atlantic hurricane season is far from over. Also Colorado State University forecasters expect above-average hurricane activity in October and November, with four named storms, two hurricanes and one major hurricane.
In the coming week traders will look ahead for the International Energy Agency's monthly oil market report which will be released Oct. 11 and US Energy Information Administration's winter fuel outlook due Oct. 09.
The reports could hold more weight than the agencies' regular monthly reports because the record crude prices have been largely driven by forecasts of a supply deficit in the fourth quarter and early 2008. Any expectations for a warmer-than-normal winter, or expectations of slowing demand, could hurt price perceptions, while on the other hand, decreases in non-OPEC production or a shrugging of subprime concerns could have the other effect.

Copper seen at USD9,000 in April-May,'09

Source: Bloomberg
Copper prices should rise to $9,000 a metric tonne by April-May, 2009, as a combination of a physical demand and a peak in index fund holdings takes its toll, Bloomsbury Minerals analyst Chris Welch said Friday.
Copper's price forecasts have systematically been underrated, Welch said, because many statistics fail to take into account the consumption of unreported stocks, mine production has been over-forecast and the requirement for working stock has been ignored in a growing industry. Additionally, he said long-only investment in copper has been confused with speculative trade. Speaking at the 20:20 Investor Series seminar in London, Welch said Bloomsbury predicts a surplus of 25,000 tonnes of copper in the third quarter of 2007, which is smaller than many had expected. In the fourth quarter of 2007, demand from western Europe and the US will be very weak but the fate of the copper market is determined by consumers in China, India, Russia, Central Europe and the Middle East, Welch said. Strikes in Peru and Mexico are also important to price forecasts, Welch added. Welch said Bloomsbury sees reference to BRIC - Brazil, Russia, India and China - as a distraction to where real copper demand is coming from. Most demand is coming from a combination of Brazil, India, Indonesia and China, where consumption has increased the most between 2002 and 2007 by 2.36-million tonnes.
Another important grouping is the UAE, Turkey, Egypt, Saudi Arabia, where copper demand grew by 2,60,000 tonnes between 2002 and 2007, Welch said. Demand in Germany, Italy, Russia, Poland grew by 9,05,000 tonnes. Meanwhile, demand for copper in the UK, US, Australia and Greece declined by 6,45,000 tonnes. In 2008 and 2009, reduced annual growth in essential working stocks will create a tiny commercial deficit, with raw materials supply predicted to remain tight.
Welch said on top of a deficit in the refined copper market in 2007, there is also one in the concentrates market. But mine production is expected to speed up in 2009-2010, and then roughly 15% of the next four years' production growth will go to rebuild concentrates stocks to more normal levels.
Welch forecast a commercial copper market surplus for 2010-2011, largely because it is assumed the "once per decade" global recession will occur then. However, he said if there isn't a global recession then copper market conditions will be tight until new projects currently going through the feasibility stage come on stream. Much of this new output is expected from 2012 onwards.

Bullion

Gold futures went on a roller-coaster ride with the euro Friday, first tumbling with the single European currency after a stronger-than-expected US jobs report but soon shooting higher again.

December gold rose $3.40 to $747.20 a troy ounce on the Comex division of the New York Mercantile Exchange. More significantly, it closed up $15 from an early-day electronic low of $732.70.

As pit trade was closing, the December contract at the Chicago Board of Trade was up $3.60 to $747.20. Comex December silver fell a penny to $13.49, but bounced from a low of $13.31. Shortly after it closed, CBOT December silver was down 0.2 cent to $13.494.

Thursday, October 4, 2007

Interest rate Decisions

Both ECB and BoE left interest rates unchanged as widely expected.Euro dips mildly, in particular against Sterling, as market interprets Trichet's remarks in the following press conference as less hawkish than expected. No "vigilance" is used as widely expected. To some's surprise, Trichet dropped the description of "on the accommodative side" to interest rates. Also, Trichet emphasized the need to "gather additional information and examine new data before drawing further conclusions for monetary policy". Trichet highlighted that "particular" caution is needed to be given to the financial market development which heightened risks to growth of the Eurozone economy. Though Trichet does noted recent climb in HICP inflation and that medium term risks to inflation remain on the upside and ECB stand ready to counter these risks.

Wednesday, October 3, 2007

US Preview


Asian stocks today closed mixed with the Nikkei index up +0.90%, but with Hong Kong closing -2.55%. The Chinese stock market remains closed for the Golden Week holidays. The European DJ Stoxx 50 is slightly higher by +0.06%

Mortgage applications – Today's weekly MBA report showed a -2.7% decline in the MBA mortgage applications index, a -1.8% decline in the purchase mortgage sub-index to a 5-month low, and a -3.8% decline in the refinancing sub-index. Last week, the weekly MBA mortgage applications index fell –2.8%, the purchase sub-index fell –7.2%, and the refi sub-index rose +3.3%. Mortgage applications are now fading after initial strength seen after the mortgage crisis began in early-August as people tried to push through purchase and refi mortgage applications before conditions became any worse. However, anecdotal information suggests that banks are turning down more than the usual number of mortgage applications due to the tighter underwriting restrictions. That means that the mortgage applications index is overstating the number of mortgages that are actually being closed. Yesterday’s Aug pending home sales report fell sharply by –6.5%, adding to the –10.7% plunge seen in Augus t. The 2-month plunge in pending home sales is a negative leading indicator for existing home sales and mortgage applications. The only thing the housing market has going for it right now is lower mortgage rates. The 30-year mortgage rate has fallen sharply by a net 32 bp to the latest level of 6.42% from the 14-month peak of 6.74% seen in mid-June. That has made mortgage cheaper and homes more affordable, at least for those that can still qualify for a mortgage.

