Cotton gains on strong export sales, U.S. crop development

By Jack Scoville

COTTON (NYBOT:CTV13)

General Comments: Futures closed higher on some short covering to end the week. Export sales were stronger than anticipated to provide a reason to buy. U.S. crop development remains behind because of delayed planting this year, but crop conditions right now are generally good. Very hot weather conditions in China continue, and the weather in Cotton areas is not really improving right now in that country. However, recent rains have helped hold the crop. Weather is moderate in the U.S. Texas is dry and warm. Weather for Cotton still appears good in India. The market is getting ready for the harvest, and any rallies now might be very limited in scope.

Overnight News: The Delta will be dry and Southeast will see a few showers late in the week. Temperatures will average above normal in the Delta and mostly above normal in the Southeast. Texas will see dry weather. Temperatures will average above normal. The USDA spot price is now 79.89 ct/lb. ICE said that certified Cotton stocks are now 0.018 million bales, from 0.018 million yesterday.

Chart Trends: Trends in Cotton are mixed to down with objectives of 82.70 and 81.20 October. Support is at 82.80, 82.30, and 81.80 October, with resistance of 84.00, 85.05, and 85.30 October.

FCOJ (NYBOT:OJX13)

General Comments: Futures closed a little higher. It is now past the midpoint of the hurricane season and all remains mostly quiet. However, the historically biggest part of the season is coming up. There are still no real threats showing in the tropical Atlantic for Florida. The one system of interest is flowing east of the state in the ocean. Growing conditions in the state of Florida remain mostly good. Showers are reported and conditions are said to be very good in almost the entire state. Temperatures are warm. Brazil is seeing near normal temperatures and mostly dry weather, but production areas will turn warmer again this weekend.

Overnight News: Florida weather forecasts call for some showers. Temperatures will average near normal.

Chart Trends: Trends in FCOJ are mixed to down with objectives of 129.00 and 121.00 November. Support is at 131.00, 129.00, and 126.00 November, with resistance at 137.00, 139.00, and 140.00 November.

Next page: Coffee, Sugar and Cocoa

COFFEE (NYBOT:KCZ13)

General Comments: Futures were a little higher in all markets. London was higher as deliverable supplies are falling. The cash market seemed relatively quiet. Most Brazil Coffee producers are not offering much right now after the Real moved higher last week. Coffee appears to be available in Central America as farmers and mills clear inventories before the next harvest. Colombia is offering Coffee into the cash market at weaker differentials. Buyers are said to be well covered. Current crop development is still good this year in most production areas of Latin America. Central America crop conditions are said to be good overall. Colombia is still reported to have good conditions. Harvest conditions are good in Brazil.

Overnight News: Certified stocks are near unchanged today and are about 2.784 million bags. The ICO composite price is now 112.79 ct/lb. Brazil should get dry conditions. Temperatures will average near to above normal. Colombia should get scattered showers, and Central America and Mexico should get showers and rains. Temperatures should average near to above normal.

Chart Trends: Trends in New York are mixed. Support is at 116.00, 114.00, and 111.00 December, and resistance is at 120.00, 122.00, and 125.00 December. Trends in London are mixed. Support is at 1750, 1730, and 1720 November, and resistance is at 1800, 1825, and 1840 November. Trends in Sao Paulo are down with objectives of 134.50 and 123.50 December. Support is at 139.00, 137.00, and 134.00 December, and resistance is at 145.50, 148.50, and 150.50 December.

SUGAR (NYBOT:SBZ13)

General Comments: Futures closed a little lower on reports in moderate volume trading. There is not much on offer in the cash market for now. Processors in Brazil remain more interested in Ethanol production. There is good weather for Sugar production in India, and the crop is expected to be big there. Countries like Thailand and India also expect more production this year, and both countries are actively offering their supplies into the world market. Demand for ethanol has been good. Chinese demand has been soft, but Middle East demand is good. Price appears to be in a trading range for now due to solid demand and big production. Short term trends are now sideways.

Overnight News: Brazil could see dry weather and moderate temperatures. China produced 137,000 tons of Sugar in July, up 15.1% from last year. Calendar year to date production is now 11.05 million tons, up 14.8% from last year.

Chart Trends: Trends in New York are up with objectives of 1745 and 1780 March. Support is at 1710, 1700, and 1680 March, and resistance is at 1750, 1765, and 1780 March. Trends in London are up with objectives of 494.00 December. Support is at 479.00, 475.00, and 471.00 December, and resistance is at 485.00, 488.00, and 494.00 December.

