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Date: Tuesday 07-27-2010

CURRENCIES AND FINANCIALS

The dollar advanced against most of its major counterparts as a decline in U.S. consumer sentiment to a five-month low revived demand for the relative safety of the world’s main reserve currency. The euro climbed to a two-month high against the yen and gained versus the Swiss franc after a report showed German consumer confidence will rise in August. The dollar rallied the most versus the yen in almost two months after yields on two- year Treasury notes increased as the government sold $38 billion of the securities. “There a bit of sobering up after a nice run-up in the last couple of days,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “It’s risk on versus risk off.” The dollar traded at $1.3006 per euro at 4:08 p.m. in New York, compared with $1.2994 yesterday, after reaching $1.3046, the weakest level since May 10. The yen lost 1.3 percent to 114.37 per euro, from 112.89, after reaching 114.38, the weakest level since May 21. Canada’s currency slid 0.4 percent to C$1.0360 per U.S. dollar and the Norwegian krone lost 0.1 percent to 6.1687 as a fluctuation in stocks on the U.S. sentiment data discouraged demand for currencies related to economic growth. The Conference Board’s index of consumer confidence dropped to 50.4 this month from a revised 54.3 in June, the New York- based private research group reported today. The median forecast of 73 economists in a Bloomberg News survey was for a slide to 51 from a previously reported 52.9.

STOCKS

Most U.S. stocks fell, with the Standard & Poor’s 500 Index declining for the first time in four days, as retailers slid after consumer confidence retreated to a five-month low. Amazon.com Inc. and Lowe’s Cos. Inc. dropped at least 1 percent to help lead retailers to the biggest decline among 24 S&P 500 groups. U.S. Steel Corp., the country’s largest steelmaker, declined 6.4 percent after reporting an unexpected second-quarter loss. DuPont Co., the third-biggest U.S. chemical maker, gained 3.6 percent, on better-than-estimated earnings. About three stocks declined for every two that rose on U.S. exchanges. The S&P 500 slipped 0.1 percent to 1,113.84 at 4 p.m. in New York. The Dow Jones Industrial Average rose 12.26 points, or 0.1 percent, to 10,537.69. “It’s one step forward, two steps back,” said Mike Ryan, New York-based head of wealth management research for the Americas at UBS Financial Services Inc., which oversees about $640 billion. “We’ve seen a very solid earnings season. The numbers have been consistently above expectations. I don’t believe the economy is rolling over. However, we need to get more data on the economic front.” The Dow average erased its 2010 loss yesterday and the S&P 500 closed above its 200-day average, spurring optimism among chart analysts and investors who track earnings. Projections for the fastest S&P 500 income growth since 1988 are helping investors overcome concern that the economy will sink into its second recession in three years.

ENERGIES

Natural gas futures rose for a second day as hotter-than-normal weather boosted demand for gas- fired electricity for air conditioning. Temperatures will be above normal across much of the U.S. Midwest and East from Aug. 1 to Aug. 5, according to the National Weather Service. The Energy Department on July 29 may report that U.S. gas stockpiles rose 32 billion cubic feet last week, according to the median of five analyst estimates in a Bloomberg survey. The five-year average gain is 50 billion. “It’s pretty hot and the AC is running,” said Kyle Cooper, managing director at energy consultant IAF Advisors in Houston. “The next injection number is going to be pretty bullish.” Natural gas for August delivery rose 6.3 cents, or 1.4 percent, to settle at $4.675 per million British thermal units on the New York Mercantile Exchange. Gas has gained 30 percent from a year ago. The August contract expires tomorrow. The September gas futures contract gained 6.3 cents to $4.646. “The last days of a contract could be dictated more by financial considerations of those who have to get out as opposed to any real supply-demand fundamentals,” Cooper said. August may see more heat in the Midwest than in the Northeast, according to Commodity Weather Group LLC in Bethesda, Maryland.