ISM non-manufacturing index – Today’s Sep ISM non-manufacturing index is expected to show a modest decline of -1.2 to 54.6 following August’s report of unchanged at 55.8. The expected report of 54.6 would leave the index at the third lowest level in 2 years, just 0.4 points above the 2-year low of 52.4 posted earlier this year in March. Still, the index would remain above the boom-bust level of 50, indicating a continued expansion in the US service sector. The markets are continuing to watch the US economic data very closely for signs of a possible significant drop in business and consumer confidence due to the housing and financial market crisis.
Dec S&Ps this morning are trading lower due to some negative technology stock news for Intel/AMD and Micron Technology and due to some long liquidation pressure after Monday's rally. The US stock market yesterday closed mixed following Monday's sharp rally (Dow -0.29%, S&P 500 -0.03%, Nasdaq Composite +0.22%). The stock market yesterday held Monday's gains as the market was encouraged that UBS and Citicorp came clean on writing down fixed income portfolios and as buying emerged at the beginning of the quarter. There is general optimism that the US economy will continue to chug along at a decent pace, supported by global growth and demand for US exports. Moreover, US stock market valuations remain reasonable.",1]


ISM non-manufacturing index – Today’s Sep ISM non-manufacturing index is expected to show a modest decline of -1.2 to 54.6 following August’s report of unchanged at 55.8. The expected report of 54.6 would leave the index at the third lowest level in 2 years, just 0.4 points above the 2-year low of 52.4 posted earlier this year in March. Still, the index would remain above the boom-bust level of 50, indicating a continued expansion in the US service sector. The markets are continuing to watch the US economic data very closely for signs of a possible significant drop in business and consumer confidence due to the housing and financial market crisis.

US Economy Update

Markets' focus is turning to services data and ADP employment report today. ISM non-manufacturing index is expected to drop slightly from 55.8 to 55 in Sep with price paid index dropping from 58.6 to 57. With Friday's highly anticipated NFP in sight, the employment component of the ISM non-manufacturing report will be closely watched. This employment component surprisingly dropped to contractionary level at 47.9 in Aug, marking first contraction since Jul 04. The private ADP employment report, which serves as a preview to NFP is expected to show 53k job growth in Sep. Monday's recovery in the employment component in the ISM manufacturing report provided some support to a rebound in NFP in Sep. Markets will look into whether the ISM non- manufacturing employment and ADP provide further support or offset that positive data.

Tuesday, October 2, 2007

Currency Update

Dollar continues to recover against most currencies as markets are preparing for key event risk of NFP on Friday. Meanwhile, despite strong rally in global and US stock markets, the Japanese yen also recovers mildly against dollar and in crosses. UK construction PMI, Eurozone PPI and unemployment as well as US pending home sales will be featured today. But markets seems to have passed a climax in near term and further choppy trading will likely be seen, at least before ECB and BoE rate decision on Thursday.

Todays US Data

Todays US Data : 2 Oct US Pending Home Sales, Total Vehicle Sales, Domestic Vehicle Sales

LME Warehouse Stocks

LME Zinc Warehouse Stocks -125 MT To 60,725 MT
LME Aluminum Warehouse Stocks -525 MT To 936,875 MT
LME N Amer Alloy Warehouse Stocks -120 MT To 120,720 MT...
LME Copper Warehouse Stocks +175 MT To 130,850 MT
LME Lead Warehouse Stocks -225 MT To 22,325 MT
LME Nickel Warehouse Stocks +0 MT To 0 MT
LME Alu Alloy Warehouse Stocks -400 MT To 69,900 MT
LME Tin Warehouse Stocks -170 MT To 13,820 MT

Saturday, September 29, 2007

US Economy Outlook


The outlook here in the U.S. still looks grim, with the housing sector and mortgage crisis weighing on the economy. At the end of September, Consumer Confidence fell again to 99.8. The Case/Shiller data released for the month of July showed a .45% m/m decline in home prices. Ultimately, the rate cut decision should turn the housing sector around into next year. With the amount of inventory on the U.S. housing market, prices for homes lower, and a more attractive mortgage rate, the end of the housing meltdown could be near. Until that time, the Canadian economy should stay strong with the expectations for further U.S. rate cuts in the works. The Bank of Canada has put their rate increase on hold for the last couple of months, due mostly to credit issues and lower rates here. If there are further cuts here and increases in Canada, this could create another carry trade market that would not help support the USD.

As the fundamentals continue to weigh on the USD, the downside breaks are areas of opportunity to catch the new lows. The last time we wrote about this market, it was at the 1.0550 level and we waited for the breakout under the 1.05 level. Once again, we will wait for another low to get in. If not, we run the risk of being caught up in a pullback that could easily run 100+ pips. After the breakout below the 1.050 level, there has been a strong trend down that has been hard to fade. As expected, the market hit the 1.00 barrier and has absorbed the number with little pullback--as shown on the chart below. Once again we are looking to trade with the momentum on another break lower. Below you see the .9922 area as a point to watch for a short position. If the market can continue to sell off under that, our target is .9850 and .9970 area would be the stop loss area. There is strong sentiment the CAD will stay in the par area, so we are only looking for breakouts instead of trying to capture a long-term trend in these areas.