COCOA (NYBOT:CCZ13)

General Comments: Futures closed higher on follow through chart based buying. There is not much offer now as West Africa is between crops. Ideas are that crop conditions there are generally improving. West Africa is expected to get scattered showers, and conditions there are said to be improving for almost all producers. Temperatures are moderate. The harvest will be getting underway soon. Malaysia and Indonesia crops appear to be in good condition and weather is called favorable.

Overnight News: Scattered showers are expected in West Africa. Temperatures will average near normal. Malaysia and Indonesia should see scattered showers, but southern areas could be dry. Temperatures should average above normal. Brazil will get mostly dry conditions and warm temperatures. ICE certified stocks are lower today at 4.607 million bags.

Chart Trends: Trends in New York are up with objectives of 2610 and 2720 December. Support is at 2545, 2525, and 2505 December, with resistance at 2590, 2605, and 2620 December. Trends in London are up with objectives of 1710 and 1770 December. Support is at 1670, 1660, and 1650 December, with resistance at 1710, 1740, and 1770 December.

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Hedge fund gold positions climb to highest since January

By Elizabeth Campbell

Hedge funds’ combined holdings in gold futures (COMEX:GCZ13) increased to the most bullish since January on mounting concern that conflict in the Middle East will boost crude-oil prices (NYMEX:CLV13), slowing economic growth and stoking inflation.

The net-long position rose 3.6% to 101,396 futures and options in the week ended Sept. 3, U.S. Commodity Futures Trading Commission data show. Long wagers gained 0.6% and short bets contracted 8.6%, the fourth consecutive drop and the longest retreat in a year. Combined net-long holdings across 18 U.S.-traded commodities fell 0.3% as investors got less bullish on copper.

Gold prices that are poised for the first annual drop since 2000 rebounded 18% since reaching a 34-month low in June. President Barack Obama, seeking Congressional approval for an attack on Syria, said Sept. 6 there is a “growing recognition” the world must act on allegations the government used chemical weapons against its own people. The Middle East produces 33% of the world’s oil and some investors buy bullion as a hedge against accelerating inflation.

“Whenever you have period of unrest, war, or investor fear, people go to gold,” said Dan Denbow, a fund manager at the $1.2 billion USAA Precious Metals & Minerals Fund in San Antonio. “The longer-term focus that gold is not dead and there are reasons for owning it is why you’re seeing bullish bets continue to grow in the space.”

Traders Split

Futures slipped 0.7% to $1,386.50 an ounce last week, the first drop since Aug. 2. Thirteen analysts surveyed by Bloomberg expected prices to rise this week, with the same number bearish and five neutral. Bullion for December delivery was little changed at $1,385.90 today.

The Standard & Poor’s GSCI Spot Index of 24 commodities climbed 1.1% last week, the second consecutive gain. The MSCI All-Country World Index of equities rose 2.1%. The Bloomberg Dollar Index, a gauge against 10 major trading partners, slid 0.3%, and the Bloomberg U.S. Treasury Bond Index lost 0.7%.

Gold climbed 13% since the end of June, heading for the biggest quarterly advance since 2007. Obama said he’ll make a more detailed case for action in Syria in an address to the nation this week after failing to gain a unified message of support following a meeting of the Group of 20 nations in Russia last week. Russian President Vladimir Putin said his country will assist Syria.

Bears Retreat

Bullish gold bets more than tripled since reaching a five- year low on June 25, CFTC data show. Speculators cut bearish wagers by 63% from a record 80,147 short contracts on July 9. Long wagers are up 13% in that time. The net-long position is 30% lower than a year earlier and tumbled 60% since reaching an all-time high in August 2011.

Gold is still 28% below the record $1,923.70 reached in September 2011. Eighteen analysts surveyed by Bloomberg last week said the metal won’t exceed that level in the next two years and 11 predicted another all-time high. Prices fell 17% this year as some investors lost faith in bullion as a store of value and amid mounting speculation the Federal Reserve will taper stimulus as economic growth accelerates.

Last week traders weighed reports showing increases for U.S. manufacturing and services with weaker-than-forecast labor data for clues to whether Fed policy makers will begin slowing bond purchases at their meeting this month. Gold climbed 70% from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt.

