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Date: Thursday 07-22-2010

CURRENCIES AND FINANCIALS

The euro strengthened for the first time in three days versus the dollar and gained against the yen after a report showed Europe’s manufacturing and services industry unexpectedly accelerated in July. The dollar erased its loss against the Japanese currency after a report showed sales of U.S. previously owned homes fell less than forecast last month. The Dollar Index, which tracks the currency against those of six trading partners, snapped a three-day advance as Federal Reserve Chairman Ben S. Bernanke reiterated that the economic outlook remains “unusually uncertain.” “There were some positive signals on the economic data front from the euro zone pointing out that the economic recovery is very much on track in Europe,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “There’s a pickup in global risk appetite.” The euro rose 1.1 percent to $1.2891 at 4:19 p.m. in New York, from $1.2754 yesterday. One euro bought 112.06 yen, compared with 111.02 yesterday, after it fell earlier to 110.02, the weakest level since July 7. The dollar was little changed at 86.93 yen after earlier dropping to 86.34 yen. The Standard & Poor’s 500 Index climbed 2.3 percent and the Reuters/Jefferies CRB Index of raw materials added 2 percent. The euro gained against 11 of its 16 most-traded counterparts. The New Zealand dollar strengthened 0.6 percent against the shared currency and the Australian dollar was up 0.6 percent.

Canada’s currency rose the most in two weeks against its U.S. counterpart as gains in stocks and crude oil eased concern that global growth is slowing. The Canadian dollar, nicknamed the loonie, was poised for a 1.9 percent advance this week. The Bank of Canada in a monetary policy report today said its economic forecast includes “gradual” interest-rate increases to control inflation in an economic recovery hampered by slower foreign demand. “You don’t have to look further than equities” to explain today’s gains in the Canadian dollar, Matthew Strauss, a senior currency strategist at Royal Bank of Canada, said by phone from Toronto. “Sentiment has turned into a really strong bullish risk-rally.” The Canadian dollar gained as much as 1.3 percent, the biggest intraday gain since July 6, to C$1.0356 per U.S. dollar before trading at C$1.0383 at 4:44 p.m. in Toronto, from C$1.0491 yesterday, when it reached C$1.0351, the strongest level since July 15. One Canadian dollar buys 96.31 U.S. cents. The loonie will strengthen to C$1.02 against the U.S. dollar by the middle of next year, according to the median forecast in a Bloomberg News survey of 35 economists. Canada’s currency briefly pared gains after a government report showed retail sales unexpectedly fell 0.2 percent to C$36 billion ($34.6 billion) in May on lower receipts at building material stores and gasoline stations. Economists surveyed by Bloomberg News anticipated a 0.4 percent rise, according to the median of 19 estimates. The drop reflected falling prices, as sales in volume terms rose 0.4 percent.

STOCKS

U.S. stocks rose, with the Standard & Poor’s 500 Index gaining the most in two weeks, after companies from United Parcel Service Inc. to AT&T Inc. and Qualcomm Inc. increased profit forecasts. UPS jumped 5.2 percent as growing overseas demand and cost- cutting improved the earnings outlook at the world’s largest package-delivery company. AT&T rose 2.4 percent as quarterly profit beat analysts’ estimates on demand for Apple Inc.’s iPhone. Qualcomm, the biggest maker of chips that run mobile phones, jumped the most since November 2008 as it predicted higher selling prices for devices based on its technology. The S&P 500 rose 2.3 percent to 1,093.67 as of 4 p.m. in New York. The Dow Jones Industrial Average climbed 201.77 points, or 2 percent, to 10,322.30. Both gauges gained the most since July 7. “Investors look to UPS as an indicator for the global economy, so their strong numbers are a positive,” said Greg Woodard, portfolio strategist at Manning & Napier in Fairport, New York, which manages about $30 billion. “Some of the negative sentiment that had crept into the market is disappearing.”