METALS

Gold futures dove to three-month lows, as relative calm across financial markets focused attention on recent outflows from the yellow metal. "It seems asset markets are stabilizing," said Michael Gross, broker and analyst with OptionSellers.com in Tampa, Fla. "That money that moved to gold for shelter" is flowing back into markets perceived as riskier. Gold futures for August delivery settled down $25.10, or 2.1%, at $1,158 on the Comex division of the New York Mercantile Exchange, the lowest settlement price since April 26. The move came after data showed home prices rose in May from a year ago, beating analyst expectations. U.S. home prices fell steeply during 2008 financial crisis and subsequent global recession. While the second consecutive monthly rise in May is unlikely to signal a sustained recovery for the sector, it is enough to calm fears that economic conditions would deteriorate further. U.S. equities have stabilized recently as the economic outlook improved, leading many to liquidate holdings in gold in favor of riskier assets. Worries about European sovereign debt and a potential double-dip recession had shaken investor confidence in equities in May and June.

GRAINS

U.S. wheat futures crawled higher Tuesday as European prices approached two-year highs on projections for reduced exports from the Black Sea region. September wheat on the Chicago Board of Trade ended up 5 1/2 cents, or 0.9%, at $5.95 a bushel. Kansas City Board of Trade September wheat rose 3 cents, or 0.5%, to $6.15. Minneapolis Grain Exchange September wheat gained 3 1/2 cents, or 0.6%, to $6.25 1/2. Spillover strength from the rally in European wheat futures set a positive tone for U.S. wheat, analysts said. Market participants were worried that severe dryness in the Black Sea region may have cut export potential more than previously thought, they said. Reduced exports from countries like Russia and Kazakhstan could open the door for more sales by the U.S. or Europe because they are competitors on the global market. The head of the Russian Grain Union told Dow Jones Newswires that Russian farmers will still export wheat but that he didn't know how much.

U.S. rice futures on Tuesday fell to a two-week low as the market retreated from gains last week, and triggered pre-placed sell orders. September rice on the Chicago Board of Trade ended down 16 cents, or 1.6%, at $10.01 per hundredweight. November rice ended down 16 cents, or 1.5%, at $10.26. Pre-placed sell orders were located around $10.13 to $10.14 per hundredweight in September rice and around $10.39 in November rice, a CBOT floor trader said. The market was giving back gains from rallies Thursday and Friday last week, he said. Prices look as though they are in a sideways trend for the time being, a trader said. September rice could break out to the downside if it drops below its near-term low at $9.55, set on June 30, he said. Prices dropped even though the U.S. Department of Agriculture on Monday lowered its good-to-excellent rating for the U.S. rice crop to 73% from 75% a week ago. The decline didn't impact the market because the USDA is still projecting a record large U.S. crop, a trader said.

Soybean futures inched lower Tuesday, as favorable crop conditions served as a bearish catalyst to erase an early technical bounce. Chicago Board of Trade August soybeans finished 1/4 cent or 0.03% lower at $9.98, and November soybeans, the most-active contract, ended 1/2 cent or 0.05% lower at $9.65 1/2. Speculative funds were estimated sellers of 1,000 lots. Fund activity is a measure of investment-money flow in the market. The absence of near-term weather threats to crops heading into their key development phase set the stage for sellers to take advantage of an initial bounce in prices. The market has essentially drawn the conclusion that the U.S. soybean crop is going to be fine, as steady crop ratings and no threat of drought in key Midwest growing areas dampened bullish enthusiasm, a CBOT floor analyst said. The potential for timely rains to reach parched areas in the U.S. Delta added to the lower theme. Delta soybeans are the first soybean crops harvested in the U.S. and serve as a bridge between old- and new-crop supplies before the Midwest harvest reaches the market later in autumn. The Midwest accounts for a bulk of the U.S.'s soybean production.