U.S. Manufacturing

The Institute for Supply Management’s non-manufacturing index of services that make up almost 90% of the U.S. economy increased in August to the strongest since December 2005, data showed Sept. 5. American payrolls rose by 169,000 last month, trailing estimates, the Labor Department said the next day. Fed officials probably will go ahead with a plan to start reducing asset purchases, Bill Gross, manager of the world’s biggest bond mutual fund, said in a Bloomberg radio interview Sept. 6.

“People are feeling better about the future global economy, and at the same time, in part because of that, the Fed is going to start taking away the massive monetary easing,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “Massive monetary easing and uncertainty about the future global economy had been the two pillars under the gold market.”

Exchange Traded

The Federal Open Market Committee meets Sept. 17-18. Gold tumbled a record 23% last quarter as strength in the U.S. economy raised concern that the Fed will trim its bond buying. Holdings in global exchange-traded products backed by the metal are down 26% this year. Sales of gold coins by the U.S. Mint fell to the lowest in six years in August, retreating for the fourth consecutive month.

Gold funds had outflows of $38 million in the week ended Sept. 4, according to Simon Ringrose, the managing director of sales for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Money managers added $500 million to commodity funds, the EPFR data show.

The net-long position in crude oil declined 3.6% to 305,971 contracts, the CFTC data show. West Texas Intermediate, the benchmark U.S. grade, advanced 2.7% to $110.53 a barrel last week, the biggest gain since early July. Prices reached a two-year high Sept. 6 as Russia’s pledge to assist Syria raised concern that escalating tension will disrupt supplies from the Middle East.

Metal Exchange

Investors decreased bullish copper holdings by 37% to 8,211 contracts. Futures rose 0.9% in New York last week. Stockpiles tracked by the London Metal Exchange fell 11% since the end of June.

A measure of net-long positions across 11 agricultural products fell 1.3% to 279,134 futures and options, the first decline since Aug. 6. The S&P GSCI Agriculture Index of eight commodities rose 3.4% from the three-year low reached Aug. 7.

Wagers on a cocoa rally climbed 2.1% to 59,464 contracts, the highest since February 2008. Prices jumped 5.3% in New York last week on dry weather in Ivory Coast and Ghana, the biggest producers.

The net-long position in soybeans climbed 15% to 159,438 contracts, the highest since November. The U.S. government may cut its outlook for the domestic crop this week after hot, dry weather, analysts surveyed by Bloomberg said. The Department of Agriculture updates its forecast Sept. 12.

Industrial Growth

The S&P GSCI index rose 8.1% since the end of June, poised for the biggest quarterly rally in a year. Goldman Sachs Group Inc. raised its forecast for China’s economic growth this year to 7.6% from 7.4%, citing industrial growth and global demand, in a Sept. 3 report. The country is the largest consumer of commodities from cotton to copper to coal.

“The better the economic news, the better it is for commodities,” said John Kinsey, who helps manage about C$1 billion ($961.1 million) of assets at Caldwell Securities Ltd. in Toronto. “If the economies are good, then they need more infrastructure and they need more steel and they need more of everything that uses commodities.”

