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Date: Wednesday 07-21-2010

CURRENCIES AND FINANCIALS

The dollar fell for the first time in three days against the yen after Federal Reserve Chairman Ben S. Bernanke said the U.S. economic outlook remains “unusually uncertain” and central bankers are prepared to act as needed to aid growth. The Japanese currency strengthened against all 16 of its most-traded counterparts as investors sought a refuge from slower growth. The euro weakened against the other main currencies on concern about the financial health of Europe’s banking system. “The Fed chairman is really highlighting the downside risks that continue to face the economy,” said Joe Manimbo, a market analyst in Washington at Travelex Global Business Payments, a currency-exchange network. “That makes investors more risk averse, so that tends to highlight the yen’s safety.” The yen appreciated 1.5 percent to 111.07 per euro at 4:39 p.m. in New York, from 112.70 yesterday. The Japanese currency rose 0.6 percent to 87.03 per dollar, from 87.51, after advancing to 86.27 on July 16, the strongest level since Dec. 1. The dollar rose 0.9 percent to $1.2762 per euro, from $1.2880. The euro reached $1.3029 yesterday, its strongest since May 10. Bernanke delivered his semiannual report on monetary policy to the Senate Banking Committee, and testifies to the House Financial Services Committee tomorrow. U.S. policy makers trimmed growth forecasts for this year and next at the Federal Open Market Committee’s June meeting, according to minutes released July 14.

STOCKS

U.S. stocks fell, ending a two-day rally, after Federal Reserve Chairman Ben S. Bernanke said the economic outlook remains “unusually uncertain” without offering additional measures to stimulate growth. JPMorgan Chase & Co. and Bank of America Corp. lost more than 2.9 percent to help lead the Dow Jones Industrial Average lower. All 10 industries in the Standard & Poor’s 500 Index dropped. Yahoo! Inc. tumbled 8.5 percent after sales missed analyst estimates on a drop in search ad revenue. SLM Corp., the largest U.S. student lender, sank 11 percent after loan originations missed forecasts. The S&P 500, which staged a late-session rally yesterday on speculation Bernanke would announce plans to stimulate the economy, fell 1.3 percent to 1,069.59 as of 4 p.m. today in New York. The Dow dropped 109.43 points, or 1.1 percent, to 10,120.53. About four stocks retreated for each that rose on U.S. exchanges. “Investors were hoping that Bernanke would give the economy a shot in the arm,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “But he only said what we already know about the economy and monetary policy and we didn’t get that jump start to growth that many had been looking for.”

ENERGIES

Crude oil fell after the government reported an unexpected increase in U.S. supplies and Federal Reserve Chairman Ben S. Bernanke said the economic outlook remains “unusually uncertain.” Inventories climbed 360,000 barrels to 353.5 million in the week ended July 16, an Energy Department report showed. Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, also increased. The price dropped 39 cents after Bernanke began speaking to the Senate Banking Committee. “The first thought that came to mind was that this report is bearish, bearish, bearish,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania. “There were inventory gains in each of the three major categories.” Crude oil for September delivery fell $1.02, or 1.3 percent, to settle at $76.56 a barrel on the New York Mercantile Exchange. Crude has gained 18 percent in the past year. Bernanke said the Fed’s “somewhat weaker outlook” is due in part to financial markets that “have become less supportive of economic growth in recent months.” He said the Fed is prepared to act as needed to aid growth. Equities also declined after Bernanke began his testimony. The Standard & Poor’s 500 Index fell 11 points from 2 p.m. to 2:30 p.m. It slipped 1.5 percent to 1,067.74 at 3:08 p.m.

METALS

Gold futures closed near the unchanged mark Wednesday in quiet trading, but fell after the settlement when the U.S. Federal Reserve chairman didn't address worries about deflation in his highly anticipated comments to senators. The most actively traded contract, for August delivery, settled up 10 cents at $1,191.80 an ounce on the Comex division of the New York Mercantile Exchange. The most-active contract fell as much as $8.70, to $1,183 an ounce, in post-settlement electronic activity following the release of Federal Reserve Chairman Ben Bernanke's prepared remarks before a Senate committee. Bernanke's failure to address inflation sent a sell signal to traders who had bought gold as a hedge against a loss of purchasing power, said Jim Steel, senior vice president and metals analyst with HSBC in New York. Some buy precious metals to guard against inflation, and with many market participants now arguing that deflation is more likely in the near term, Bernanke's testimony didn't provide comfort to a gold market that has failed to sustain rallies recently. Gold spent most of its trading day fluctuating between small gains and losses, and equities and currencies provided little direction. The most-active contract settled below $1,200 for the fourth consecutive day as demand for alternative assets has waned amid stabilizing equities markets.

