Overnight Points of Interest
2012 June 28 by Graham Parlane
Overnight
# Global equity markets have been a sea of red again, however U.S markets surged late in the session on European Summit headlines. The EuroStoxx600 ended down 0.5% and the S&P500 ended down only 0.2% after being down 1.35% for most of the session.
# The late rally was built on German Chancellor Merkel’s cancellation of a scheduled press conference because “talks on a growth accord are continuing”.
# Following a stop loss run higher yesterday as market participants pared back positions ahead of the Summit, the NZD fell markedly, shedding over 1 cent U.S. before the late bounce. Certainly the NBNZ Business Confidence survey did the kiwi no favours as the number of those bullish the economy’s’ prospects more than halved. That said, the survey still has a net positive tone consistent with expanding GDP.
# The EUR/USD was the main driver falling from 1.2520 to 1.2400. Italy’s borrowing costs surged after the Italian government sold 5.4 billion euros worth of five- and 10-year bonds. Italy sold 2.9 billion euros in 10-year government bonds with yields rising to 6.19 % from 6.03 %t in an auction held in late May and 2.5 billion euros of five-year bonds at a yield of 5.84 % compared with 5.66 % in late May.
# The CRB commodity price index fell 1.2% led by a 2.7% slide in oil prices. Crude sits 30% below its March highs, strongly suggestive of further slowing in the global economy. Gold and Silver fell in the vicinity of 1.5%.
# A New York Times report suggested the JP Morgan trading loss could eventually reach US$9b
# US jobless claims came in at 386k as expected
# The US Supreme court ruled the mandate at the centre of President Obama’s healthcare overhaul is constitutional.
# Final Q1 UK GDP came in at -0.3%q/q confirming a contracting economy.
Ahead
# N.Z Building Consents
# Japan Employment, Industrial Production and Inflation
# Chicago PMI
# U.S. Personal Spending
# European Summit continues
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
U.S. Midwest drought – Corn and Wheat
2012 June 28 by Graham Parlane
All
Things look pretty serious for crop production in the U.S. Midwest. The article below makes that quite clear. Whilst prices have rallied very strongly for both Wheat and Corn (up 25%+ in a few weeks) traders shouldn’t be afraid of jumping on this bandwagon. You see, if the crops are seriously damaged then the global stock piles are going to take years to rebuild.
Heat Wave Wilts Corn as Supply Drops Most Since ’96: Commodities
Jeff Wilson, ©2012 Bloomberg News
Published 02:48 p.m., Wednesday, June 27, 2012
June 27 (Bloomberg) — Corn supplies in the U.S., the world’s biggest exporter, are declining at the fastest pace since 1996 just as a Midwest heat wave damages the world’s largest harvest for a third consecutive year.
Stockpiles were probably 3.168 billion bushels (80.47 million metric tons) on June 1, 47 percent less than on March 1, the average of 22 analyst estimates compiled by Bloomberg shows. The worst Midwest drought in more than a decade is wilting a harvest that the U.S. Department of Agriculture says will be the biggest ever. The agency updates its inventory estimate June 29 and its production forecast two weeks later.
Futures surged 25 percent since reaching a 20-month low June 15, and Morgan Stanley expects prices to advance an additional 11 percent to $7 a bushel in two months if the drought persists. The rally is boosting global food costs that the United Nations estimates dropped 14 percent from a record in February 2011 and widening losses for ethanol producers including Decatur, Illinois-based Archer Daniels Midland Co.
“We have a potential disaster developing for the U.S. corn supply,” said Peter Meyer, the senior director for agricultural commodities at PIRA Energy Group in New York who cut his corn- crop forecast after surveying fields in Illinois, Indiana and Ohio last week. “This year may be the worst yet.”
Top Commodities
Corn rallied 14 percent this month to $6.33 a bushel today on the Chicago Board of Trade, trailing only wheat and natural gas among 24 commodities in the Standard & Poor’s GSCI Spot Index, which fell 3.2 percent. The MSCI All-Country World Index of equities rose 1.9 percent, and the dollar fell 0.6 percent against a basket of six currencies. Treasuries lost 0.2 percent, a Bank of America Corp. index shows.
The USDA forecast June 12 that pre-harvest stockpiles at the end of August would plunge to a 16-year low of 21.62 million tons. That’s a 50 percent decline in two years, the most since 1990. Standard Chartered Plc forecast yesterday a third-quarter average of $7 a bushel, a record for the period. The cost of an option conferring the right to buy at $7 by the end of November rose fourfold since mid-June, CBOT data show.
While the USDA’s prediction on June 12 was for a 20 percent jump in U.S. output this year to a record 14.79 billion bushels, the harvest is about two months away and dry weather across the main growing region comes as plants begin to pollinate. That’s the most vulnerable period in the growing cycle, so the next two weeks are crucial, Dennis Gartman, the author of the Suffolk, Virginia-based Gartman Letter, wrote yesterday. Meyer expects the crop to total 13.5 billion bushels.