Friday, September 28, 2007

US Economy Update

  • Global stocks are mixed but lower in Europe and the US today on news that Northern Rock Plc requested more emergency funds from the Bank of England. In Asia the Nikkei closed down -0.28%, Hong Kong closed up +0.29% at another record high, China closed +2.82% and Australia closed +0.45%. In Europe the DJ Stoxx 50 is trading down -0.32%.
  • The Financial Times reported today that Northern Rock Plc, a UK bank, approached the Bank of England for more emergency loans, rekindling concern about the credit markets. Northern Rock borrowed a further 5 billion pounds ($10 billion) from the central bank to stay in business, the Financial Times reported. The BOE agreed to bail out Northern Rock on Sep 14 after Northern Rock requested an emergency credit line after mounting losses associated with the subprime mortgage crisis made it increasingly difficult for the bank to operate. Northern Rock has now borrowed close to 8 billion pounds from the BOE since Sep 14.
  • China raised interest rates on some mortgages and increased minimum down payments to curb property speculation after real-estate prices rose last month at their fastest pace in more than 2-years. Loans for second homes and commercial sites will be charged 1.1 times the benchmark lending rates, up fom 0.9 times, and down payments will rise to 40%, from 30%, for housing loans and to half a property's value for commercial real estate. The PBOC is trying to slow a housing bubble as housing prices in 70 major cities rose 8.2% last month, the biggest gain since the government began the monthly survey in August 2005.
  • The research department of the PBOC also said today that they expect the economy to expand Core PCE deflator – Today’s Aug personal income and spending report is expected to show an increase of +0.4% for both series, following July’s report of +0.5% and +0.4%, respectively. The market will mainly be watching the Aug core PCE deflator, which is expected to ease to +1.8% y/y from +1.9% y/y in July. The FOMC last week cut the funds rate target by 50 bp to 4.75%, but the FOMC in its post-meeting statement had an inflation warning, suggesting that the Fed might not cut rates another notch without some further improvement in the inflation statistics. A decline in today’s core PCE deflator, which is the Fed’s preferred inflation index, would be a step in the right direction.
  • Chicago Purchasing Managers index – Today’s Sep Chicago purchasing managers index is expected to show a –0.8 point decline to 53.0, more than reversing the small +0.4 point increase to 53.8 seen in August. The purchasing managers survey is useful in the current environment since it gives some insight into whether business executives are panicking in the wake of the financial market crisis that started in early-August. So far, business executives seem to be taking the credit market crisis in stride, perhaps because the stock market has remained remarkably strong through the crisis.
  • US consumer confidence – The final-Sep US consumer confidence index from the University of Michigan is expected to show a small upward revision by +0.2 points to 84.0 from the early-Sep level of 83.8. The early-Sep level of 83.8 was up by +0.4 points from Aug, thus stabilizing after the sharp –7.0 point decline seen in August from the 7-month high of 90.4 posted in July. The markets are keying heavily on consumer confidence and spending in the wake of the credit market crisis, which began in early August11.6% this year, faster than earlier forecasts of 10.8% and consumer prices will rise 4.6% this year, up fom a previous forecast of 3.2%.
  • Core PCE deflator – Today’s Aug personal income and spending report is expected to show an increase of +0.4% for both series, following July’s report of +0.5% and +0.4%, respectively. The market will mainly be watching the Aug core PCE deflator, which is expected to ease to +1.8% y/y from +1.9% y/y in July. The FOMC last week cut the funds rate target by 50 bp to 4.75%, but the FOMC in its post-meeting statement had an inflation warning, suggesting that the Fed might not cut rates another notch without some further improvement in the inflation statistics. A decline in today’s core PCE deflator, which is the Fed’s preferred inflation index, would be a step in the right direction.
  • Chicago Purchasing Managers index – Today’s Sep Chicago purchasing managers index is expected to show a –0.8 point decline to 53.0, more than reversing the small +0.4 point increase to 53.8 seen in August. The purchasing managers survey is useful in the current environment since it gives some insight into whether business executives are panicking in the wake of the financial market crisis that started in early-August. So far, business executives seem to be taking the credit market crisis in stride, perhaps because the stock market has remained remarkably strong through the crisis.
  • US consumer confidence – The final-Sep US consumer confidence index from the University of Michigan is expected to show a small upward revision by +0.2 points to 84.0 from the early-Sep level of 83.8. The early-Sep level of 83.8 was up by +0.4 points from Aug, thus stabilizing after the sharp –7.0 point decline seen in August from the 7-month high of 90.4 posted in July. The markets are keying heavily on consumer confidence and spending in the wake of the credit market crisis, which began in early August

Thursday, September 20, 2007

Energy Update

Nymex crude noted modest fall to trade below $82 per barrel in the electronic trade session on Thursday after ending yesterday at a record high price after hitting a new intraday high of $82.51 per barrel. ICE Brent crude slipped below $78 per barrel today after ending higher for previous three trading sessions.
While profit booking may have brought a pause to the rally witnessed in last few days however keeping the losses in a check are steeper than expected decline in crude oil stocks following which pulled them to an eight month low and some storm concerns as a system developing in the Atlantic led to some evacuations from Gulf of Mexico oil platforms but only a minor halt in production. The Gulf of Mexico accounts for a quarter of US oil output.

The US National Hurricane Center said yesterday that disturbance along the east coast of Florida that may move into the Gulf Of Mexico could develop into a hurricane. This led BP PLC, Chevron Corp. and Marathon Oil Corp. and Royal Dutch Shell PLC to evacuate non-essential staff from the Gulf of Mexico while Exxon Mobil shut 1,000 barrels of daily crude oil production along with 55 thousand cubic feet per day of natural gas output

Also in background are refinery outages in Texas and California, concerns about conflict between Iran and the west over prior's nuclear research which resurfaced this week and expectations that the sharper than expected 50 basis point cut in US interest rates will be positive for economic growth, and therefore energy demand and will also pressure the dollar, which generally boosts the price of dollar-denominated oil and makes it cheaper, relatively, for holders of other currencies.

US crude oil stocks dropped 3.8 mn bbl to 318.8 mn bbl, gasoline stocks rose 0.4 mn bbl to 190.8 mn bbl while distillate stocks noted a build of 1.5 mn bbl to 135.5 mn bbl for the week ended Sept.14. Refineries operated last week at 89.6% of their capacity after operating at 90.5% in the previous week

US crude oil stocks fell for the fourth time last week and for the 10th time in past 11 weeks and was noted at the lowest level since the week ended Jan 5. Crude oil stocks dropped last week despite a rise in imports. Despite the 10% drop in past 11 weeks, crude oil stocks are at the upper end of the average range for this time of year however deficit over stocks a year ago widened to 3.9% last week.

Shanghai Copper Advances on U.S. Rate Cut; Zinc, Aluminum Gain

Shanghai Copper Advances on U.S. Rate Cut; Zinc, Aluminum Gain
Copper rose in Shanghai on speculation demand for the metal will rise because this week's interest rate cut by the U.S. Federal Reserve will help contain a housing slump in the world's largest economy.

The Fed cut its benchmark lending rate on Sept. 18 by half a point, more than economists forecast, to 4.75 percent. Copper often moves in tandem with growth in major economies.
``At the back of people's minds, the credit and housing problems in the U.S. are far from over, but the larger-than- expected rate cut offers investors some psychological assurance, which is giving a boost to metal prices,'' Shen Xiaoqiang, research manager at Jian Zheng Futures Co. in Jiangsu, China, said by telephone today.

Copper for December delivery on the Shanghai Futures Exchange rose as much as 680 yuan, or 1 percent, to 67,730 yuan ($9,012) a metric ton, and ended the day at 67,220 yuan a ton.
The metal for immediate delivery in Changjiang, Shanghai's biggest cash market, gained as much as 1.4 percent to 67,390 yuan a ton.

``At these prices, activity in the physical market is not lively, but demand is expected to increase in the fourth quarter and people will buy then if they have to, whatever the price,'' said Shen.