GRAINS

U.S. rice futures closed higher Wednesday as the market continues to plod along in a sideways pattern. September Chicago Board of Trade rice ended up 10 cents to $9.98 per hundredweight, and November rice closed up 9 cents to $10.24 1/2. The market is in a "seesaw" trend, a trader said. Analysts said there is little news in the market and that traders are waiting for further word on the U.S. crop and weather internationally. Demand for U.S. rice remains weak, traders said. Throughout July, the market has been bound by the intraday high and low set on June 30, and traded in an increasingly tight range. A trader said volume was light on Wednesday, and noted that the market has failed to generate much outside interest from investment funds even as other grains have rallied recently. Demand has been poor for U.S. rice, as the market continues to be overlooked by traditional customers. Iraq, for instance, bypassed the U.S. in a recent tender, analysts said, opting for Thai and Indian rice instead. This despite the fact U.S. prices were competitive, Firstgrain.com analyst Ed Taylor said. Traders are keeping an eye on weather conditions internationally, he said, particularly in India, where the monsoon season is off to a relatively slow start. The monsoons are crucial for crops there, and a dry season last year caused prices to jump.

U.S. wheat futures ended higher Wednesday on technical buying and underlying concerns about crops overseas, traders said. September Chicago Board of Trade wheat ended up 11 1/4 cents to $5.88 1/4 per bushel, September Kansas City Board of Trade wheat closed up 12 cents to $6.01 1/2, and September Minneapolis Grain Exchange wheat ended up 11 3/4 cents to $6.13 1/2. Traders said there was no apparent fundamental catalyst for the rally, but that, after falling the previous three days, the market was due for a bounce. Underpinning the market are concerns about crops in Europe and especially Russia, which is suffering through a historic drought. But traders said there was little fresh news about those crop woes Wednesday, and that world supplies will remain adequate regardless. "The only thing I can say is it's a technical bounce from two days of correction," says Tom Leffler of Leffler Commodities. Traders added that the gains were limited by a stronger dollar and weaker crude oil. Funds bought an estimated 4,000 CBOT contracts. Analysts note that wheat basis has been weakening recently, as sellers have flooded the market on the recent rally with more grain that the pipeline can handle. Average domestic basis for soft red winter wheat--largely utilized in the production of cookies, cakes and crackers--has dropped 3 1/2 cents so far this week, with some major interior terminals slashing spot premiums by as much as 10 cents per bushel.

U.S. corn futures climbed on Wednesday on support from a surging wheat market and technical short covering, traders and analysts said. September corn ended up 5 3/4 cents to $3.79 3/4 a bushel, and December corn closed up 6 cents to $3.93 1/2. Despite the gains, the September contract is down 3.8% on the week. The market climbed despite a lack of fresh bullish news, traders said. Traders and analysts mostly said the crop outlook remains good, although bulls point to reports of variability, with some areas too wet and others too dry for optimal yields. The market lacks a clear weather threat in the forecast, however. Mike Tannura, meteorologist with T-storm Weather, said that while much of the corn belt will see a day or two of hot temperatures through the end of the week, beyond that temperatures will be more moderate. He added that as of now, it appears that rains are likely to miss some of the wettest areas of the western corn belt, hitting north of areas of Missouri, Iowa and west-Central Illinois that have been saturated. Traders said there was little fundamental support behind Wednesday's gains. "I'm a little bit leery of it," a trader said of corn's rally. Traders also noted that the market had little or no support from crude oil and the dollar. Some traders said that after falling for a couple of days, the market was set for a technical bounce.