Third Quarter
About 71 percent of the Midwest had abnormally dry soil to extreme drought on June 19, the worst in more than a decade and up from 1 percent a year earlier, according to the University of Nebraska at Lincoln. Crop conditions on June 24 were the worst for that time of year since 1988, with 56 percent rated good or excellent, down from 77 percent on May 18, USDA data show. The National Weather Service said June 21 that unusually warm, dry conditions would probably continue into next month.
Slower growth and rising Brazilian supply may contain the rally, Rabobank International analysts led by Sydney-based Luke Chandler said in a June 21 report. The bank cut its third- quarter forecast to $6.10, from $6.20 a month earlier. Corn demand rose 1.3 percent in 2009 as economies contended with recession, from a 6.6 percent expansion in 2008, USDA data show.
A 21 percent jump in Brazilian production will reduce demand for higher-priced U.S. supplies, Rabobank said. Purchases by U.S. ethanol refiners may also weaken after retail gasoline prices tumbled 14 percent to $3.397 a gallon from a 10-month high on April 4, the analysts said.
Hedge Funds
Losses from ethanol refining increased from about 13 cents to 15 cents a gallon at the start of May to the “high 20s,” Patricia Woertz, ADM’s chief executive officer, told investors at a Deutsche Bank AG conference in Paris on June 19. The company shut a plant because of poor returns, she said.
Hedge funds and other large speculators are still less bullish than over most of the past two years, holding a combined net-long position of 70,715 futures and options in the week ended June 19, U.S. Commodity Futures Trading Commission data show. That compares with a two-year average of 257,000 contracts.
“The number of bushels being subtracted daily from the U.S. crop is running over any worries about a decline in demand,” said Marty Foreman, an economist at Doane Agricultural Services Co., a farm and food-company researcher based in St. Louis. “Until we see significant and widespread rain in the Midwest, no one knows how far yields can fall this year.”
Commodity Research
Global demand for corn has expanded for 16 straight years and will reach a record 865.5 million tons in the 12 months ending Oct. 1, 2012, USDA data show. World inventories on Oct. 1, 2011, were equal to about 15 percent of consumption, the lowest ratio since 1974. U.S. yields failed to keep up, slowing to annual gains of 1.8 percent since 1996, from 4.3 percent in the four decades to 1970, according to government data.
The Midwest drought probably will spur the USDA to cut its estimate for 2012 corn yields next month, Hussein Allidina, the New York-based head of commodity research at Morgan Stanley, wrote in a June 19 report.
Lower yields will boost demand for fertilizers, and investors should buy Potash Corp. of Saskatchewan and CF Industries Holdings Inc., Charles Neivert, a managing director at Dahlman Rose & Co. LLC in New York, wrote in a report June 25. Saskatoon, Saskatchewan-based Potash is the world’s biggest fertilizer producer. Deerfield, Illinois-based CF Industries is the top maker of nitrogen fertilizer in North America.
Smithfield Foods Inc., the largest U.S. hog producer, said costs to raise an animal rose $10 to $64 per 100 pounds of pork in the year ended April 29, Chief Financial Officer Robert W. Manly told analysts on a conference call June 14.
Chicago Board
Stockpile forecasts by analysts and traders missed the USDA’s figures by 215 million bushels on average in the past two years, twice as much as in the previous five years, according to data compiled by Bloomberg. Futures moved by the maximum allowed on the CBOT after seven of the past eight reports, with an average swing of 5.9 percent. Inventories are getting harder to predict as growers build more silos on their land rather than using commercial grain elevators.
Cash prices for corn in central Illinois, the second- biggest producing state after Iowa, rose or fell an average of 6.6 percent the day of the past five quarterly reports, government data show. That compares with an average of 2.7 percent in the previous 17 years.
“Yield growth has slowed at a time when global demand is exploding,” said Steve Nicholson, the chief economist for International Food Products Corp., a distributor and adviser on food ingredients in Fenton, Missouri. “A third year of U.S. crop problems is something the world cannot stand this year.”
–Editors: Steve Stroth, Daniel Enoch
I made the mistake in Orange Juice futures back in 2004. Having bought OJ at 26 year lows I was very excited as 4 consecutive Hurricanes tore through Florida decimating the orange groves. I got out of the trade when the prices had near doubled (about a 10 fold return on my investment) and watched in despair as prices ultimately quadrupled on the basis that you can’t get oranges to maturity in just a year or two. Here’s a chart of my idiocy.
Orange Juice – click here to view chart
So while Corn and Wheat are annual crops and differ to Oranges in that regard, the fact remains that stocks are so low, meaning that a rebuild to normal historical levels will be a long time coming.