London Metal Exchange copper for delivery in three months fell 0.4 percent to $7,855 a ton at 3:32 p.m. in Shanghai, after gaining 4 percent yesterday. December delivery copper on the Comex division of the New York Mercantile Exchange was down 0.2 percent at $3.5680 a pound, after climbing 3.7 percent to $3.5755 a pound yesterday.
U.S. Data

``The rally in the international markets yesterday was too exuberant, given that the economic data out of the U.S. last night was bearish for metals,'' Shen said.

Builders in the U.S. broke ground on 1.331 million homes at an annual rate, the Commerce Department said in Washington yesterday, the fewest in 12 years and less than economists had forecast. Builders are the largest users of copper in the U.S., the world's second-largest consumer of the metal.

``There is still no sign of either the housing market or the residential construction industry hitting bottom and starting to stabilize,'' John Kemp, a London-based analyst at Sempra Metals Ltd., one of 11 companies trading on the floor of the London Metal Exchange, wrote in a report yesterday.

Separately, U.S. consumer prices unexpectedly dropped 0.1 percent from July, the first decline this year, the Labor Department reported yesterday.

Other Metals

Zinc in Shanghai for November delivery rose 0.5 percent to close at 26,820 yuan a ton, and LME zinc was down 1.3 percent at $2,945 a ton at 3:37 p.m. Shanghai time. Shanghai December aluminum ended up 0.2 percent at 19,370 yuan a ton. LME aluminum was 0.4 percent lower at $2,473 a ton.

Among other LME-traded metals, nickel fell 0.4 percent to $33,650 a ton at 3:39 p.m. in Shanghai. Lead lost 1.1 percent to $3,200 a ton, while tin didn't trade in Asia after rising yesterday to $15,350 a ton.

Asia gold up in bullish mood

Asia gold up in bullish mood

Spot gold rose in Asia Thursday but prices were rangebound after this week's sharp advances amid continuing bullish sentiment, traders and analysts said. Following the Federal Reserve's aggressive discount and fed-funds rate cuts, participants noted rising suspicion in the market that the impact from the subprime meltdown on the US economy may be stronger than expected.
The Fed's unanimous decision pointed to more bad news to come for the US economy, said Westpac Analyst Robert Rennie, with sky-high oil, gold and wheat prices leaving the Fed to face conflicting policy issues on further rate cuts and containing inflation. Gold built on the strongly positive lead from the Fed's cuts freeing up some liquidity and a strong rally by the Australian dollar, New Zealand dollar and euro against the US currency, said a Singapore-based trader.
Gold could easily breach Tuesday's high of $727 a troy ounce later in the trading day, particularly if the euro remains above $1.40 against the dollar, he said. But the increase in long positions in gold could result in some profit-taking, he added. Fat Prophets Analyst Gavin Wendt said the outlook for gold and oil was strongly positive, and retained a medium record price target of $1,000/oz for gold. US economic data will be keenly watched in the coming weeks for clues on US economic health, as will third quarter results from US banks, with Goldman Sachs due to report later Thursday.
"US housing starts weren't great, and inflationary pressures are on the up. But let's not forget that the Fed, now that it has moved to provide liquidity to the market, can always put rates back up," a trader said. Meantime, gold miners may increase the pace of de-hedging should prices rally above $730-735/oz, a Tokyo-based trader said, noting that Newcrest Mining has yet to buy back the remaining half of its hedgebook after the buyback of 2.3 million ounces earlier this month.
Other miners, foremost Barrick Gold and AngloGold Ashanti, still have large hedgebooks. "I'm not really sure they can stand aside or not. Those mining companies might cover their shorts quickly," he said.

Wednesday, September 19, 2007

US Economy Update

Dollar continues to hover near record low against Euro after reportsshowing US CPI unexpectedly slowed in Aug and more than expecteddeterioration in the housing markets. Headline CPI fell -0.1% mom inAug, down from 0.1% mom in Jul and below expectation of being flat.This dragged the yoy rate further to 2.0%. Core CPI rose 0.2% mom,dragging yoy rate down to 2.1%. Housing starts decreased -2.6% to1.331, a 12 years low, while building permits decreased -5.9% to1.31m annualized rate, lowest since 95. Both are worse than market'sexpectation. USD/CAD recovers mildly from 1.0080 new 30 year lowtoday and continues to consolidate after report shows canadian CPIeased to 1.7% yoy in Aug. Still, the core CPI remained elevated at2.2%, though this was down from inflation in June and July.

Economist predicts housing downturn

Economist predicts housing downturn

An economist who has long predicted this decade's housing market bubble would deflate said the residential real estate downturn could spiral into "the most severe since the Great Depression" and could lead to a recession.
Yale University economist Robert Shiller's comments came a day after the Federal Reserve responded to credit market turmoil by slashing the target federal funds rate by a half point to 4.75 percent.
Shiller, in testimony prepared for a hearing of the Joint Economic Committee said the loss of a boom mentality among the public "may bring on a further loss of consumer confidence." While he sees a "significant risk" of a recession within the next year, Shiller said actions by the Fed will lessen its severity.
Also in prepared remarks, Peter Orszag, director of the Congressional Budget Office, gave a more tempered forecast, saying that financial market turmoil and weakened consumer confidence "could pose serious economic risks" that are difficult to predict.

