Issue Date: August 21, 2009
Stock Index Futures - The Bears Are Growling
The bears on the market ramped up their rhetoric last Friday, when the University of Michigan Sentiment Index was reported to be much weaker than expected, at 63.2, when 69 was anticipated. This was followed by 4.3% drop in China’s stock market on the following Monday that was the biggest decline since last November. Other Asian equity markets, then the European markets and the U.S. stock markets followed suit to the downside. Falling commodity prices, along with talk of tighter lending standards at Chinese banks, contributed to the Global declines. Another negative factor, which was probably more psychological than anything else, was the news that Japan’s economy grew less than expected. Japan‘s gross domestic product increased by 3.7%, on an annualized basis in the second quarter, which compared to the median guess a 3.9% advance.
By Alan Bush
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Inventory Induced Hysteria
I better get whatever they are drinking. Oil prices surge to their highest prices since June as the stock-market and petroleum complex responds to an Energy Information Agency oil inventory shock drop of 8.4 million barrels. Oh sure there is no doubt that an 8.4 million barrel drop deserves some attention and some market enthusiasm but I wonder if it should be to this extent of the firestorm that it set off yesterday. Does anyone ever read the fine print? The drop in supply was stunning but the drop in demand week over week should have been shocking as well. Did anyone stop to think that the numbers seem to suggest that this massive supply drop was a bit mysterious to say the least?
Where the Hardy boys and Nancy are drew when you need them? Let’s start trying to unravel this mystery by trying to figure out why crude supplies fell. Did oil refiners all of a sudden get this sudden uncontrollable urge to make product? Well let’s start by looking at the refinery runs. Last week’s report show refiners were running at 85.9 percent of capacity. This week refinery runs fell to 84 percent. Refinery inputs fell from 14.8 million barrels a day to 14.5 million barrels day. Not quite the answer that we were looking for.
By Phil Flynn
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Wheat Values Continue to Erode
Wheat values continue to erode as the underlying fundamentals of these markets have changed very little. Ample Global and Domestic supplies of wheat continue to weigh on a commodity that lacks aggressive buyers. Additionally, the dark cloud regarding the possibility of a massive liquidation of index fund longs has once again moved to the forefront. The market is due for a bounce to correct oversold conditions, but the lower trend remains intact.
In the opening, I stated that very little had changed in the fundamentals and I believe that to be true, with one exception. The competitiveness of US wheat has gotten better. Lower wheat prices and a weak dollar have allowed this to happen. This is not a reason to get bullish, but it could continue to provide some support, if it continues. Export sales are behind the pace needed to reach USDA objectives. The business completed with Egypt for 120,000 mt of soft wheat on Wednesday is a decent start. The US needs to continue to take part in these tenders and it appears lower prices are going to be required.
By Brian Henry
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