ENERGIES

Crude oil surged to the highest close in 11 weeks as stocks rallied after EBay Inc. and Caterpillar Inc. earnings beat estimates and growth accelerated in European manufacturing and services. Oil climbed 3.6 percent after the European industries unexpectedly grew at a greater rate last month, signaling fuel demand in the region will gain. Prices also gained as the dollar dropped against the euro, bolstering the appeal of commodities. “Everyone is focused on the same things, and that is changes in the economic growth outlook,” said David Greely, head of energy research at Goldman Sachs Group Inc. in New York. Crude oil for September delivery rose $2.74 to $79.30 a barrel on the New York Mercantile Exchange, the highest settlement since May 5. It was the biggest increase since May 27. Futures are up 21 percent from a year ago. “We expect to see a breakout above $80 in the next couple of months,” Greely said. “Oil will probably trade in the $85- to-$95 range during the second half of the year.” A composite index based on a survey of euro-area purchasing managers increased to 56.7 from 56 in June, London-based Markit Economics said today. Economists had projected a drop to 55.5, the median of 18 estimates in a Bloomberg survey.

Natural gas futures jumped to the highest level in more than two weeks after the National Hurricane Center said a tropical depression may intensify, threatening gas and oil production in the Gulf of Mexico. Tropical storm warnings have been posted in the Bahamas and South Florida. Gas supplies rose 51 billion cubic feet last week, below the five-year average gain of 64 billion, an Energy Department report today showed. Analysts surveyed by Bloomberg expected an increase of 50 billion, and a separate survey of Bloomberg users showed an increase of 51 billion. “People are watching that storm like a hawk,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It’s keeping a little bit of a fear premium in gas right now.” Natural gas for August delivery rose 13 cents, or 2.9 percent, to $4.643 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 6. The stockpile total of 2.891 trillion cubic feet was 9.9 percent higher than the five-year average, narrower than a 10.7 percent gap the previous week, department data showed. The deficit to year-earlier supplies widened to 1.8 percent from 1.1 percent. “We have less of an inventory cushion to keep us supplied in the face of what may still be an active hurricane season,” said Evans. A tropical depression has formed in the Atlantic about 400 miles (650 kilometers) east-southeast of Key Largo, Florida, according to a statement released by the National Hurricane Center at 2 p.m. in Miami.

METALS

Copper rose to the highest price in almost 10 weeks after a report showed sales of previously owned U.S. homes fell less than forecast in June, bolstering the demand outlook for the metal. Purchases of existing houses dropped 5.1 percent to a 5.37 million annual rate, the National Association of Realtors said today. Economists predicted a 5.1 million rate, the median of 74 forecasts in a Bloomberg News survey. Copper advanced as much as 3.2 percent after the report. Prices also rose as the dollar dropped. “It’s starting to look like we’re getting a bottom into housing, and we may see thing start to turn around soon,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “Once housing picks up again, it’s going to be a huge benefit to copper.” Copper futures for September delivery increased 7.15 cents, or 2.3 percent, to $3.1645 a pound on the Comex in New York. Earlier, the price reached $3.193, the highest level for a most- active contract since May 14. The greenback dropped as much as much as 1.1 percent against a basket of six major currencies. “A weaker dollar and, especially, strong equity markets in Europe are moving metals prices higher,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.

GRAINS

U.S. rice futures climbed for the second straight day Thursday as the market posted its highest close in two weeks. September rice ended up 15 1/2 cents to $10.13 1/2 per hundredweight, and is up 28 cents on the week. November rice closed up 15 cents to $10.39 1/2. The market, which has been in a sideways trajectory all month, could be on the verge of building some bullish momentum if it can extend gains on Friday, a trader said. He said the market would have to break $10.20 1/2 in the September contract, an intraday high set before the market plunged on the USDA's acreage and quarterly stocks reports on June 30. The market has tumbled from prices near $16 in mid-December because of weak Asian prices, poor demand for U.S. rice and, more recently, a strong U.S. crop. Export sales remain weak. The U.S. Department of Agriculture reported weekly net sales of 39,000 metric tons Thursday, up 77% from the previous week, but down 34% from the prior four-week average. The top buyers were Turkey and Mexico. In international news Thursday, Agriculture Secretary Proceso Alcala of the Philippines plans to substantially reduce rice imports next year, possibly half of this year's record imports of 2.45 million metric tons.

U.S. corn futures closed lower Thursday in what traders said was a bearish day technically, as an early rally fizzled when the wheat market trimmed gains. September Chicago Board of Trade corn ended down 3 1/4 cents, or 0.9%, at $3.76 1/2 per bushel, and December corn closed down 3 1/4 cents at $3.90 1/4. Wheat was the driver early in the day, but when it retreated from early highs, the corn market turned lower. Corn fundamentals are considered negative due to relatively benign crop weather, as the forecast doesn't include a significant bout of hot, dry weather. And while the U.S. Department of Agriculture reported solid weekly export sales Thursday, traders said basis, or the difference between cash and futures prices, was weakening. While weather remains a focus of the market, traders said fundamentals haven't been a strong factor in recent moves. The market exceeded Wednesday's high but closed below Wednesday's low in an "outside day" on the charts in the September contract. "Technically it does not look good," said Joe Victor, vice president of marketing for Allendale, noting that the September contract has failed this week to approach its 200-day moving average, at $3.94 1/2, after closing above that average Thursday and Friday. Victor said that for farmers, December corn between $3.90 and $4 "has to be sold" given that overall, the U.S. has "a heck of a corn crop."

