Morning markets: cotton leads decline on China, euro jitters

by Agrimoney.com

Agricultural commodities could not maintain their ability to swim against the tide.

External markets continued on Monday the slide with which they ended last week, given an extra shove by data over the weekend showing Chinese inflation reaching a three-year high of 6.4% in the year to June.

This increase, spurred by a 14.4% rise in food prices, spurred thoughts that further interest rate rises might be in the wings, with associated risks for economic growth in the Asian powerhouse.

"We reckon [on] at least one interest rate hike in the third quarter, and view inflation will become 'structurally' higher for the following years," Australia & New Zealand Bank said.

Spread to Italy?

While Shanghai stocks managed a, typical, counterintuitive move, adding 0.2%, with separate data showing a rise to $22.2bn in China's trade surplus last month, other Asian stock markets failed to see the upbeat side.

Tokyo's Nikkei index shed 0.7%. Fresh concerns for eurozone sovereign debt gave a further dent to sentiment, after the European Union called a meeting of senior officials amid concerns that jitters could spread to Italy, the region's third-ranked economy, after Germany and France.

Furthermore, the Financial Times reported that some European leaders are considering allowing some default by Greece, the region's worst affected economy.

The euro dipped, and the dollar added 0.5% against a basket of currencies as of 07:50 GMT (08:50 UK time), making dollar-denominated assets such as many commodities that much less competitive as exports.

'Rain interruptions'

Prices of many raw materials fell, with New York crude down 1.3% at $95.00 a barrel.

And, among farm commodities, wheat was among the weakest, down 1.7% at $6.40 a bushel for September and 1.7% to $6.79 ¾ a bushel for the December lot in Chicago.

Kansas wheat for September fell 1.7% to $7.15 a bushel for September.

Pressure from harvests picking up pace in Europe too added pressure, despite some rain interruptions in France, the EU's top producer, and "further thunderstorms forecast for this Wednesday," according to Agritel.

Still, in northern France, the consultancy added that "yields seem less impacted by drought occurred this spring", helped by their late development which allowed them to benefit more from early summer rains.

Any sellers left?

Corn fell 0.5% to $6.38 a bushel against for September and 0.9% to $6.31 ½ a bushel for the best-traded, new crop December contract, given some support by fresh signs of demand.

South Korean feedmaker Nonghyup Feed bought 110,000 tonnes of corn for delivery between October and November.

Furthermore, there are some doubts as to the weight of selling left likely in corn, given the liquidation which funds have already undertaken in corn.

Regulatory data out late on Friday showed that large funds "have blown out of another 36m+ bushels of ownership which would have them reducing their length by nearly two-thirds since the beginning of April", Jon Michalscheck at Benson Quinn Commodities said.

In the latest week (to last Tuesday), "speculators liquidated a quarter of their net long position in corn, and positioning is now much closer to 'neutral'", ANZ said.

China damage

Even soybeans lost their grip on their gentle strength of late, which has been spurred by official data last month showing US sowings of the oilseed were below forecasts, at a time when supplies already look tight.

The news on China, the top importer of the oilseed, sent Chicago's best-traded November lot down 0.3% to $13.43 a bushel, with the old crop August contract shedding 0.2% to $13.44 ¼ a bushel.

Still, that was better than cotton, of which China is also the biggest buyer, which tumbled 2.2% to 111.41 cents a pound for the best-traded December contract.

The lot earlier hit 110.82 cents a pound, its weakest for five months. The decline also took the fibre below its 200-day moving average, near about 111.73 cents a pound, below which is has not fallen since August, according to Mike Mawdsley at Iowa-based broker Market 1.

Luke Mathews at Commonwealth Bank of Australia also noted the depressant to prices offered on Friday by a "bearish US jobs report and another week of [cotton] net export sales reductions in the US".

'Powerful heat dome'

More will be known on US shipments later, with the weekly data on export inspections.

Also potentially to effect market moves will be the prospect on Tuesday of the latest US Wasde report on world crop supply and demand estimates, which are of particular interest this time given the changes two weeks ago to estimates for US crop sowings, and unexpected stocks data too.

And the weather could, as ever, move the markets, particularly with attention on a US "heat dome" set to hit the Midwest – after some cooler weather and thunderstorms over the next few days.

"A powerful heat dome continues to appear in all the models," weather service WxRisk.com said.

"The dome develops around July 15 and spreads into the western Corn Belt on the 16th and looks to last for several days.