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Italy's Challenges Mount

by Marc Chandler

One of our thematic points has been that Italy is emerging as arguably the weak link in EMU.  Italy faces two immediate challenges--one political and one financial--and neither is expected to be resolved immediately.  At best, together and separately risk the under performance of Italian assets.  At worst, a crisis in Italy could renew the broader tensions in the monetary union. 
The first issue is Berlusconi.  In particular the parliamentary commission begins its hearing today on whether to enforce the ban for political office that the former prime minister's tax fraud conviction entails.  The anti-corruption law, under which the ban would take place, was passed in 2012.  The crime Berlusconi was found guilty of took place prior and his allies are using this as a reason for arguing that it should not apply (ex post facto).
Berlusconi and his allies have threatened to pull support from the fragile Letta government if the center-left moves against its coalition partner.  That, they say, is the real rupture and resignations by the center-right ministers simply recognizes that. Over the weekend, Berlusconi's lawyers have filed a motion before the European Court of Human Rights, seeking to a ruling prior to the Senate vote, which was expected to take place before the end of the month. 
Time, though, seems to be working against Berlusconi. The appeal process of his conviction for paying for sex with a minor and abusing his office continues and that too threatens the Berlusconi's political future.   As reluctant as he may be, Berlusconi appears to be preparing for this eventuality by re-launching his political party and there is speculation that his daughter Marina, who has taken the reins of the businesses, will also be heir to his party Forza Italia. 
The financial issue seems just as intractable.  It involves Monte dei Pashi's need for more capital.  Over the weekend the EU indicated that the bank needs to raise 2.,5 bln euros, which is about the market cap of the oldest bank in the world.  This is twice the amount that was initially identified.
If Monte dei Pashi fails to raise the sum, the government would have to convert is debt holdings to equity and take control of the bank.  This is important because it would likely trigger the new EU bank aid rules that went into effect on August 1 that require a so-called "bail-in" of subordinated debt holders. 
This in turn could undermine what increasingly appears as a fragile banking system. Earlier today the Bank of Italy reported that as of July, bad loans had risen a little more than 22% from a year ago.  This, coupled with the continued contraction of the economy, to dissuade Italian banks from making fresh loans.  Private sector loans are 3.3% less than last July's.  On the other hand, private sector deposits are up almost 6% from a year ago.
Italian banks do not appear to have returned much of their LTRO borrowings from the ECB.  Italian banks, among others, appear to be pressing for another LTRO before the end of the year.  Several large investment houses anticipate a new 2-year LTRO in Q4.  This would effectively extend the current 3-year LTRO for another year. 
For its part, the Letta government is pressing ahead with its limited agenda.  The labor minister has indicated that employment taxes will be cut next year and the cabinet met earlier today to discuss a decree on education funding.  The Letta government is also preparing a plan that is expected to be ready later this month on the selling of state assets.  The government has extensive corporate holdings and these are what is being targeted. 
The weakness of the Italian economy and the concerns sketched here have prompted the under-performance of  Italian bonds relative to Spain.  Over the past month, the spread has narrowed by 32 bp to about a single basis point today.  Italy's 10-year yield is set to rise above Spain's for the first time since early 2012.  The cost of insuring Italian debt (5-year CDS) has been trending gently higher over the past month, but has been more expensive than Spain for the better part of two months. 

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Monti Paschi Faces Bail-In As Capital Needs Point To Nationalization

by Tyler Durden

Just as we warned 4 months ago, the oldest bank in the world now faces a critical need to raise EUR2.5 billion in fresh capital - more than double its original plan. "There is no chance on the planet that they can raise [this] in 12 months... they are heading towards nationalization," exclaimed one investment banker, confirmed by another who added via Reuters, "it will be difficult to find someone to shell out all that money." The capital raise is equivalent to the entire market cap of the bank currently and it is becoming increasingly clear that the Italian state will be forced to provide the equity. The problem (for BMPS bondholders and depositors) is that under such a scenario, as Bloomberg notes, EC State Aid rules regarding a subordinated-debt bail-in could apply. However, given the small size of sub-debt in the capital structures, it is unclear who will get the haircut including senior bondholders and depositors.

Via Reuters,

...

The size of the planned capital increase, which matches the current market capitalization of the bank and was announced by the economy ministry late on Sunday, underlines the problems still confronting Monte Paschi.

The bank could fall under direct state control if it cannot raise sufficient funds from shareholders.

"There's no chance on the planet that they can raise 2.5 billion euros on the market within 12 months. They are heading towards nationalization,"

...

"I don't see how the market could take the news well today. It will be difficult to find someone to shell out all that money as it's not an insignificant amount," a Milan trader said.

Some analysts said the bank's best option to avoid nationalization could be a debt-to-equity swap, converting subordinated bonds it has already issued into shares.

"That would be a hit for bond holders and also for shareholders, but at least it would be fairer on taxpayers and it would be in line with the new bail-in guidelines for banks,"

...

As well as the capital hike, the Monte Paschi plan also includes new cost cuts and a gradual reduction in the bank's huge government bond portfolio which totaled 29 billion euros at the end of June

...

But, as we previously noted, a glance at the capital structure makes it very clear that there will be much more pain in the capital structure than simply sub-debt holders...

A quick glance at BMPS' capital structure shows that there isn't a whole lot (read: almost any) of impairable securities below the unsecured liability (i.e., deposit) level.

It is also obvious that when the bad debt impairment begins and depositors start getting whacked at least senior bonds, which should be pari passu, will feel the pain too as per the Diesel-BOOM doctrine, although we doubt this particular case of pain sharing will bring much comfort to any and all uninsured depositors in the oldest bank in the world.

