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Money Matters
- Bullish Failure?
- The Return of the Reluctant Bull
- US Midwest drought - corn and wheat
- USD/JPY - another voyage to the dark side
- Markets littered with reversal signals
- NZD/AUD - Time to buy again?
- Chart of interest - China stocks and AUD
- Gold - time to re-enter longs
- NZD/USD - The standstill provides opportunity
- NZD and AUD - Key Levels
- View archive...
Money Matters
Viewing entries tagged with 'US'
Bullish Failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
The Return of the Reluctant Bull
All
As an avowed bear this doesn’t come easy, but as John Maynard Keynes was attributed as saying “When the facts change, I change my mind. What do you do, sir? Reluctantly I am now a bull on ‘risk’.
Yes, the EU Summit measures to date only appear to be addressing the symptoms and not the root causes. But when German Chancellor Merkel says on Wednesday “Europe will not have shared total liability for debt as long as I live” and then agrees to concede to a Euro wide bailout fund and the dropping of austerity requirements then I guess the facts have indeed changed. I believe you need a frightening event for policy makers to act in the required fashion and when Italy and Spain’s (both regarded as ‘too big to fail’) borrowing costs approached/went over the 7% bailout zone I think the EU policy makers had stared squarely into the abyss.
Indeed, over the rest of the year I’d expect more positive developments to come out of the Eurozone now.
Further, a major point in the bear case for me has been that the U.S. FED would not delve into their bag of tricks anytime soon as QE3 surely has to be a consideration of ‘last resort’. But last night’s huge fall in the ISM is potentially another game changer. One month’s data won’t be enough to move the FED but another months poor data and the they could be forced into action. One only has to understand ‘Helicopter Ben’s’ background to acknowledge the possibility of more stimulus.
Poster boys for the change story are the NZD/USD and the AUD/USD which are now displaying quite solid bull signals on the charts.
NZD/USD – The NZD/USD has surged out of the upward sloping 10/20 moving average band which were already trending up, as are the Bollingers and the MACD.
NZDUSD – Click here to view chart
Yours, the reluctant bull
G.
US Midwest drought - corn and wheat
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 andwidening 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 Plcforecast 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.
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.
USD/JPY - another voyage to the dark side
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.
Markets littered with reversal signals
All
I am a bear.
Thus I believe this week’s upswing in markets has simply been a correction against the prevailing trend. In that case these daily chart patterns interest me hugely.
S&P500 – Opened on the lows, rallied nicely and closed smack bang down where it started. Suggests good selling pressure resides above current levels. Tonight’s action will be key.
S&P 500 – Click here to view chart
Copper (Dr Copper that is!) – Big range , opening and closing where it started. Reeks of uncertainty. Watch the next day for confirmation.
Copper – Click here to view chart
AUD/USD – Finished lower than where it started the day despite the outstanding local news. Not a good sign.
AUD/USD – Click here to view chart
Cheers
G.
NZD/AUD - Time to buy again?
All
There is no doubt that world growth is slowing and early indications are that China too is slowing at a much faster rate than has previously been anticipated.
In this environment, the one currency that looks the most vulnerable to me, is the Australian Dollar (AUD). Over the last 4 years the Aussie has been a huge beneficiary of major investment flows given it’s relatively high yield, its position as a proxy for Chinese growth and its AAA sovereign rating. The ‘long’ positions must be enormous.
In November the RBA started cutting interest rates. To date they have cut a full 1% off the cash rate from 4.75% to 3.75%. During this time the RBA have remained relatively upbeat stating that although the economy was clearly ‘two speed’ (East Coast retail, finance and housing industries very weak – West/North mining booming) the spend from on-going mining investment (capex) would hold the economy in good stead. However, in the last speech on record, the RBA noted that the flow through from mining hadn’t supported the economy quite as much as they expected. Hot on the heels of that significant statement the giant corporate BHP advised that their proposed $80 billion capex program was to be pared back as they saw demand for their products waning. Not good, the last bastion of Aussie growth being undermined (pun intended).
Thus more rate cuts look likely in Australia over time. Contrastingly, whilst the data out of New Zealand has been soft of late, the hurdle to a RBNZ rate cut from the already ‘emergency’ setting of 2.5% looks very high. The likely fillip from the Canterbury situation certainly a major factor in that view. The NZD/AUD is historically very sensitive to a narrowing interest differentials. And this cross is a nice diversification away from pure AUD/USD if you’re already on that trend lower.
Technically the chart looks supportive of this view. The uptrend line off the ‘double bottom’ low of late last year looks to have held nicely this week.
NZDAUD – Click here to view chart
Cheers G.
Chart of interest - China stocks and AUD
All
Chinese shares have been heavily beaten down over the last 2 years. However yesterday’s action looks to me to be a potentially significant break higher.
Chinese Shares – click here to view chart
Taking a look at AUD/USD I have the AUD/USD testing, and rebounding, off CRUCIAL support at 1.0280 last night.
AUDUSD – click here to view chart
I wonder if the China stock move may come into play going forward (U.S. shares of course are doing very well too with the Dow at 4.5 year highs) overriding the recent focus on the big RBA rate cut which is somewhat old news (and the accompanying statement was, well….. rather neutral).
Regards G.
