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September 12, 2003:
CURRENCIES AND FINANCIALS
The dollar sank against most major currencies on Friday, undermined by a raft of dismal economic reports that cast doubts over the prospects of the U.S. economy. However, traders cited Japanese banks aggressively buying dollars and selling yen, leaving the greenback higher against the Japanese currency and at odds with the general trend in the market of dollar weakness. The euro rose to $1.1307, a gain of 0.90 percent from Thursday's New York close after having spent much of the session below the $1.1190 level. It surged to a fresh four-week high of $1.1324 after weaker-than-expected U.S. consumer sentiment data. Against the yen, the dollar was up 0.21 percent at 117.30 yen . The euro was likewise firmer against the Japanese currency, up 1.17 percent at 132.64 yen . But the greenback fell 0.58 percent vs. the Swiss franc to 1.3748 francs . Expectations about a more vigorous economic recovery have been dampened as data on U.S. consumer confidence and retail sales came out weaker than expected. But some analysts said the underlying figures were not as grim as the headline numbers showed. The University of Michigan's preliminary consumer sentiment survey for September fell to 88.2, below expectations for a rise to 90.0 from August's reading of 89.3. The dollar further weakened after U.S. retail sales and inflation data on first blush appeared worse than expected, although the reports showed underlying trends remained strong.
Stocks fell in midday trading on Friday after a pair of weak economic reports and lackluster licensing news from tech heavyweight Oracle Corp. tempered hopes that the economy and corporate profits are on the mend. The market opened sharply lower after Oracle's results failed to offer clear evidence that corporate America is poised for recovery. Adding to Wall Street's troubles was a report showing that while retail sales gained solidly in August, the advance was not nearly as much as expected. The technology-laced Nasdaq Composite Index was down 13.87 points, or 0.75 percent, at 1,832.22 after falling more than 1 percent earlier in the day. The Dow Jones industrial average sagged 41.48 points, or 0.44 percent, at 9,418.28, while the broader Standard & Poor's 500 Index dropped 5 points, or 0.49 percent, at 1,011.42. Stocks have run sharply higher in recent months in a rally fueled by expectations for an economic rebound in coming months. But with the evidence of such a recovery still patchy, investors have become nervous that the market has moved too far, too fast.
Crude oil fell to a four-month low on speculation that U.S. refiners will reduce purchases in coming weeks as they take units off line for maintenance and repairs. Refineries schedule maintenance during periods when petroleum products use is expected to decline. Gasoline demand has dropped since the Labor Day holiday earlier this month, and heating-oil demand probably won't pick up until November. Crude oil for October delivery was down 52 cents, or 1.8 percent, at $28.30 a barrel At the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. If prices settle at this level it would be the lowest close since May 12. Prices were down 2 percent this week and have tumbled 10 percent since the end of August. The decline accelerated during the session after prices fell to $28.51 a barrel, matching a three-month low reached Sept. 4. The price triggered sell orders from fund managers who base decisions on charts and graphs of futures prices and trading volumes. In London, the October Brent crude-oil futures contract was down 27 cents, or 1 percent, to $26.75 a barrel on the International Petroleum Exchange. Prices were down 1.7 percent this week.
Comex Dec silver futures settled 12.8 cents lower at $5.217 per ounce Friday to end the week over 16 cents below its recently-scaled three-and-a-half year highs but still nearly 7 cents above where prices were one week ago. Spot silver soared to levels not seen since February 2000 Thursday and first thing Friday on good levels of speculator and dealer buying that were spurred by a hopeful demand outlook and the recent sturdy performance in gold. Stop-loss buy orders and chart-based buyers also helped drive prices higher Thursday, but that support waned Friday to leave prices lacking fresh sustained uplift. Pre-weekend profit taking then entered the fray on the back of disappointing economic data on retail sales and consumer confidence, driving prices well below recent highs by the end of play. However, from a technical or chart perspective, prices remain poised above the 10-day moving average and have filled a chart gap that emerged earlier in September after Dec futures prices opened sharply higher Sept. 9 at $5.215 after having closed at $5.107 Sept. 8. Dealers said this chart-gap filling has served to confirm underlying support for the white metal and should ensure that speculative and physical interest is sustained going forward.
U.S. wheat futures ended a shade lower following Friday's very choppy price action. Wheat was not only whipped around in a tug-of-war between sinking corn futures and rising soybean futures, but also mixed market sentiment. Ideas were that the market was oversold, but at the same time lacked fresh bullish inputs to help it recover some of its recent losses. On Friday, Chicago Board of Trade Dec settled 1/4 cents lower at $3.51 1/2 per bushel. Kansas City Board of Trade Dec slipped 3/4c to end at $3.51 and Minneapolis Grain Exchange Dec fell 1c to close at $3.57. All major months ended lower on the week. CBOT Dec fell 7 1/2c, KCBT Dec sank 6 1/2c and MGE slipped 4 1/2c. Due to an absence of market moving news Friday, traders were mostly left to mull over Thursday's barrage of inputs. In wheat, the U.S. Department of Agriculture left 2003-04 U.S. wheat ending stocks unchanged, but lowered world carryout by 1.5 million metric tons. Egypt's main state buyer, the General Authority for Supply ommodities, also bought 60,000 tons of U.S. soft red winter and 60,000 tons of Australian white wheat Thursday. Bulls were encouraged by the U.S. business, but also worried about the Australian deal with a near-record crop expected to be harvested there in Nov.-Dec.