Regards G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 June 27 by Graham Parlane
Overnight
# Equity markets recorded a positive session globally, the EuroStoxx600 up a decent 1.35% and the S&P500 up 0.9%.
# However despite the better tone, Spanish 10 year yields continued to creep back up to the ‘bailout zone of 7%, ending at 6.9%.
# Germany’s Merkel reiterates Euro bonds are economically wrong and counterproductive.
# Italy Govt. wins final confidence vote on labour reform law (Good on you Italy! Forget more monetary policy hocus pocus, this is exactly the type of reform so badly needed in Europe).
# U.S. data was encouraging, US May Durable Goods were up +1.1% v +0.4% expected. US May Pending Home Sales m/m + 5.9%; f/c 1.9% - y/y 15.3%; f/c 9.9%.
# The EUR continued to trade heavily against the field as market participants continued to pare expectations of aggressive policy action from tonight’s Summit.
# Corn futures have rallied 28% since June 15th as a U.S. Midwest heat wave damages the world’s largest harvest for a 3rd consecutive year. Corn supplies in the U.S are declining at the fastest pace since 1996.
Ahead
# NBNZ NZ Business Confidence
# UK Current Account
# European Summit
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 June 26 by Graham Parlane
Overnight
# Global equities were mixed, the EuroStoxx600 down 0.1% whilst the S&P ended up 0.5%.
# European concerns were again at the forefront with poorly received Spanish and Italian bond auctions hurting sentiment. Signs of lower demand at the auctions pushed Spanish 10-year yields up from 6.7% up to 6.9%. Italian equivalents rose from 6% to 6.2%.
# European officials continued to downplay expectations for an enduring resolution coming from this week’s European Summit. The EU’s Van Rompey said a ‘roadmap to integration’ wasn’t likely until December whilst Germany’s Merkel came out with a stunner saying “Europe will not have shared total liability for debt as long as she lives”.
# The ECB announced that Cyprus sovereign bonds are no longer eligible collateral for ECB operations.
# Ratings agency Egan Jones downgraded Germany from AA- to A+. They warned that Germany is on the hook for as much as EUR700 billion in indirect exposure to the euro zone, of which perhaps only half is collectable.
# A leak from German lawmakers suggested that the EZ was mulling removing ESM preferred creditor status”. This could help calm EZ debt markets as bond buyers would no longer be subordinate.
# UK public sector borrowing proved much higher than expected in May. April’s £17.6b surplus reversed into a £17.9b deficit, well above expectations for a £14.8b deficit.
# The U.S. markets took heart from the Case-Shiller U.S. Home prices which showed prices up 0.7% m/m and down a less than expected -1.9% y/y versus expectations of -2.5% y/y.
# U.S June Consumer Confidence came in slightly weaker than expectations at 62 v 63.5 forecast and a previous 64.4 (revised down from 64.9).
# The US June Richmond Fed Mfg. Index was also weaker than expected at -3 versus a previous +4.
Ahead
# NZ Trade Balance
# U.S Durable Goods Orders
# U.S Pending Home Sales
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 June 25 by Graham Parlane
Overnight
# Global equity markets were a sea of red as European law makers doused expectations for a long lasting solution to Europe’s problems ahead of Thursday’s EU Summit. The broad EuroStoxx 600 ended down 1.5%, as did the S&P500, falling a similar 1.6%
# German Chancellor Merkel said she is worried people are hoping for “easy solutions” and the ECB’s Nowotny said “don’t expected too much” from the Summit.
# Spain formally applied for extra bailout funds for its banks but details about the plan, including the specific sum it would involve, remain unclear.
# Another Euro member, albeit the smallest, applied for bailout funds as well. Cyprus has now joined the ranks of requesting a sovereign bailout.
# In a remarkably frank admission of the current state of affairs the ECB’s Weidmann said: Attempts by EZ to impress financial markets with ever larger sums of money will not work; Monetary financing is forbidden; Undermining rules is not a way to stabilize EZ; Lack of decision making by govts is taking the ECB to limit of its mandate, ECB bond-buy program cannot solve root cause of EZ crisis
# Currencies were strangely muted to the equity markets’ leads with EUR and AUD declining modestly whilst the NZD held its ground. NZD/AUD continued to grind higher as NZ-AUS 3 year swap prices have lifted to the highest since mid-2010.
# U.S. data was mixed, the Chicago Fed Index came in at -0.45 v-0.3 expected, the Dallas Fed manufacturing index rose to 5.8, well above market expectations of -2.0, whilst US new home sales posted 369k vs. 347k expected.
Ahead
# RBA Deputy Gov. Debelle speaks
# UK Public Spending and Inflation hearing
# U.S Consumer Confidence
# U.S Richmond manufacturing index
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 June 24 by Graham Parlane
Overnight
# European stocks finished the week on a soft note, the EuroStoxx600 down 0.75% whilst the U.S. fared considerably better, supported late by the ECB announcement to relax refi collateral rules, the S&P500 finishing up 0.70%.