Tuesday, September 18, 2007

US Market Update

UK stocks today are mildly higher (FTSE +0.27%) as the UK mortgage banking situation improved today. However, European stocks as a whole are trading slightly lower with the European DJ Stoxx 50 down -0.15%. Asian stocks today closed lower with the Nikkei index down -2.02%, Hong Kong down -0.09%, China down -0.40%, and Australia down -1.26%.
The UK mortgage banking situation improved today after the Bank of England yesterday pledged to guarantee the deposits in Northern Rock and any similarly-situated solvent bank. Northern Rock's stock today rose +10%, regaining some ground after falling 56% in the previous two sessions. Competitor Alliance & Leicester Plc, recovered by 26% today.
FOMC meeting – The FOMC meets today in the most-anticipated FOMC meeting in years. The October federal funds futures contract yesterday closed at a yield of 4.875%, which means that the market is discounting an average 4.875% funds rate during the month of October. Under normal circumstances that would mean the market is discounting a 100% chance of a 25 bp rate cut today and a 50% chance of a 50 bp cut. However, the Fed has been allowing the funds rate to trade at an average of about 20 bp below the official funds rate target. That means that the 4.875% level in the October fed funds futures market is also consistent with the idea that the Fed may only cut the official funds rate target by 25 bp to 5.00% but then allow the average daily funds rate to trade 12.5 bp below the new 5.00% target at 4.875%.
In any event, the market is expecting the FOMC in its post-meeting statement to adopt a bias toward easing and to perhaps provide some assurance that the Fed will provide liquidity to the banking system as needed to prevent any fresh crisis of confidence. The market is also expecting the Fed today to cut the
\n\t\u003cli\> The US stock and bond markets may show a knee-jerk negative reaction today if the Fed only cuts the funds rate by 25 bp since some vocal market commentators are calling for a 50 bp cut. However, FOMC members have shown a wide variety of opinions about the impact of the financial market crisis and it may be difficult to garner a majority vote for a 50 bp cut. The market therefore will not be particularly surprised by a 25 bp rate cut and a negative reaction may be short-lived since the markets can then at least be assured that the Fed will cut another 25 bp notch at the next FOMC meeting on Oct 30-31.\u003cp\>\n\t\u003cli\> PPI – Today’s Aug PPI report is expected to show a decline of -0.3% m/m overall and a small +0.1% increase excluding food and energy. That would follow the July report of +0.6% m/m overall and +0.1% core. On a year-on-year basis, the overall Aug PPI is expected to ease to +3.2% from +4.0% in July, and the core PPI is expected to ease slightly to +2.2% from +2.3% in July. The expected decline in the year-on-year PPI figures would help the Fed justify a rate cut today even though the negative effects of the mortgage and financial market crisis have yet to be seen in the real economy to a significant degree. The Fed will be putting aside any inflation fears it may still have at present in favor of a pre-emptive easing, but a decline inflation figures would nevertheless be helpful to the Fed’s cause.\u003cp\>\n\t\u003cli\> NAHB index – Today’s Sep NAHB housing market index is expected to fall -2 points to 20, adding to the -2 point decline to the 16-year low of 22 seen in August. The expected report today of 20 would match the record low for the series posted in Jan 1991 (the history of the series goes back to Jan 1985). The NAHB index measures the sentiment among US homebuilders on the single-family home market, with 50 being the demarcation between a “good” versus “poor” outlook for the single-family home marketplace. Today’s report for September will more accurately pick up the sentiment of homebuilders in the wake of the mortgage and banking crisis, which started on Aug 8 when BNP Paribas announced a halt of investor withdrawals from three of its investment funds.",1]
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5.75% discount rate by at least the same amount as the funds rate target. The Fed may even cut the discount rate by more than the funds rate target, creating a narrower penalty margin of the discount rate above the funds rate target. For example, the Fed could cut the funds rate target by 25 bp to 5.00% and cut the discount rate by 50 bp to 5.25%, thus narrowing the penalty spread to 25 bp. The Fed has been trying to encourage banks to borrow at the discount window if needed, but banks can only do that at a penalty of more than 50 bp at present.
The US stock and bond markets may show a knee-jerk negative reaction today if the Fed only cuts the funds rate by 25 bp since some vocal market commentators are calling for a 50 bp cut. However, FOMC members have shown a wide variety of opinions about the impact of the financial market crisis and it may be difficult to garner a majority vote for a 50 bp cut. The market therefore will not be particularly surprised by a 25 bp rate cut and a negative reaction may be short-lived since the markets can then at least be assured that the Fed will cut another 25 bp notch at the next FOMC meeting on Oct 30-31.
PPI – Today’s Aug PPI report is expected to show a decline of -0.3% m/m overall and a small +0.1% increase excluding food and energy. That would follow the July report of +0.6% m/m overall and +0.1% core. On a year-on-year basis, the overall Aug PPI is expected to ease to +3.2% from +4.0% in July, and the core PPI is expected to ease slightly to +2.2% from +2.3% in July. The expected decline in the year-on-year PPI figures would help the Fed justify a rate cut today even though the negative effects of the mortgage and financial market crisis have yet to be seen in the real economy to a significant degree. The Fed will be putting aside any inflation fears it may still have at present in favor of a pre-emptive easing, but a decline inflation figures would nevertheless be helpful to the Fed’s cause.
NAHB index – Today’s Sep NAHB housing market index is expected to fall -2 points to 20, adding to the -2 point decline to the 16-year low of 22 seen in August. The expected report today of 20 would match the record low for the series posted in Jan 1991 (the history of the series goes back to Jan 1985). The NAHB index measures the sentiment among US homebuilders on the single-family home market, with 50 being the demarcation between a “good” versus “poor” outlook for the single-family home marketplace. Today’s report for September will more accurately pick up the sentiment of homebuilders in the wake of the mortgage and banking crisis, which started on Aug 8 when BNP Paribas announced a halt of investor withdrawals from three of its investment funds.

Monday, September 17, 2007

LME Data

COPPER: DOWN -2000
ZINC: DOWN -1500
ALUMINIUM : UP 6150
NICKEL: UP 774
LEAD: DOWN -675

Impact;
Positive for Copper, Zinc and Lead. Negative for Aluminum and Nickel

Currency Update

Currency Update

The forex markets are quietly mixed in tight range as traders are preparing for tomorrow's FOMC rate announcement. Sterling continues to weaken across the board as BOE's bail out of Northern Rock continues to weigh on the currency. Former Fed chairman Alan Greenspan warned on an interview on Sunday that Fed should be cautious not to in lower interest rates too aggressively considering the risks of resurgence in inflation. Also, he expected that the slump in the housing market would likely deepen further that most expected and record as much as a double-digit drop. Markets have cooled down the speculations of a 50bps hike from Fed on Tuesday but opinions remain divided.

Weekly Currency and US Economy

Weekly Currencies


The U.K. posted a favorable jobs report on Wednesday, showing a total of 31.69 million jobs, the most since records began in 1959. However, nerves were tested on Friday when the Bank of England said that it made an emergency loan to Northern Rock, the U.K.'s fifth largest mortgage lender. The Bank of England has maintained a stricter response to the subprime problems than either Europe or the U.S. and Friday's big drop in the pound hinted at the consequences of that policy. The December pound closed the week down 2.22 cents at $2.0049.

It was a tough week for the yen. On Monday, Japan's Cabinet Office reported that the economy contracted .3% in the second quarter of 2007, much worse than anticipated. Then on Wednesday, Prime Minister Shinzo Abe unexpectedly resigned from office and checked himself into a hospital for stress-related illness. The ruling Liberal Democratic Party will hold an election on September 19th to choose the next Prime Minister. In the meantime, the December yen finished the week down .0157 at .8784.