Soybean futures at the Chicago Board of Trade settled higher Friday as the soyoil market again scored the biggest gains for the soy complex. Soyoil ended the day sharply higher, reaching the highest point on the Dec chart in 3 1/2 months and all the while coaxing soybeans to climb even higher. Thursday, the U.S. Department of Agriculture shocked the market by lowering projected soybean production to a much lower-than-expected 2.643 billion bushels in the monthly supply and demand report. Nov soybeans settled 7 3/4 cents higher at $6.23 1/2 a bushel, and Jan beans were 7 3/4c higher at $6.24 1/2 a bushel. Dec soymeal finished $0.30 lower at $190.10 a short ton, and Dec soyoil settled 65 points higher at 22.38c a pound. The USDA had also put projected soyoil ending stocks at 1.318 billion pounds on Thursday, down from 1.544 billion pounds in August and 1.558 billion last year. The reduction in the soyoil number in the report, floor sources said, was also still being traded in Friday's session, which translated into an added boost to the soybeans. Meanwhile, the Sep contract went off the board at noon with all soy contracts ending strongly to the upside and the soybean contract ending near the contract high. Sep beans expired 10 1/2c higher at $6.48 a bushel.
Chicago Board of Trade corn futures finished to the downside Friday, capping off a two-day slide that reversed the late August to early September recovery. CBOT Sep corn ended 1/2 cent lower at $2.27, Dec corn settled 5c lower at $2.28, and Mar corn ended 4 3/4c lower at $2.35 3/4. The seasonal tendency for corn to drift lower in late September coupled with the assumption that there is less of a sense of scarcity in the corn market following the USDA report kept bearish momentum flowing through the pit. Commission house and local selling were featured attractions as the market blew through technical support levels in route to four-week lows. In fact, the most active Dec future completely eroded the advances set after the August crop report, returning prices to the levels traded on Aug. 12. Reports of harvesting getting underway in certain areas of the Midwest as well as talk of favorable yields added to the defensive tone. The absence of any fresh supportive news coupled with the market's ability to satisfy the technical objectives of filling a chart gap left from Aug. 15 and plowing through various moving averages sent prices spiraling into the weekend, traders added.
Most-active Oct Chicago Mercantile Exchange live cattle futures fell to their limit-down floor as early profit taking pushed prices lower into sensitive chart support points near $86.80, which set off sales of an estimated 800 contracts, with at least one large fund a major seller. Although Jan feeder cattle also ended at its limit-lower quote, Sep ended higher and registered yet another all-time record high quote for feeder futures. RJ O'Brien was, once again, a major factor. That firm sold Oct live cattle, sold Dec live cattle near the close, continued to sell Jan feeder cattle, and sold at least 350 Dec $80.00 calls. Earlier in the week, futures fell amid talk the U.S. Department of Agriculture was working on protocols, which would, eventually, lead to Canadian live cattle imports sometime next year. Sources familiar with the situation said it would be very unlikely the USDA would make any announcements on those proposals until they were listed in the Federal Register for public comment. That listing is expected sometime in October.
Chicago Mercantile Exchange lean hogs settled sharply lower amid profit taking, overbought sentiments, bear spreading, softening cash bids and pressure from other meat futures. Cleanup Goldman rolling, fund longs liquidating Oct and buying Dec, was also featured along with deep-month speculative purging. Oct, down 1.7%, settled at the bottom of its trading rage and fell through twin supports on its way to a one-week bottom. Dec, 1.6% lower, closed near the bottom of its range that was a three-day low. After "monumental" run ups the past couple of weeks, traders were leery about the trend continuing into the weekend. Board premiums and talk that cash bids may be close to topping out aided in the sell off that sent nervous bulls running for cover. Fund buying on breaks was not enough to cushion hogs' fall as would-be longs observed the setback from the sidelines hoping for a last-minute reprieve near the closing bell. Instead, commercial sellers intensified activity after word drifted in the pit that a prominent packer was easing bids. Direct bids were reported $0.75 to $1.00 lower in the Western corn belt and down $0.50 in Iowa Southern Minnesota, while hogs in the eastern corn belt were steady to firm, according to government price quotes.