So it's time to apply that non-template 'template' it would seem

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If Employment Is So Great, Why Are Witholding Taxes Declining?

by Charles Hugh Smith

It's difficult to have a meaningful national debate about economic policy when "headline numbers" are juiced to make things appear rosier than reality.

Since unemployment statistics are either suspect or blatantly bogus, we must look for other less manipulated statistics for some modicum of truth. Key statistics of employment, income and production are vital propaganda tools for the status quo, and the temptation to adjust them to manage perceptions is apparently irresistible.
Here in the U.S., unemployment statistics are a travesty of a mockery of a sham:
Real Unemployment Rate Rises To 11.4%, Difference Between Reported And Real Data Rises To Record (Zero Hedge)
Guggenheim On The US Jobs Growth "Mirage"
In China, output is routinely juiced to fantasy levels:
Chinese Province 'Busted' For Fake Data; Exaggerated 2013 Output By Over 150% (Zero Hedge)
To get some semi-accurate sense of China's actual output, as opposed to official propaganda, skeptics look to electricity consumption as an imperfect but better-than-lies gauge of actual economic activity.
Here in the U.S., longtime correspondent B.C. suggests we look at withholding taxes as a more accurate measure of employment than the ginned-up official numbers. Withholding taxes are payroll taxes, and as such they are a direct measure of payrolls and earned income. (Self-employed people who don't issue themselves monthly or weekly paychecks pay their withholding taxes quarterly.)
In other words, withholding taxes (i.e. Social Security, Medicare and estimated income taxes) are a very broad and accurate measure of the earned income of both employees and self-employed.
Since many high-earning professionals such as attorneys and accountants are self-employed, the earnings reported by the self-employed are significant. The self-employed have some control over when and how they report earnings, and many chose to report income in late 2012 rather than in 2013 to avoid the tax increases that kicked in on January 1, 2013.
This accounts for the spike in wages and withholding taxes in late 2012.
Here is a chart of wages/salaries and withholding receipts:

Wages/salaries have trended up since early, but growth has flattened recently. Withholding taxes are declining.
Here are employment and withholding receipts. Civilian employment has increased by some 2.5 million jobs since January 2012, but withholding receipts are actually lower than January 2012. This strongly supports what many others have already observed: the substitution of lower-wage part-time jobs for full-time employment. It's difficult to conjure up any other explanation for employment rising and payroll taxes declining. Massive cuts in wages would have the same consequence, but there is no evidence of widespread reductions in hourly wages.


Here are employment and wages/salaries. We see the same basic dynamic here: the number of jobs continues increasing but wages/salaries are trending flat to down.


The con being played here is the assumption that more jobs means more wages which means things are getting better and better in every way, every day. If payroll withholding taxes are declining, and wages/salaries are flatlined, things are not getting better and better in terms of earned income flowing into household bank accounts, purses and wallets.
About 20 million working-age adults have supposedly dropped out of the U.S. labor force (and therefore become zombies who are not counted in tallies of unemployment) since January 2001. This is roughly comparable to the entire workforce of Italy (22.8 million) or South Korea (25 million).

If we drop another 15 million unemployed from the labor force, the unemployment rate will fall to near-zero. "Unemployment rate drops to 1%" will make a warm and fuzzy headline, but it won't mean there are more jobs or higher earned incomes. An official account of the economy based on 20+ million unemployed people not counted as unemployed is a shameful lie.
Record 90.5 Million Out Of Labor Force As Half A Million Drop Out In One Month (Zero Hedge)
It's difficult to have a meaningful national debate about economic policy when perceptions and "headline numbers" are juiced to make things appear rosier than reality.

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Brazil & Emerging Markets reflecting “Relative Strength” of late!

by Chris Kimble

CLICK ON CHART TO ENLARGE

Shared the chart above with Premium & Sector/Commodity Sentiment extreme members as well as Stocktwits (here), that Brazil ETF EWZ looked to have formed a "Double Bottom" in the chart above.

CLICK ON CHART TO ENLARGE

The chart above reflects that since the 8/21 posting, EWZ is reflecting relative strength compared to the S&P 500 (gaining almost 10% more than SPY over the past few weeks).

CLICK ON CHART TO ENLARGE

This chart reflects that EWZ is making a strong attempt to break above another resistance line above.

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