A quiet news front and the absence of any fresh directional influences left the market adrift, with favorable crop weather serving as a drag on corn futures Tuesday. Nearby Chicago Board of Trade September corn settled 1 1/4 cents, or 0.3%, lower at $3.62 3/4 a bushel, and December corn ended 1 cent, or 0.3%, lower at $3.77 a bushel. Speculative funds were estimated sellers of 2,000 lots. Fund activity is a measure of investment money flow in the market. The market grinded lower, settling back after an early consolidative bounce failed to attract buyers, as the potential for record crop production continued to hang over the market. Futures essentially took a step back from recent price action, taking a pause to get its footing after staging a downward correction in the past three trading days, said John Kleist, broker/analyst with Allendale Inc. in McHenry Ill. The uncertainty of eventual yields and production, particularly ahead of the government's August crop production report, promoted cautious activity. However, without a significant weather threat, advances were met with selling pressure, as good conditions for developing crops and only routine demand fail to promote higher prices, said Kleist.

MEATS

Short covering contributed to Chicago Mercantile Exchange hogs' recovery Tuesday from Monday's stumble. Lean hogs perked up immediately after the opening bell following wholesale pork prices Monday that resumed their recent uptrend. Pork values gained five of the last six days and Monday hit their highest mark since June 1. Initial steady-to-$1 per hundredweight higher cash hog quotes motivated market bulls. Upward futures momentum drove October and December futures beyond their respective 10-day moving average resistance thresholds, which ignited orders to buy. October futures received an added boost from spreading into that contract out of August and December. Spreaders also bought October lean hogs and sold October CME live cattle. Spreads involve trading two or more contracts with the intent to capitalize on the price differences. Pork futures at times slipped from morning tops due to lower midday direct cash hog prices. Also, some anxiety remains about spot August's price premium to CME's lean hog index ahead of spot-month expiration on Aug. 13. Spot August closed up 0.22 cent a pound, or 0.3%, at 82.22 cents. Most actively traded October finished 0.75 cent higher, or 1.0%, at 76.22 cents. CME August pork bellies settled down its 3-cent daily price limit, or 3.0%, at 99.75 cents in extremely low volume. Buyers were nonexistent and August tripped pre-placed sell orders.

CME live cattle futures settled mixed after traders mostly bought October and sold February on spreads while they waited for this week's cash cattle trade to develop. Live cattle spiked at first, prodded by short covering and front-months bullish price discounts to last week's cash cattle sales. Initial August and October gains floated both months beyond their respective 10-day moving average resistance levels and touched off buy orders. August and October futures later surrendered once-captured technical territory after initial buying interest faded. Both months drifted below Monday's lows which touched off sell orders. Tuesday afternoon's higher wholesale boxed-beef values encouraged those who are anticipating at least steady cash cattle returns this week. Others contend packers may be reluctant to spend more for supplies based on unprofitable margins. Packer bids were reported at $92 to $93 per hundredweight for cash-basis cattle while sellers look to land $96 to $97. Fed cattle last week generally moved at $95. The U.S. Department of Agriculture's Tuesday midday boxed-beef data, which track beef prices at the wholesale level, showed choice rose $0.72 per hundredweight and select cuts up $0.16.

SOFTS

Cotton prices climbed Tuesday as traders anticipate availability of the fiber will remain low despite expectations for a bumper fall harvest. Nearby cotton for October delivery settled 0.23 cent, or 0.3%, higher at 81.45 cents a pound on ICE Futures U.S. The most actively traded December contract settled 0.21 cent, or 0.3%, higher at 76.70. Cotton prices have rebounded with textile demand as the economy recovers from recession lows. Though the U.S., the world's top cotton exporter and No. 3 producer, is expected to yield 50% more of the fiber this year, much of initial harvest has been bought and sold. Now traders are willing to pay more for earlier cotton futures than for deferred contracts, which is contrary to typical market behavior. October futures are "inverted," or trading higher than December. December is also stronger than March. "An inverted market is a sign of strong nearby demand," said Mike Stevens, an independent cotton broker and analyst based in Mandeville, La. Crop progress reports indicate harvest may begin early in the U.S, though there's speculation that marketing channels will still be empty in November, Stevens said. "The fact that many merchants will no longer sell cotton for delivery until after the first of the year also adds credibility to that story," he said. However, most-active cotton futures prices may have out-paced their recent gains and are could soon drift back toward support at 73 cents, said Boyd Cruel, senior softs analyst at Vision Financial Markets in Chicago. The December contract has resistance at 77.70 to 77.25, Cruel said.

