Global equity markets were mostly higher overnight with the exceptions to that rule the Russian Markets and the IBEX. The Asian and European sessions were quiet data-wise. In addition to the lack of key scheduled economic data overnight the markets are also being held in check because of the looming ECB meeting on Thursday. The North American session will start out with a private survey of mortgage applications followed by June housing starts and June building permits both of which are expected to show improvement from their May readings. May Canadian manufacturing sales are forecast to have a slight downtick from their April reading. Another busy day of earnings announcements will include US Bancorp, Morgan Stanley and Northern Trust before the Wall Street opening with Qualcomm, American Express, Kinder Morgan, Canadian Pacific and Alcoa after the close.
While we don’t expect a noted corrective setback off US scheduled data later this morning some measure of weakness is to be expected especially if equities grind higher off generally favorable earnings news. However traders should be on the lookout for a softer than expected housing sector surprise result today as this week’s NAHB index fell to the lowest level in eight months! Initial support in September bonds is seen down at 153-16 with a lower support point at 153-01 coming in off a normal retracement of the July rally. Initial corrective targeting in September Notes today is seen at 125-28 with a normal retracement target on the downside from the July rally seen at 125-20. While we doubt the corrective action will be aggressive today the bull camp will probably face some additional adversity early Thursday into the ECB statement.
The bull camp generally controls but the bulls might need to see favorable US housing starts and permits boost economic sentiment and or some glimmer of hope that a healthcare crisis will be averted to continue on the upside.
A temporary recovery bounce in the dollar is anticipated through US scheduled data but once the Washington headline mill regains its footing and circulates the dire consequences of a failure in the healthcare insurance system we suspect that the dollar will roll over again.
The path of least resistance looks to remain up in both crude oil and gasoline today as the markets were unfazed by the API crude stocks build. While the weakness in the dollar probably isn’t a direct short-term impact on demand, it should make would-be sellers of crude oil somewhat anxious. However, to maintain a positive structure on the charts in September crude oil through the trade today probably requires a countervailing EIA inventory decline in crude oil and it might also require the September crude oil contract holding above a key pivot point of $47.57. A more critical support point in September crude oil is seen down at $46.65 and initial resistance is seen up at $48.09.
With the most recent COT report in gold showing the noncommercial and non-reportable spec long positioning registering a net long of only 70,306 contracts as of July 11th, we doubt the gold market has run out of buying fuel on the last week’s rally. Certainly the spec and fund long has increased given the $26.00 per ounce rally since the COT report was measured, but ongoing weakness in the dollar will be difficult or nearly impossible to discount. However, the Dollar is showing some corrective bounce to start today and that appears to have prompted some minor long profit taking in gold and silver. As indicated already, we see the August gold contract eventually rising back up into the late June consolidation range which has an upward resistance area of $1,260. A potentially critical pivot point in the event of a noted recovery in the dollar today is seen in August gold at $1,236.50.
With supply threats front and center today it is discouraging to see prices start off on a back foot and that clearly suggests the market has already priced in some of the supply threat with the 2 1/2 month rally of 22 cents. However, as mentioned earlier this week, the net spec and fund long in the copper market was at a relatively low level compared to the last eight months in last week’s data, and therefore the market might not be as technically overbought as it could be following the July rally extension. In fact with the gains of the last two weeks coming on rising open interest, it is difficult to argue against additional upside action especially in the event of an actual start to a strike in Peru. However, for the market to continue on the upside straightaway probably requires respect for a pivot point at $2.7120 and it might also be critical for the bull camp to see talk that the Peruvian strike will be of some duration as prices currently sit roughly $0.10 above the early July lows.
December corn closed poorly yesterday after trading to a high of 402, weather models that continue to flip with the GFS (US) and the EU in disagreement on rain totals and location causing fits for traders. The trade could focus on some pretty impressive heat over the next 3 to 5 days. Close-in support is at the 200 day moving average at 388 1/2 followed by 384 1/4. Producers will continue to sell rallies above the $4.00 level.
November soybeans tested the 50% Fibonacci retracement level at 1015 1/2 yesterday. This is half way of the 1047 high to 984 low from last week. The latest 6-10 and 8-14 day forecasts do not have the precipitation that the mid-day GFS run had Tuesday afternoon. This morning’s updated model keep the moisture in the northern tier with Iowa and Illinois still missing out on meaningful precipitation. Aggressive traders could look to buy the November 1100 call and sell the November 940 put at even money. The combo settled at 1 7/8 cents to the call yesterday.
Chicago September wheat closed at the lowest level in twelve sessions on Tuesday and made a new low overnight at 500 1/4. The market continues to struggle with intra-market spreading the feature. The story continues to be spring wheat with more stories of abandonment. Speculative fund long liquidation also is keeping a lid on prices, a trade below the 500 level in Chicago September wheat could open up for a test of the 50 day moving average at 481 1/2.
Even if the mad cow story turns out to be a non-event, traders may focus on the weaker trend in boxed beef and ideas that the hot weather will hurt beef demand. Third-quarter beef production is expected to jump 405 million pounds from the second quarter, a record increase for that time of year, so the long-term outlook is bearish. Look for initial support in October cattle at 116.05, followed by 114.20. A longer-term downside objective could be 108.50.
On a break below Friday’s low, the next support level for October Hogs comes in at 66.15. The near record shift lower in production expected into the 1st quarter could support February hogs relative to October.
Given the apparent need to build a weather premium, we would prefer to sell on a rally. Key support for December cotton comes in at the recent low of 66.15. Look for in resistance in December cotton at 68.92 and then 69.81.
It will probably take a much longer and larger decline in ICE exchange coffee stocks to shift coffee’s demand outlook. However, bullish supply developments from Brazil, Colombia and Vietnam are supportive longer term, and any dire reports coming from this week’s cold snap in Brazil could send prices higher. September coffee will find near-term support at 131.80, with 137.30 as next resistance and 139.60 as the next upside target.
It may take until the North American grind data is released on Thursday before the cocoa can break out of yesterday’s wide range. There have been some comments that a strong North American grind could have a bigger impact on the market because of the growth in Asia’s grind capacity is a foregone conclusion. Look for support in September Cocoa at 1886 and 1867, with resistance up at 1957 and 1994.
Energy prices could have a bumpy ride today, but if they continue their recovery move, it could boost Brazilian ethanol demand expectations. If Center-South cane mills shift their focus back towards ethanol and away from sugar production, it would be supportive to sugar prices. Support for October sugar comes in at 13.76 and 13.56. Trendline resistance comes in at 14.44 today.