Soybean futures finished higher Wednesday continuing a recovery bounce from prior losses on supportive underlying demand and crop uncertainties. Chicago Board of Trade August soybeans finished 3 1/2 cents or 0.3% higher at $10.15 1/4, and November soybeans, the most-active contract ended 5 1/2 cents or 0.5% higher at $9.78 1/2. Speculative funds were estimated buyers of 4,000 lots. Fund activity is a measure of investment money flow in the market. The market found some price stability, managing to extend Tuesday's bounce from a consolidation low. Underlying demand, with China a consistent buyer of U.S. supplies, tight availability of old crop stocks and the uncertainty of weather as soybean crops head toward their critical August growing period, firmly underpinned prices, said Chad Henderson, analyst with Prime Ag Consultants in Brookfield, Wis. Longer-range weather models are very uncertain and as long as there is a question mark on soybean yields and production, traders are prone to buy price breaks and keep a risk premium in the market, he added. August is a critical time for soybeans because that's when the plant sets pods and the beans within them grow, ultimately determining the yield. Otherwise, traders anticipate prices will linger in a sideways trading range, unless some threatening weather or big spike in demand emerges to lift futures. Resistance at last week's high of $9.92 3/4 basis the November contract will be tough to challenge, particularly with favorable near-term weather and assumptions that any price spike increases the potential for increased South American acreage in the fall, Henderson said.

MEATS

Floor-traded Chicago Mercantile Exchange hogs Wednesday erased Tuesday's losses due to short-covering and improved market fundamentals. Wholesale pork prices jumped for second straight day. And packers in parts of the Plains reportedly raised cash bids after hot weather curbed hog weight gains which slowed pigs' movement to market. "Everyone who bad-mouthed cash hogs Tuesday jumped on the bandwagon today," a long-time CME hog trader said. Spot August lured would-be bullish traders after futures' retreat Tuesday shrunk the price spread between the spot contract and CME's lean hog index. Also, August and October tripped buy orders and caught the attention of fund buyers, after both months cleared key moving average resistance obstacles. Traders bought August and April and sold October on spreads. Spreads involve trading two or more months at the same time while capitalizing on the price differences between them. Meanwhile, Chicago Board of Trade corn's bounce back from recent losses generated far-month hog buying interest. High-priced feed might discourage swine growers from increasing production, which should underpin cash hog values.

CME live cattle landed above board for a third successive session, and scored two-month highs, on buy orders and cash cattle price optimism for this week. Beef price strength, futures' recent run up and improving beef packer margins are fanning floor talk of possible steady-to-better cash cattle results. Packers responded with $92 per hundredweight weight cash-basis bids from feeders who are asking $95 to $96. Cash cattle last week sold for mainly $94. USDA's Wednesday afternoon boxed beef data, which reflects beef prices at the wholesale level, showed choice cuts up 52 cents per hundredweight, and select items rose 71 cents. The operating margin index for beef packers for Tuesday was plus $12.95 per head, compared with plus $7.25 Monday, as calculated by HedgersEdge.com.

SOFTS

Cotton prices bounced Wednesday as spillover from outside markets added to buying based on technical chart cues. Nearby cotton for October delivery settled 0.92 cent, or 1%, higher at 73.93 cents a pound on ICE Futures U.S. Cotton prices have skidded 3% since June 30, when the U.S. Department of Agriculture estimated that high cotton prices had lifted the amount of domestic acres planted to the commodity. Rebounding world textile demand sparked a recovery in use of the fiber. Favorable weather is also aiding the development of the 18.30 million bales of cotton thought to be growing in U.S. fields, USDA data show. Pressure from a bumper crop, as well as uncertainty about upcoming demand, are keeping cotton within a narrow trading range. After such sharp losses, technical charts indicated that speculative and fund traders, like banks and hedge funds, should buy back previously sold positions to exit bearish exposure in the market. "We are in a technical condition that could allow this market to run up to 75.50 area," said Keith Brown of Keith Brown & Co. in Moultrie, Ga. Lack of selling Tuesday also allowed prices to rise, Brown said. Selling related to producer sales kicks in at 75 cents, 75.50 and each 50-cent increment thereafter, he said. The next downside price objective for the cotton market bears is to push and close December futures below solid technical support at 72.50 cents, a technical analyst said. Below that lies chart support at 72.00 cents, the analyst said.