U.S. wheat futures trimmed gains Thursday after climbing to multi-month highs on fund buying and concerns about drought in the important Black Sea region. September wheat on the Chicago Board of Trade ended up 8 1/4 cents, or 1.4%, at $5.96 1/2 a bushel. Kansas City Board of Trade September wheat jumped 10 1/4 cents, or 1.7%, to $6.11 3/4. Minneapolis Grain Exchange September wheat rose 9 1/4 cents, or 1.5%, to $6.22 3/4. Prices strengthened on bullish expectations that dryness will reduce exports from the Black Sea region and open the door for the U.S. to sell more wheat. The U.S. competes for business on the world market with countries such as Russia and Ukraine. Heat and drought have ruined 24 million acres of farmland in Russia, the agriculture minister said Thursday. That represents about a third of field area in the 23 regions declaring a state of emergency because of the drought, or some 20% of the country's total crops. Still, it may be difficult for wheat to extend its rally because prices have already surged in the face of comfortable ending stocks, said Dale Durchholz, analyst for AgriVisor. Before paring gains, CBOT September wheat reached $6.10, its highest price since Jan. 11 and the highest price for a front-month contract on a monthly continuation chart since June 2009. The contract has already climbed $1.16 1/4, or 24%, this month.

MEATS

Chicago Mercantile Exchange hogs settled higher Thursday on positive fundamentals and upbeat outside markets. Wholesale pork price's recent solid performance whisked Wednesday's lean hogs advances into early Thursday. Generally higher cash hog quotes Thursday also inspired bullish floor traders. Fund buying kicked in after August blew past its 40-day, 20-day and later 100-day moving average resistance impediments on the way to a three-week high. Speculative bullish hog traders were lured to deferred contracts by the stock market's steep climb, which was driven by encouraging earnings and housing numbers. Livestock traders view the financial sector as an indicator of consumer demand for expensive goods, including high-end meat cuts. The lower U.S. dollar was also considered positive in the eyes of CME hog traders because it generally improves U.S. exports. Optimistic long-term pork demand prospects, served up by equities and the dollar, spurred spreading into deferred hog contracts out of front months. Spreads involve trading two or more contracts at the same time while taking advantage of the price differences between them. Spot August closed 1.12 cents higher, or 1.4%, at 82.62 cents a pound. Most actively traded October finished up 0.77 cent, or 1.0%, at 76.40 cents. Thinly-traded CME pork bellies closed up 0.45 cent, or 0.4%, at 101.00 cents in response to Wednesday's sharp fresh pork price increase. Other belly contracts were unquoted.

SOFTS

Cotton prices rose Thursday as available stocks are whittled away and end-users strategize means to acquire more. Nearby cotton for October delivery settled up 0.8 cent, or 1%, at 79.57 cents a pound on ICE Futures U.S. Most-active December cotton settled 0.78 cent, or 1%, higher at 74.71 cents a pound. Cotton prices have been stuck within a 73-cent to 75-cent range for the last two weeks after sliding lower on outlooks for a bumper U.S. cotton harvest in the fall. World supplies are low after demand rebounded with macroeconomic conditions. Overseas textile demand is strong, and those end-users have been buying cotton that will be delivered in the fall. Traders with positions on ICE that expect to take delivery of that cotton are realizing that dwindling exchange stocks may not grow by the time they need the fiber. "There is this panic mode in place: 'There's no cert stock, what are we going to do?'" said Sharon Johnson, senior cotton analyst at First Capitol Group in Atlanta. So much of the incoming U.S. crop has been sold to make commercial traders nervous that the cotton they would like to purchase via futures may not be there when they need it. ICE daily cotton stocks decreased by 11,348 500-pound bales Wednesday to total 75,782 with 6,701 bales decertification orders, according to exchange data. Most U.S. stocks from the 2009 harvest have been sold, and traders are awaiting an influx of supply in the fall. Cotton prices have also lost 6% in the last five weeks, and market momentum was due to turn higher, analysts said. Traders bought back previously sold short positions to exit bearish bets.