# German IFO survey came in around expectations at 105.30 v 105.80 expected. Whilst not far off the mark the survey did fall to the lowest level in 2 years.
# The ECB announced a relaxation of rules surrounding the collateral they would accept for refinancing operations. The move is seen as a prelude to another LTRO facility.
# Greece submitted a revised bailout plan which is likely to meet fierce resistance from the Troika.
# Following the outstanding N.Z Q1 GDP result the NZ-U.S. 3 year swap differential widened significantly to 2.30% from 2.15%
This week
# 25 June: US Chicago Fed index; US new home sales; 26 June: RBA’s Debelle speaking; US Richmond Fed index; US consumer confidence; Italy sells bonds; 27 June: NZ trade balance; US durable goods orders; US pending home sales; 28 June: NZ business confidence; JP retail trade; AU home sales; UK & US final Q1 GDP; UK Q1 current account; US jobless claims; IT bond auction; EU leaders Summit kicks off; 29 June: NZ building permits; CPI, and industrial production; EU CPI; US personal spending; US Fed’s Bullard speaking; US Chicago PMI;
Today
# US Chicago Fed index
# US new home sales
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Silver – What’s simmering there? – Part 2
2012 June 22 by Graham Parlane
All
Following on from my piece on Tuesday, Silver looks to have broken to the downside, and given the super narrow state of the Bollinger Bands this suggests that the ensuing move may have legs.
Adding to the conviction, the NZD/USD has traced out a ‘key day reversal’ whilst most other USD based pairs have made strong moves from ‘doji’ type setups.
The market simply now looks to be a ‘buy USD’ market and Silver may be one of the better vehicles to express that view. Certainly with its ‘industrial’ categorisation, Silver may outperform to the downside given the obvious contraction coming in global manufacturing.
XAGUSD – Click here to view chart
Regards G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
Overnight Points of Interest
2012 June 21 by Graham Parlane
Overnight
# The recent correction higher in equities looks like it may have run its course with sharp falls seen in the U.S. overnight. The EuroStoxx600 fell a relatively mild 0.5% whilst U.S bourses fell sharply (2nd largest one day fall of the year) as global manufacturing data showed further contraction ahead. The S&P500 fell a hefty 2.25%. The contractionary data was all the more unappealing in the light of the FED’s relative inaction yesterday.
# Flash estimates of European manufacturing PMI’s declined for the 5th straight month. Adding to the markets’ worries were more signs that the weakness in the European periphery is spreading to Germany where the headline manufacturing index fell from 45.2 to 44.7.
# U.S. data was no better as the US June Philly Fed Survey fell to -16.6 vs f/c 0.0; prior -5.8 and weekly jobless claims rose.
# Commodities again tumbled with Gold down a hefty 2.75% whilst Crude Oil lost all support, falling an amazing 7.5%! In the last 2 months Crude has shed 25% of its value, a sure sign of a slowing global economy.
# Notable U.S. investment bank Goldman Sachs in a note to clients released a recommendation to establish short S&P500 positions.
# After the U.S. market close, ratings agency Moody’s announced it would be downgrading 17 major global banking institutions, some by up to 3 notches.
# Despite the ‘risk off’ tone USD/JPY bucked its behaviours of the last 4 years and actually rose, suggesting the market is now just simply a ‘buy USD’ market rather than ‘risk on/risk off’.
Ahead
# German IFO Business Climate survey
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
USD/JPY – Another voyage to the dark side
2012 June 21 by Graham Parlane
All
The USD/JPY jumped sharply in response to the FED’s relative lack of new easing programs, tracing out a simple ‘bullish engulfing day’ in the process. The technical set up simply looks like a break of the recent downtrend, consolidation and then the green shoots of a new uptrend.
USDJPY – Click here to view chart
Regards
G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities
NZD/AUD – Strong NZ GDP should cement higher levels
2012 June 21 by Graham Parlane
All
Fundamentals for a higher NZD/AUD have been lining up very nicely of late.
NZ house prices up, Australian house prices down. Numerous Australian businesses are shifting operations to N.Z. The RBA have been cutting interest rates (1.25% off their cash rate since November) whilst the RBNZ gave guidance last week that their next move is likely to be a hike in Q2 2013. One can now argue this GDP result sets the scene for an earlier rise given anecdotes about Q2 are already strong (ANZ have a new indicator, their ‘Truckometer’. That measure jumped 3.3% in May, the largest in the series (brief) history. The Truckometer should be the earliest of indicators that business and the movement of goods is improving).
NZDAUD – Click here to view chart
Regards
G.
Edge Capital Markets Limited, a specialist advisor in Futures – FX – CFD – Options – Shares – Gold – Silver – Commodities