Arabica coffee futures for September delivery fell Wednesday, giving up early gains, on continued technical selling and as conditions remained favorable for the Brazilian harvest. Nearby September coffee fell 1.25 cent, or 0.79%, to settle at $1.5730 a pound on ICE Futures U.S. in New York. "Upside momentum that we had seen in recent weeks just kind of died out," said Boyd Cruel, senior softs market analyst at Vision Financial Markets in Chicago. Traders are reducing the number of bullish bets in coffee and the market's open interest continues to decline, he said. Outside pressure resulted from a strong U.S. dollar and losses in equities. Coffee futures have lost 7.4% since reaching a high of $1.6980 Friday, on a combination of technical selling and as fair weather aids the ongoing Brazilian harvest. Worries over the U.S. economy have also hurt the market as bearish comments from Federal Reserve Chairman Ben Bernanke Wednesday and a string of weaker-than-expected economic data have rattled investors and led them to reduce exposure to riskier commodity bets. Bernanke called the economic outlook "unusually uncertain," a comment that shook the markets, even though he also said that the Fed was willing to take more action to spur growth.

World raw-sugar prices rose Wednesday as kinks in the supply chain from Brazil's ports kept prices supported. Nearby sugar for October delivery settled 0.19 cent, or 1%, higher at 17.47 cents a pound on ICE Futures U.S. Sugar prices have risen 17% since June began as Asian and Middle Eastern nations attempt to rebuild low stocks, particularly in before Ramadan in August. At the same time, the ongoing Brazilian harvest is trickling out of the country as rains delay loading and shipment to vessels backed up at ports. These factors are supporting the market, though technical indicators may be pointing lower. During the two previous sessions, sugar prices hit intraday highs of 17.70 cents a pound. On technical charts, this double-top formation indicates that prices are finding strong resistance. A double-top usually points to a move lower in the near term. Though prices closed higher, they fell short of more technical signposts, and are now likely to pull back toward 17.25 and 16.94 cents, said Tom Mikulski, a senior market analyst at Lind-Waldock in Chicago. Milder weather at ports could make for expedited shipping of a sizeable crop, analysts note. "We continue to expect a loosening of the supply in the medium term," said Sucden Financial in a market letter.

Orange-juice futures for September delivery rose Wednesday on chart-linked buying as prices scaled technical resistance levels in another lightly traded session. Nearby September juice rose 1.55 cents, or 1.1%, to settle at $1.4340 a pound--near the session peak of $1.4345. Orange-juice futures have gained 5.9% since hitting a low of $1.3545 on July 16. Technical buying has been the main influence, as prices rebound after nearing six-week lows, brokers said. Traders are also adding bullish bets to the market now that the tropical-storm season is becoming more active. While a low-pressure area is currently centered over the Caribbean, it isn't yet considered a threat to Florida. "Anything to get the bulls back into the market, and that's what they've been doing," said Jimmy Tintle, analyst at TransWorld Futures in Tampa, Fla. Forecasters at the National Hurricane Center in Miami give the low-pressure area a 50% chance of becoming a tropical depression or storm in the next 48 hours, down from a 60% chance Tuesday. Upper-level winds may aid tropical-cyclone formation on Thursday, they said. Volumes have been light, making it easier for traders to influence the market, a broker said.

Cocoa futures for September delivery fell Wednesday in light trade amid pressure from a strong U.S. dollar and chart-based selling. Dollar strength is bearish for cocoa because it makes the commodity more expensive for buyers in other currencies. Most active September cocoa lost $42, or 1.4%, to settle at $2,935 a ton on ICE Futures U.S. in New York. Bearish sentiment in cocoa was also encouraged by a weak crude oil market and mild losses in equities, which led to light speculative selling. Now that cocoa has settled down after the huge delivery in the London market, traders have resumed the market's downtrend. Cocoa has settled back into its trading range, albeit at the lower end, with a lack of fresh news and summertime doldrums weighing on futures. "Despite the news we had a couple days ago about the huge delivery in London, this is a slow time of the year for the market," said Boyd Cruel, senior softs market analyst at Vision Financial Markets in Chicago. While continued chart-based selling develops near the $2,900 level on September, the market is expected to see solid support, he said. On Wednesday, September held nearby chart support at the June 22 low of $2,918, helping to prevent further losses.

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