Cocoa futures on the Coffee, Sugar and Cocoa Exchange posted another day of losses Friday as speculators exited their longs. But trade buying did emerge to support. Dec settled down $29 at $1,499 a metric ton, a new 3 1/2-week low. The heavy expunging of longs amassed by speculators and funds in the market's recent rally has led to over a $200 decline in cocoa prices this week. One desk trader said speculators began dumping contracts as Dec fell under Thursday's low of $1,522. In Thursday's session, the trader estimated that the funds had sold 3,000 contracts, which left them long by 5,000 to 6,000 contracts. He said another few thousand were sold Friday, with estimates pegging the amount at 3,000 contracts. The selling was heavy in the early part of the session, with some light stops touched as Dec slipped below $1,500 a metric ton. Dec scored a low of $1,481 but was held here and did rally briefly to above $1,500 a metric ton. Arbitrage buying in the wake of a weaker dollar against both the pound and the Euro contributed to this, as it saw players sell London and buy New York. Trade short covering also helped tick price back up.
World raw sugar futures ended mostly higher on the Coffee, Sugar & Cocoa Exchange Friday with active Oct/Mar rolling and options-related positioning. Oct settled 5 points higher at 6.05 cents a pound, while Mar rose 1 point to 6.29c. Oct opened firmer, and rose 10 points to 6.10c at mid-session as brokers bought the Oct/Mar spread. Switch buying slowed however, and producers sold Mar. Oct eased, but held 6.00c. Late options-related buying lifted it off that level. The Oct/Mar spread worked at Oct 23 to 28 points under and settled at 24 points under, after closing at 28 under on Thursday. Some 2,619 against actuals were posted in Oct and 72 in Mar. Futures volume was estimated at 32,547 lots. In the options ring, 3,446 calls and 3,877 puts traded. Brazil's center-south mills are trying to sell now, before new sugar becomes available in northeast Brazil, Thailand and Europe. Brazil's exports in August were strong and totaled 1.95 million tons, up 11% on the year. Ships have been nominated for 524,606 metric tons of Brazilian sugar over the next couple of months, mostly from Santos, versus 535,850 tons last week, according to Williams Brazil shipping.
Frozen concentrated orange juice futures ended sharply lower Friday on the New York Cotton Exchange amid profit taking. Nov fell 185 points to 78.55 cents a pound, while Jan was down 170 points at 80.50c. Orange juice prices opened lower, but popped briefly into positive territory. However, prices soon dropped sharply amid hedge selling, traders said. Nov FCOJ was down as much as 240 points to a one-week low of 78.00c. Prices have been making a push higher, with Nov hitting a six-week high on Thursday. The recent gains caused producers to take profits. Friday's price action has opened the door for the market to potentially test the contract lows of 76.50c, the technician said. Technically, if the bulls are going to regain any near-term confidence in the market, Nov has to move and close above 81.45c, he added. Traders and analysts continue to watch hurricane Isabel as it continues to churn in the Atlantic. Hurricane forecasters have still been unable to predict what path the storm will take, Global Weather Services said. There is still the possibility it could hit the Florida region. Futures volume was estimated at 1,855, with calls at 469 and puts seen at 86 lots.
Arabica coffee futures retreated from four-month highs on the Coffee, Sugar & Cocoa Exchange Friday under options-related pressure. The trade sold at upper levels, and speculators and locals took profits after a sharp run-up this week. Sep ended 190 points lower at 68.45 cents a pound, and Dec fell 190 points to 70.15c. Futures volume was 17,909 lots and included against actuals. In the options ring, 5,013 calls and 10,449 puts traded. Funds recently shifted to long the Arabica market after having been quite short. Ideas Friday were that funds were net long about 6,000 lots Tuesday and twice that Friday. Brazil's growing areas are getting some showers this week, but more are needed for spring tree blooming in late September and October. Brazil's 2003-04 harvest is complete and may be only 25 million bags, or less than half the previous year's crop, leaving supplies tighter than they were a year ago. The world market could suffer a shortfall of 8 million to 13 million bags in 2003-04, mainly because of the small Brazilian crop, the International Coffee Organization said in a report late this week.
Cotton futures on the New York Cotton Exchange Friday made a new life-of-contract high and a fresh 33-month high on another strong mix of buying. The Dec contract settled up 61 points at 66.13 cents per pound. The potential threat of Hurricane Isabel - which is making a steady westward course across the Atlantic Ocean - to U.S. cotton crops was said to be helping to drive prices higher. Traders said some players wanted to take cover ahead of the weekend. According to the latest report from Global Weather Services, a general westward motion is expected continue for at least the next 24 hours, but some forecast models suggest a turn toward the northwest or north this weekend. But GWS said it is "still very uncertain about if and where the hurricane will reach land next week, but interests near the U.S. Atlantic Coast, Bahamas and the Caribbean Islands certainly remain potential targets Despite a sharply higher opening call of 100 points up, cotton prices actually retreated on the open as buyers were said to have "backed off." Trade, both merchant and producer, and local selling then pounded Dec down 52 points to 65.00 cents.
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