Australia is one economy that has slipped by most of the recent financial problems unharmed. The International Monetary Fund said on Thursday that they expect Australia's real GDP to increase 4.4% in the fiscal year that ends on June 30, 2008. The December Australian dollar climbed 1.62 cents to 84.02.

This week's China Watch showed that in August, consumer prices were at their highest level in 11 years, retail sales were up 17.1% from a year ago, and industrial production slowed slightly, to a 17.5% annual gain. On Friday, the People's Bank raised the one-year lending rate from 7.02% to 7.29%, the highest in nine years and the fifth increase this year. The government has also increased banks' reserve requirements seven times this year.

Weekly US Economy

Disappointment from last week's weak unemployment report hung over the markets again this week and Friday's report that August retail sales without autos were down .3% did not help. On the positive side, the University of Michigan's consumer sentiment index did improve slightly in September. The December U.S. dollar index was down .265 to 79.46, the lowest spot close in 15 years. The December S&P 500 gained 25.60 to 1,498.00 with high hopes for a federal funds rate cut on Tuesday.

With little economic news out this week, the market did hear some interesting comments from interviews with former Federal Reserve Chairman Greenspan. Among the highlights, he said that he did not recognize a serious problem in the subprime mortgage market until 2005 and he also said that Fed Chairman Bernanke has made the same decisions that he would have made, were he still in office. The June eurodollars were down .165 at 95.60. The December U.S. T-bonds ended the week down 15/32nds at 112.27/32nds.



Weekly Energy, Metals

Weekly Energies


On Tuesday, OPEC threw the world a bone by announcing a 500,000 barrel per day production increase, but not until November 1st. The very next day, the Department of Energy said that U.S. crude oil supplies dropped 7.1 million barrels the previous week and gasoline supplies were down 700,000 barrels. It is very hard to see at this point how refiners are going to be able to increase heating oil supplies for winter without reducing record-low gasoline supplies even further. November reformulated gasoline climbed 5.40 cents to $2.0144.

Hurricane Humberto surprised investors by going from a tropical depression to a hurricane in just 18 hours and hit East Texas and Louisiana with heavy rain and damaging winds. There was no significant damage reported to the oil or gas rigs in the Gulf of Mexico.

The week for natural gas began with news that militants sabotaged six gas pipelines in Mexico and then the market absorbed concerns about Hurricane Humberto. Despite the shock, U.S. natural gas supplies remain high, at 3.069 billion cubic feet with another six weeks available to build supplies even more. November natural gas ended the week up 60.8 cents at $7.054.

Weekly Metals


On Thursday, GFMS, Ltd. said that world gold mine production was up 3% in the first half of 2007 from last year's low levels. Even so, they expect prices to stay high, averaging $690 in the second half of 2007 and working higher in 2008. December gold finished the week up $8.10 at $717.80, the highest spot close in over a year, with high hopes that the Federal Reserve will cut the federal funds rate when they meet on September 18th.

On Tuesday, copper prices got a lift after a report showed that China's copper imports were up 43% in the first eight months of 2007 from a year ago. Copper has been a little torn lately between strong economic news from China and weak economic news here in the U.S. By Friday afternoon, December copper had gained back last week's loss, closing up 14.10 cents at $3.3925.

Thursday, September 13, 2007

US Data

Us Jobless claims: +4k to 319k in sept. 8 wk: 325 Exp

Impact; Data is positive for dollar, negative for bullion.

Energy Update

Energy Update :

Oct crude oil prices this morning are trading -15 cents and Oct gasoline is trading -1.13 cents. Some long liquidation pressure has emerged now that Hurricane Humberto made landfall last night with 85 mph winds but only caused heavy rain and flooding and only temporary disruptions to oil rigs, shipping, and refineries in the area.

Oct crude oil prices yesterday rallied $1.68 to a new record high of $79.91 and Oct gasoline rallied 3.49 cents. Bullish factors yesterday included Humberto, a new tropical depression in the east Atlantic, and a bullish DOE report. The market is watching a new tropical depression that is currently about 900 miles east of the Lesser Antilles and that is headed toward the Caribbean.

Yesterday's DOE report was bullish with a sharp 7.0 mln bbl drop in crude oil inventories (versus expectations for a 3 mln bbl drop), which left oil inventories 6.4% above the 5-year seasonal average, the least accommodative level in 4 months.

Meanwhile, gasoline inventories fell 666,000 bbl and are -4.7% below the 5-year seasonal average. Distillate inventories rose +1.8 mln bbl for the eighth consecutive weekly rise and are adequate at 1.0% above the 5-year seasonal average. Oil prices yesterday rose again despite OPEC's decision on Tuesday to raise its production quota by 500,000 bbl as of Nov 1.

India's gold demand low as bigger price falls eyed

India's gold demand low as bigger price falls eyed

India's gold demand was low on Thursday as buyers waited for prices to ease further from their recent highs or stabilize to be able to make purchases, dealers said.

"There is a little bit of buying from those in dire need," said Ajit Shinde of Magna Projects Pvt Ltd in Kolkata, a large wholesaler. "But it should pick up for the festivals."

Shinde said for the time being, his clients, mostly in Kolkata, were willing to wait for a fall to 8,900 rupees per 10 grams.

Dealers in banks said demand was low with people hoping for a fall to $700 an ounce in overseas markets.

Foreign spot gold was down from Tuesday's 16-month high of $714.20, as the dollar, with which gold usually has an inverse relation, recovered against other currencies. It also eased on investor caution ahead of a U.S. interest rates meet next week.

A slightly stronger rupee helped lower Indian gold prices, but not enough to inspire many buyers, dealers in banks said.

India's busy season is currently on with Ganesh Chaturthi festival falling on Saturday. People, particularly in south India, usually buy ornaments for their idols or for themselves at this time of the year.

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LME Data

LME Data:
Aluminum 894625 +3975
Copper 137075 -850
Nickel 28404 +660
Lead 23875 +100
Zinc 72975 -70

Impact: Data is positive for Copper and Zinc. Negative for Aluminium, Nickel and Lead

ECB says euro zone economic fundamentals remain strong

ECB says euro zone economic fundamentals remain strong

The European Central Bank said euro zone economic fundamentals remain strong despite the recent turmoil in credit markets.

"Incoming macroeconomic data confirm the strong fundamentals of the euro area economy and support a favourable medium-term outlook for real GDP growth," the ECB said in its September monthly bulletin.