Gold - time to re-enter longs
All
Gold has been somewhat out of the market focus in recent months. Indeed, the views that have been coming across the wires have largely been of the bearish variety, which is a huge turnaround from the sentiment prevailing over the last 5/7 years.
If we view Gold from the context of being the 3rd currency, rather than a commodity, then the case for owning Gold over EUR and USD is once again strong. Euroland continues to be fraught with danger whilst the recent upswing in U.S. data earlier in the year appears to be fizzling out.
So under the umbrella of the old contrarian market quote “when they’re yelling you should be selling and when they’re crying you should be buying” I’m suggesting buying Gold here and now.
The charts as I interpret them look quite compelling.
Fig 1 – Gold weekly Chart. Bullish reversal week where Gold pushed lower than the previous week but ended above the same week. Typically a sign of significant buying pressure.
Gold Weekly Chart – click here to view
Fig 2 – Gold daily Chart. In 3 of the last 8 trading days Gold has looked to push lower only to rebound and finish on its highs. Again this is typically a sign that the sellers have run into significant buying interest.
Gold Daily Chart – click here to view
Fig 3 – Gold Hourly Chart. Overnight an unusual selling event occurred in the Gold market which culminated in a brief trading halt on the Comex Exchange (see article pasted below). Interestingly the sharp selloff stopped at my (BRILLIANTLY PERFORMING !!!!) proprietary model which is pushing up, suggesting to me that Gold is indeed building a base here for higher.
Gold Hourly Chart – click here to view
DJ CME Group: Gold’s Slide Triggered Brief Trading Halt
By Tatyana Shumsky
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–CME Group Inc. (CME) instigated a brief trading halt in gold futures Monday morning amid a violent downdraft in gold prices, the exchange told Dow Jones Newswires.
A so-called Stop Logic trading halt kicked in at 8:31 a.m. Monday, pausing trade in the Comex June-delivery gold contract for 10 seconds, a CME spokesman said.
“The market is given a short period to recalibrate and in this instant it was for 10 seconds,” he said.
“It only happened in gold futures, in the June gold contract,” the spokesman added.
Gold prices fell around $15 in that minute of trading, as 7,500 gold futures contracts worth around $1.24 billion changed hands.
Stop Logic is software which detects when market movement triggers stop-price orders and introduces a short pause in order matching, according to CME’s website. This means that buyers and sellers can continue to enter their bids and asks into CME’s systems, but these orders won’t be cross-matched and won’t result in any trades.
-By Tatyana Shumsky, Dow Jones Newswires; 212-416-3095; tatyana.shumsky@dowjones.com
(END) Dow Jones Newswires
April 30, 2012 15:43 ET (19:43 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.
Tuesday 01 May 2012 05:43:00.000 AEST
There are two significant supports close at hand providing very good risk/reward setups for those with an inherently bullish view on Gold. Those interested should call in so that we can tailor a trade to your personal needs.
Regards Graham
NZD/USD - The standstill provides opportunity
All
The NZD/USD pair has been in a particularly tight range for the last 7 weeks. This lack of direction in the pair is presumably down to conflicting forces competing but no one factor prevailing.
NZDUSD – click here to view chart
Whilst this activity can frustrate the active trader it does present significant opportunity for those with a longer term horizon in mind. You see, as the ranges dwindle, the core input for pricing options, the volatility measure, declines accordingly. This phenomenon provides scope to prepare break out strategies at very good prices.
This is nothing other than abiding to the No1 core trading rule………………………. ‘BUY LOW, SELL HIGH’.
In this case we are buying FX options very cheaply and when inevitably, volatility returns to the NZD, the options increase in value.
Whilst I have a very downbeat view of global economic prospects (and thus the NZD) I cannot, as a trader, sit here arrogantly suggesting that the range breakout will certainly occur to the downside. Thus a simple two-directional break out strategy is suggested (there are many but I profile the most simple of them here – the Straddle).
I am going to buy both ‘the right to buy’ and ‘the right to sell’ NZD/USD at 0.8165 (current market rate) into the future.
1 month – Cost is 0.0199 points. So I need the pair to be above or below 0.8364/0.7966 in 1 month
2 month – Cost is 0.0291 points. I need above/below 0.8456/00.7874
3 month – Cost is 0.0376 points. I need above/below 0.8541/0.7789
Now invariably options look expensive on the day you look at them but the number of times my clients have thanked me only a matter of days after we’ve written them is significant.
Obviously for those traders that do have a strong directional bias, the low volatility measure will have a beneficial effect on those wishing to buy one directional options.
Regards G.
NZD and AUD - Key Levels
All
The NZD and AUD have proved amazingly robust overnight in the face of a significant downturn in global sentiment. The overnight price action looks to have created corresponding CRITICAL levels in both pairs.
NZD/USD – Classic ‘uncertainty’ Doji yesterday. The pair had a wide range overnight effectively finishing mid-range near its open. A break of the low at 0.8085 would likely confirm the end of the range (particularly if the AUD/USD confirms as per below).
NZDUSD – Click here to view chart
AUD/USD – The overnight ACTION seemingly confirms the 7 month uptrend boundary.
AUDUSD – Click here to view chart
Whilst I remain bearish, the collective price action is supportive for now and not confirming of my view.
Regards G.