Arabica coffee futures for September delivery gained 2.8% Thursday on speculative fund buying linked to bullish chart factors and a widespread commodity rally. Nearby September coffee rose 4.40 cents, or 2.8%, to settle at $1.6170 a pound on ICE Futures U.S. in New York, near the session peak of $1.6195. Traders attributed part of the gains to a chart-based bounce, after nearing five-week lows Wednesday, but holding above key support at $1.5540 a pound. The ability to hold above this level attracted technical buying to the market, said Rodrigo Costa, vice president of institutional sales at Newedge in New York. Commodities, including coffee, were underpinned by a weak U.S. dollar, which uncovered speculative fund buying across the futures markets. Triple-digit gains in equities were also supportive as investors reacted to a better-than-expected report on U.S. housing and a pickup in euro-zone activity. Investors added riskier commodity bets to their portfolios as a result. Existing home sales fell 5.1% in June, to an annual rate of 5.37 million, the National Association of Realtors said Thursday. Economists had expected sales to decline by 8.1%, to a 5.20 million rate. Traders were also buying back previously sold positions in coffee, adding momentum to the rally, said Costa.

Sugar prices leapt to four-month highs Thursday as shipments out of Brazil remain stalled in the face of consistent demand. Nearby sugar for October delivery settled 0.83 cent, or 5%, higher at 18.30 cents a pound on ICE Futures U.S. The most recent close above that level for a nearby contract was on March 19. Sugar prices have risen 22% since June 1. Prices are building steam as rains prevented raw sugar exports from being loaded into ships waiting at Brazil ports. Brazil is the leading producer and shipper of the sweetener. Demand has climbed in recent months as countries in Asia and Africa attempt to buy ahead of Ramadan in August. The Islamic festival lasts three weeks, during which participants abstain from food during the day but eat after the sun sets. "There is demand, so the question is, how fast can we take sugar out?" said Alex Oliveira, a sugar broker and analyst at Newedge USA in New York. The lineup of vessels waiting to load sugar at Brazilian ports soared to 113 in the week ended Wednesday. Though the rain that caused the logistical bottleneck has subsided, long lines of ships remain. Even after Ramadan in August, demand is expected to stay high because government and commercial stockpiles are low after two years of world production deficits. Small speculative traders, who deal in futures, but not the cash market, are pushing prices higher amid the bullish news. That activity triggered technical signals to buy as September pushed through 17.70 cents and 18 cents.

Orange juice futures posted slight gains after rising and falling in thin volume as spillover buying from strong outside markets provided a boost. Nearby September juice rose 0.65 cent, or 0.45%, to settle at $1.4405 a pound. The contract leapt to a two-week high of $1.4445 after it was announced that a tropical depression had formed in the Caribbean. The market's knee-jerk reaction was quickly tempered, however, as traders sold on sentiment it would pose no threat to Florida's orange output. September juice quickly fell to a three-session low of $1.41 as forecast maps showed the system grazing southern Florida and then heading into the Gulf of Mexico, a Florida broker said. Winds associated with the system are not expected to be destructive. Instead it was viewed as bringing beneficial rains to the groves in central and southern Florida. Orange juice trimmed its losses and rebounded slightly higher on spillover buying from strength in the commodity sector, led by a soft U.S. dollar versus the world's currencies.

Cocoa prices slid Thursday without fresh cues to give direction to the range-bound market. Nearby cocoa for September delivery cocoa settled $19, or 0.6%, lower at $2,916 a metric ton on ICE Futures U.S. The contract slid as low as $2,902 during the session--its lowest price since May 26. Cocoa is trading within a seasonally light market timeframe that lasts until near Oct. 1, the onset of the main harvest in West Africa. Demand also typically picks up at that time, in line with holiday season demand in the U.S. and Europe. Cocoa prices have fallen 7% since July 16, when prices leapt higher behind tight exchange stocks in London. Both ICE and NYSE Liffe prices have since skidded lower when it was revealed that the buyer wasn't an end user of cocoa. Prices are likely to idle in the near term, with support for September futures at $2,900. "The market is pretty fairly valued there," said Sterling Smith, market analyst at Country Hedging in St. Paul, Minn. "That support should hold barring any bizarre outside news."

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