"Data on activity in the third quarter -- from various confidence surveys and indicator-based estimates -- remain favourable overall and support the assessment that real GDP is growing at sustained rates," it said.

Against this background of strong economic fundamentals, inflation risks are still tilted to the upside and interest rates therefore remain "on the accommodative side", it said.

The ECB left its main interest rates unchanged at 4.00 pct at last week's governing council meeting, citing uncertainty about the economic impact of the recent financial market turmoil.

"It is appropriate to gather additional information and to examine new data before drawing further conclusions for monetary policy," it said. But it said it will monitor all economic developments very closely and continue to pay close attention to developments in financial markets.

The ECB said inflation is likely to increase to levels above 2.0 pct in the months ahead from 1.8 pct currently. Strong money and credit growth continue to point to inflation risks over the medium to longer term, it said..

Commodities Market Commentary

Copper stayed lower in early afternoon trade as investors took profits after yesterday's gains, with rising stockpiles and the easing of strike threats in Peru also depressing sentiment.

"After the extended rally seen on the run up to the close last night, prices have begun to take stock and profit taking has been in abundance from the beginning of the premarket session," said analysts at RBC Capital Markets. "Stock reporting rime showed net inflows for copper, aluminium and nickel, and outflows for the rest of the complex."

At 1.10 pm, copper for three-month delivery was trading at 7,401 usd against 7,475 usd at the close yesterday.

News that workers at Southern Copper Corp have called off a strike due for today after the company agreed to restart wage negotiations is also weighing on prices, analysts said.

Strike-related news had contributed strongly to yesterday's gains. Southern Copper is the world's fifth largest producer of copper. Its Ilo smelter and Cuajone and Toquepala mines have been plagued with strike action this year.

Meanwhile the LME said its stocks of the red metal increased by 650 tonnes this morning, bringing total LME monitored inventories to 137,925 tonnes, around 40 pct higher than they were two months ago.

Among other base metals, aluminium also dipped, helped by a sharp rise in LME monitored stockpiles. The metal slid to 2,444 usd from 2,460 usd yesterday. Inventories of the grey metal rose 6,000 tonnes this morning to 890,650 tonnes, according to the exchange. Stocks of the metal have risen by 5 pct in the last week.

Meanwhile lead, yesterday's strongest gainer, was steady at 3,020 usd against 3,030 usd at the close last night. The metal has been buoyed throughout the year by supply shortages from key producer Australian, and from China, after the imposition of an export tax on the metal earlier this year.

Nickel meanwhile inched up to 27,150 usd from 27,000 usd, and tin to 15,250 usd from 15,200 usd. Zinc was flat at 2,760 usd.

Gold hit a fresh 16-month high of 714.40 usd this morning after the dollar fell to an all-time low against the euro, and as the metal continued to attract support from inflation-hedging with oil prices close to record highs.

At 12.53 pm, spot gold was trading at 710.70 usd, an ounce against 711.80 usd at the close. Earlier, the metal touched a fresh 16-month high of 714.40 usd.

Among other precious metals, platinum was steady at 1,298 usd against 1,300 usd in late New York trade, while its sister metal palladium dipped to 331 usd from 333 usd. Silver was steady at 12.64 usd against 12.65 usd..

Wednesday, September 12, 2007

LME UPDATE

Aluminum 890650 +6000
Copper 137925 +650
Nickel 27744 +498
Lead 23775 -125
Zinc 73675 -575

Impact; Data is positive for Zinc, Lead. Negative for Copper, Aluminium and Nickel.

US Market techincal summary

COMEX SILVER (DEC)
The market now above the 40-day moving average suggests the longer-term trend has turned up. Momentum studies are trending higher but have entered overbought levels. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next upside target is 1305.0. The next area of resistance is around 1294.0 and 1305.0, while 1st support hits today at 1273.1 and below there at 1263.1.

COMEX GOLD (DEC)
Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The near-term upside objective is at 731.0. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 726.9 and 731.0, while 1st support hits today at 715.3 and below there at 707.8.

COMEX COPPER (DEC)
Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The cross over and close above the 18-day moving average indicates the intermediate-term trend has turned up. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next downside target is 331.05. The next area of resistance is around 341.90 and 343.75, while 1st support hits today at 335.55 and below there at 331.05.

CRUDE OIL (NOV)
Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. It is a mildly bullish indicator that the market closed over the pivot swing number. The near-term upside target is at 77.96. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 77.62 and 77.96, while 1st support hits today at 76.38 and below there at 75.47.

EURO trading at all time high

The euro hit a new all-time high of 1.3880 usd on further evidence that the European Central Bank is sticking to its hawkish stance just as the US Federal Reserve is widely tipped to cut its
benchmark interest rate.
This divergence between the two central banks pushed the euro to an all-time high earlier this morning and the dollar index has now fallen below its 1995 lows and is only 1.5 pct away from its Sept 1992 low of 78.19.

"The dollar is under significant pressure....the main drivers of dollar weakness appear to be collapsing short-term interest rate differentials as markets look to a series of reductions in the Fed funds rate and a related rise in risk appetite," said Steve Pearson, currency strategist at HBOS.

The most explicit hawkish comments from the ECB came yesterday when thecentral bank's president Jean-Claude Trichet stated that investors who"behave improperly will have to pay the price of their mistakes".


Analysts said this sort of rhetoric suggests that the ECB is nowhere nearcutting interest rates in the current liquidity crisis for fear ofundermining hard-won economic stability even if the US Federal Reserve, aswidely expected, cuts its benchmark funds rate a quarter point next Tuesday.

"If the ECB's hawkish tone continues however, the realisation that ECBpolicy has decoupled from the Fed, will imply that the euro strengthens evenfurther," said Stuart Bennett, analyst at Calyon.

Overall, currency markets remain dependent on the level of risk appetitein the markets overall, and in particular, are tracking equities. Rising stocks have allowed the dollar to rise against the yen as anincreased appetite for risk promotes the carry trades, while at the same timethe euro moves higher against the dollar.

Tuesday, September 11, 2007

Energy Update

Oil Steadies Below $78, OPEC Meeting in Focus

Oil prices steadied on Tuesday, as OPEC was set to debate a token rise in production, after climbing to near a record high above $78 due to pipeline attacks in the world's fifth-largest crude producer Mexico.

