Global equity markets were all higher overnight but once again the Russian markets were exceptions to that rule. The Asian session started out with a June reading on the Japanese trade balance that returned to a surplus and that would seem to be a sign of improvement in that economy. It should also be noted that the BOJ meeting yielded no change in policy but the Bank did suggest no additional support was needed and that some progress was being made on returning inflation to their 2% targeting. The Japanese news was followed by report that June Australian unemployment ticked up slightly to 5.6%. The European session started out with June German PPI which was generally weak and that information was joined by Euro zone Current account data which showed a gain in the overall balance. Finishing off the key information from overnight was a soft June UK retail sales reading. Later this morning the European Central Bank will release the results of their latest monetary policy meeting, with no change expected on rates or policy. The North American session will start out with a weekly reading on initial jobless claims that is expected to see a modest downtick from the previous 247,000 reading. The July Philly Fed manufacturing survey is forecast to have a moderate downtick from June’s 27.6 reading. The Conference Board’s June reading on leading indicators is forecast to show a minimal uptick from May’s 0.3% reading. Earnings announcements will include Philip Morris, Unilever, Abbott Laboratories and Union Pacific before the Wall Street opening while Microsoft and Visa report after the close.
The initial path of least resistance in bonds and notes is pointing upward and we suspect that prices will garner some minimal buying interest off the sweep of US scheduled data this morning. However the results of the ECB meeting could be a fresh trendsetting junction for prices with a pulse up move early today potentially the end of the July corrective bounce in prices. While history suggests that anticipating positive governing from Washington is folly the executive branch has put Congress under a spotlight with the American people and that combined with the prospect of missing their summer break should stir some action. Our pick for a peak in prices this week falls between 154-03 and the 50% retracement of the June and July washout which comes in up at 154-13 in September bonds. Our pick for a top this week in September Notes is seen at 126-10.
While the bear camp might argue the market is trending toward and overbought/expensive condition there would appear to be enough fundamental and technical evidence to suggest the bull trend will probably continue. While the ECB meeting results later this morning might roil the market the trade has been preparing for the migration away from quantitative easing and a lack of alternative investments besides stocks is an ongoing reality. In conclusion traders should buy breaks and expect even more new all-time highs ahead.
A major junction sits directly ahead for the dollar with the situation in Washington taking center stage immediately after the passing of the European Central Bank policy statement release this morning. While past congressional history suggests there is no reason to anticipate a deal Congress has been put under the spotlight by the president and the lack of progress and or an unpopular summer recess without a deal could be a direct reelection threat to a large portion of legislators. If anything can spark movement in Washington it is reelection threats and potentially missing time off!
Clearly the bull camp retains an edge off of what appears to be tightening supply and solid demand evidence in the US. So it would not appear as if international over supply forces have been much of an influence on oil prices this week. In addition to crude oil climbing above its 50 day moving average and the gasoline market climbing above its 100 day moving average, the gasoline market yesterday also climbed above a seven month old downtrend channel resistance line of $1.5467. While the $47.50 level in September crude might be some form of resistance, the recent flow of internal fundamental energy market data combined with positive economic psychology flowing from the stock market could make $47.50 support instead of resistance in the days ahead. As we indicated in the Wednesday morning coverage, we project near term gasoline prices back to and above the $1.60 level.
While the overall trend in the gold market has not shifted down yet the short term bias is favoring the bear camp to start today. A second day of modest gains in the dollar and uncertainty from the ECB meeting results this morning and signs that Washington might be making an effort to avoid a debacle on healthcare has given pause to would-be gold buyers and in turn has prompted some longs to bank profits and move to the sidelines. A critical pivot point support zone is seen this morning at $1,235.10 in August gold with a similar critical pivot point zone in September silver seen at $16.125. However the ECB results might have the most lasting impact on gold prices as a distinctly hawkish tone from European bankers could put the dollar right back in a washout mode which would probably save gold prices from a more significant correction. A normal retracement of the July rally in August gold would allow for a setback to $1,228.70 without derailing the last three weeks uptrend. While the dollar might continue to be the dominating force for precious metals pricing traders should also keep an eye on Washington for any signs of progress on healthcare reform as a solution to that problem would probably mean a quick return to the July lows around $1200.
Clearly the copper market has lost upside momentum and it has failed to benefit from a potentially important supply threat in Peru! In fact the copper market has also discounted a projection from the World Bureau of Mineral Statistics that the world copper supply and demand balance in the January through May period saw a deficit of 65,000 tons. Fortunately, demand expectations remain high in the wake of very favorable Chinese economic data released over the last week and that could provide support in September copper at $2.69 and then again down at $2.6630. Pushed into the market, we favor a forecast calling for erosion in prices.
December corn closed with a bullish outside day higher close on Wednesday with follow through strength this morning. Volatility has been prevalent the last 7 days with average daily ranges near 13 cents, and looks to continue with weather driving the market into August. The market held some important levels after last week’s sell-off and has closed above all three moving averages (50-day, 100-day, 200-day) for the first time since July 12th. The trend fells like it is turning back up, with close-in support at 392 followed by 389.
November soybean chart put in a bullish outside day higher close yesterday and is following through today. A close above the 61.8% Fibonacci level at 1022 3/4 (1047 high to 984 low) would be a bullish signal for trend followers and could make a run at the old high at 1047. The latest 6-10 and 8-14 day forecasts leans friendly to the market. Aggressive traders could look to buy the November 1100 call and sell the November 940 put at 4 1/2 cents to the call. The combo settled at 7 1/2 cents to the call.
Chicago September wheat made a new low for the sixth consecutive day and followed with a new low overnight at 495. The market is long and liquidation from the speculative fund continues. The slow stochastics are starting to get a bit oversold with the RSI still in neutral territory. Don’t rule out a short term bounce into the end of the week. The old high at 490 should provide some support with the 50 day moving average below at 475 3/4. Resistance is seen at 511 followed by 523 3/4.
Despite a strong technical close yesterday, the market may come in under pressure this morning in the wake lower cash cattle trade reported on Texas and Oklahoma. Look for initial support in October cattle at 116.05, followed by 115.225 and 114.25.
The hog market should be well supported until pork prices trade consistently lower. October hogs have achieved a 50% retracement of the break off the July 5th highs, leaving 70.20 as the next upside target. Near term support comes in at 66.87.
It may take until the weather changes and/or some deterioration shows up in the weekly crop progress reports to move December cotton out of its current consolidation between 66.00 and 69.00. A move above 68.92 in December cotton would project to 68.91 and possibly 70.93.
Brazil’s Arabica crop is already looking at a 5 to 6 million-bag decline from last season, so there will be little margin for any further supply issues. Initial support for September coffee comes in at 134.40, with trendline support down at 131.50 today. Upside retracement objectives include 139.60 and 145.30.
If second quarter North American grindings comes in at a 2% year-over-year increase or higher, it would mean that all three major regions have shown improvement over last year. Near-term support for September cocoa comes in at 1890, with resistance at 1991. A key bull/bear line today could be the 50-day moving average at 1962.
It may take broader-based frost damage in the Center-South region for this season’s Brazilian sugar production to see any significant decline, but the uncertainty about the damage so far, the possibility of additional cold weather, and the large spec net short position could keep the market open to more short covering. Stronger crude oil prices may be giving Brazilian mills second thoughts about having devoted more than 50% of their crushing to sugar over the past month. Near-term support for October sugar is at 14.08, while 14.72 and 15.23 are the next key upside resistance points.