World raw sugar prices eased Tuesday on ideas the rally to four-month highs had temporarily outpaced the driving focus on razor-thin supplies and stout demand. Nearby sugar for October delivery settled 0.20 cent, or 1%, lower at 18.42 cents a pound on ICE Futures U.S. Prices rose to four-month highs midday at 19.05, but surrendered gains as technical chart indicators showed sugar was "overbought." October futures have risen 24% since June 1. All eyes are on Brazil as frequent rains continue to delay the shipment of sugar while vessels await their turn to load the sweetener. The bottleneck in infrastructure comes at the height of the harvest in Brazil, the world's top sugar producer and exporter. Rain can stop loading for 1 to 2 days. As of last Wednesday, 113 ships were waiting to load sugar at ports, according to Williams Brazil shipping agency. Dry weather is expected Wednesday at Santos port, where 70% of shipping tends to take place. However, rain will continue at Paranagua port until Thursday, a meteorologist there said. Demand is also peaking ahead of Ramadan, which falls during August. During this month, Muslims fast from sunup to sundown and consume sweets in the evening. Merchants are finding difficulty in shipping to African and Asian countries that are attempting to rebuild sugar stocks following two-years of supply deficits that drove raw prices to 29-year highs in February. The Middle East region is likely to see a shortage of white sugar during the Islamic holy month of Ramadan, a senior executive at the world's largest standalone sugar refinery, Al Khaleej sugar said Tuesday.

Arabica coffee futures for September delivery fell Tuesday on bearish charts and weak commodity indexes linked to renewed economic concerns. Nearby September coffee lost 1.85 cent, or 1.1%, to settle at $1.6375 a pound on ICE Futures U.S. in New York. Coffee futures declined, along with a drop in crude oil and precious metals, on weaker-than-expected reports on consumer confidence and regional manufacturing. Commodity indexes declined amid the shaky U.S. economy and helped to put a small dent in coffee. While coffee prices were influenced mainly by a weaker chart outlook, the latest economic news kept already nervous investors on edge, said Rodrigo Costa, vice president of institutional sales at Newedge in New York. Consumer confidence fell to 50.4 in July, its weakest level since February, from 54.3 in June, the Conference Board said Tuesday. The data, combined with a weak reading in the Richmond-area manufacturing sector, led to ideas of decreased demand and most commodities, including coffee, fell. Technical factors also tugged coffee lower as the market continues to retrace after peaking at $1.6760 last week but securing no follow-through buying interest.

Orange juice futures hit three-week highs Tuesday on spillover support from gains in some soft commodity markets and as traders continue to build weather premium into prices. Nearby September juice traded on ICE Futures U.S. added 0.90 cent, or 0.62%, to settle at $1.4670 a pound. The contract reached a three-week top of $1.4770 earlier in the session, which prompted some traders to take profits, and prices ended off their strongest levels of the day, a broker said. Orange juice futures have gained 6.2% since the July 15 settlement on a combination of bullish chart influences and an expected pickup in tropical storm activity in August. While there is currently no threatening weather in the Atlantic Basin, traders are worried that tropical storm activity will increase as summer begins to wind down. "We're only a heartbeat away or a blink of an eye away from something forming," said Mark Julias, market strategist with Lind-Waldock in Chicago. Though weather conditions remain clear in the Atlantic Ocean and Caribbean Sea, ocean surface temperatures are high and conducive to the formation of tropical storms. Dry Saharan air over the tropical Atlantic and much of the Caribbean, however, is preventing weather disturbances from becoming organized. The threat of a significant storm in the tropics would easily boost orange juice futures up to $1.52 a pound, said Julias.

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