Several OPEC members have said they see no need to raise output at the group's meeting in Vienna on Monday as current stock levels are comfortable, though an OPEC source said on Monday Saudi Arabia and other Gulf Arab states back a token rise.

Any OPEC move to raise oil output at its meeting due to start 9 am London time on Tuesday would use the organization's current production as a starting point, not its nominal ceiling, a delegate in Vienna said on Tuesday.

"We continue to see some sort of complicated outcome such as the announcement of delayed production increases as the most likely one, as ministers are faced with a fast tightening market on one hand and growing economic risks on the other," said Barclays Capital.

The 10 OPEC members subject to output restrictions are already pumping around 1 million barrels per day (bpd) above their 25.8 million-bpd target, Reuters data show.

A number of consuming nations, including top consumer the United States, have called on OPEC to increase oil supplies as they see stocks declining rapidly in the coming peak winter season.

"U.S. crude stocks won't stop decreasing in the next weeks whatever OPEC's decision," said SG Commodities.

A plan to increase output may struggle to win support from members including Iran and Venezuela that take a more hawkish price view. Libya was quick to voice its opposition, saying on Tuesday that the group should not be swayed by short-term price movements.

Prices rallied to $78.47 in electronic trade on Monday after a series of attacks that caused explosions on Mexico's oil and gas pipelines. Chief executive Jesus Reyes Heroles of state firm Pemex said this will not hit the country's oil output or exports but cut off a quarter of its natural gas flow.


OPEC Likely to Keep Oil Quota Unchanged

"At this point, it doesn't seem to be a serious problem but it could potentially pose a longer-term problem, which is why futures reacted so strongly," said Jim Ritterbusch, president of Ritterbusch & Associates, adding there had been an influx of hedge fund money.

Oil prices are 27% up this year and have tripled since 2002 as investors buy into growing consumer demand, real or potential supply disruptions in producers such as Nigeria and Iran and infrastructure constraints such as a lack of refining.

LME Inventory

Lme Inventory:
Aluminum 884650 +6025
Copper 137275 -325
Nickel 27246 +486
Lead 23900 -275
Zinc 74250 +0

Impact;
Data is positive for Copper and Lead, negative for Aluminium, Nickel

Potato traders be cautious

Potato - Traders be cautious

Dear All

MCx Potato Sept closed on 10th Sept with OI = 508

Todays Volume = 40

Todays OI= 309

Where is other 159 lots?????

Think again and reply on this Group.
http://finance.groups.yahoo.com/group/commoditytalk/message/2406

regards.

Kamlesh Jogi

Mail: kamleshjogi@gmail.com
Mob: 09382955522


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Monday, September 10, 2007

Energy Update

Oil slid on Monday ahead of an OPEC meeting in Vienna that is due to set production levels for peak winter demand.

Most members of the Organization of the Petroleum Exporting Countries seem happy with OPEC's current output, but Saudi Arabia, the world's biggest exporter, has yet to signal its views.

U.S. Market Preview

U.S. Market Preview


  • Asian stocks today closed with some sharp losses as the markets played catch-up to last Friday's sharp losses on Wall Street due to the weak US Aug payroll report. The Nikkei index today closed -2.22% and Australia closed -1.39%, although Hong Kong closed +0.07% and China's CSI 300 index closed +1.56%. The European DJ Stoxx 50 index is down only -0.15% this morning, suggesting that the immediate fall-out from last Friday's US payroll report may be over.


  • This week’s US economic calendar is relatively light following last Friday’s unemployment report. Today brings the July consumer credit report (expected +$9.1 billion). Tomorrow brings the July US trade deficit report (expected slightly wider at -$59.0 bln vs -$58.1 bln in June). Wednesday brings the weekly MBA mortgage applications index. Thursday brings weekly unemployment claims, the Treasury’s 10-year T-note auction, and the Aug Treasury monthly budget statement (expected -$79.5 bln). Friday brings Aug retail sales (expected +0.5% overall and +0.3% ex-autos), Aug import prices (expected +0.3%), Q2 current account deficit (expected slightly narrower at -$190.0 bln vs -$192.6 bln in Q1), the early-Sep US consumer confidence index from the University of Michigan (expected +0.6 to 84.0), and July business inventories (expected +0.3%).
  • The market is mainly looking ahead to next Tuesday’s FOMC meeting, which is expected to produce at least a 25 bp rate cut in the funds rate target to 5.00%. There is only a remote chance that the Fed will cut rates prior to next week’s meeting due to last Friday’s disappointing July payroll report of –4,000. Philadelphia Fed President Charles Plosser said in an interview this past weekend that the surprise Aug payroll report showing a loss of jobs was “not encouraging.” However, he said that “We want to be careful not to overweight one piece of information” in making a rate decision and that “I’ve not made up my mind at all” on whether a rate cut is needed. He added that, “all of August’s numbers are going to be a little noisy” and that “We need to take some things with a grain of salt. Retail sales numbers were pretty good.” Mr. Plosser is not an FOMC member, but his comments suggest that Fed members are not being lobbied by Mr. Bernanke for an emergency Fed rate cut before the Sep 18 meeting and that the Fed plans to stick to its schedule of considering a rate change at the Sep 18 meeting.


  • The market is currently discounting a 100% chance of at least a 25 bp rate cut to 5.00% at next Tuesday’s FOMC meeting. The market is discounting an average 4.81% funds rate average in October, which means that the market is discounting either a 76% chance of a 50 bp rate cut on Sep 18, or that the Fed will only cut the official target by 25 bp to 5.00% but then inject sufficient reserves during the month to keep the funds rate average trading an average of 19 bp below the new 5.00% target during October. Either way, the market is expecting the Fed to pursue a de facto 4.81% funds rate average in September.


  • The Fed is not currently paying much attention to its official 5.25% funds rate target as it battles the banking crisis with temporary reserve injections. The Fed pushed average daily funds rate down to the 4.60% to 5.00% area in the 2 weeks immediately after the banking crisis (which began on Aug 9), and the funds rate average in the past 2 weeks has been in the range of about 5.00-5.25%, just mildly below the 5.25% funds rate target.

  • Looking ahead, the market is discounting an overall 100 bp rate cut to 4.25% by year-end and nearly an overall 125 bp rate cut by next summer. A 100 bp rate cut in the pace of a few months represents market expectations for a dramatic move in Fed policy. The extent of the expectations for Fed easing suggest that the market believes that a US recession is now fairly likely.


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