"The greatest heat is going to be from the Mississippi River westward towards of the Rockies."

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Berlin confident Italy will take austerity measures

by Reuters

(Reuters) - Germany's government has full confidence in Italy to take the necessary decisions regarding austerity measures and sees no need to expand the euro zone bailout mechanism, a government spokesman said on Monday. Chancellor Angela Merkel's spokesman Steffen Seibert told reporters Germany agreed with other euro zone leaders that a second bailout package for Greece must be agreed quickly and would top the agenda of Monday's euro zone talks in Brussels. But Seibert said Italy, the latest focus of worries about possible contagion of the euro zone debt crisis, was not on the agenda of a special meeting of the European Union's top finance officials ahead of talks between euro zone finance ministers.

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Investor Sentiment: What do you Expect?

by Guy Lerner

Hey, what do you expect? Those knuckleheads* who were selling and calling for the end of the world 4 weeks ago are now chasing prices higher and probably calling for a new bull market. As prices have moved higher, the prior extremes in bearish sentiment have given way to neutral readings. Will we end up going to an extreme bullish reading in sentiment, which would likely coincide with higher prices? Difficult to say at this point, but it is likely that a good chunk of this price move has already occurred. Why? There wasn’t a consensus amongst the sentiment indicators at the bottom, and short covering (as expressed by the short term Rydex data) has been non-existent. It is just difficult seeing the market moving higher on its own merit. It is still a bullish bias as buyers (i.e., those who missed the rally) will be willing buyers at any sign of weakness, but the market action is likely to be choppy.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator is extremely bearish, and this is a bull signal.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Market-wide insider sentiment was neutral despite the fact that sellers outnumbered buyers by a nearly four-to-one ratio. The holiday and earnings lock-ups constrained volume and some seasonal factors – a number of companies popped up with cluster sales due to the annual vesting of restricted stock awards – led to an uptick in selling. There were, however, two negative signs worth keeping an eye on: The number of 10b5-1 plans hitting their initial trigger hit a four-week high and, for the first time since late April/early May, Sell Inflections outnumbered Buy Inflections. Transactional volume should decline this week before reaching a low point next week as companies prep their Q2’11 earnings reports.”

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicatoris green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall.

Currently, the value of the indicator is 62.26%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Recovery Charts-expect a tough and volatile autumn

by the trader

Some self explanatory charts on the Great Recovery and some possible hick ups in Greece below;

Above Charts John Mauldin,

and don’t forget the Joker;

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The bubble that destroyed the middle class-The rich recovered; the rest of us didn’t.

by the trader

What happened to that great recovery? The middle class is diminishing, while the rich get richer. Welcome to the new normal.

A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?

But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?

And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms.

But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money.

There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.

That’s the amount of wealth that’s been lost from the bursting of housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged. (market watch)

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The Anger is Back- Italy in full blown war vs Naked Short Sellers

by the trader

It is back, the anger on naked short seller. Italy is not happy with the bank stocks falling, so they now start the blame game of the naked short sellers. Could it be Italy’s Economy is in total chaos, while the bunga bunga man is enjoying himself? Whoever responsible, the naked short sellers now need to disclose their positions. We ask ourselves, does anybody care about when these short sellers loose money, when the markets go parabolic?

For those interested in the man who screwed an entire nation (Italy), please read full report on Silvio.

Below from Bloomberg,

Italy’s financial-market watchdog, Consob, is requiring investors who sell equities short to disclose their positions in an effort to increase market transparency.

The measure, which takes effect starting tomorrow, follows similar action take in other European countries, including Germany, Rome-based Consob said in a statement posted on its website.

Consob’s commissioners met today after shares of Italy’s biggest banks fell to the lowest in more than two years on July 8, and government bonds dropped, driving 10-year yields to a nine-year high.

Short selling involves the sale of securities borrowed from the owner, and generates profit when the trader repurchases them at a lower price and returns them to the owner. The amount of shorting is limited by the willingness of owners to lend.

On July 5, European lawmakers voted in favor of a ban on short selling of government bonds in the EU unless traders have at least “located and reserved” in advance the securities they intend to sell. The European Union Parliament in Strasbourg, France, also called for restrictions on traders’ use of credit- default swaps to profit from defaults on sovereign debt they don’t own.

Net Positions

The European Securities and Markets Authority, which co- ordinates the work of national regulators in the 27-nation EU, should be given emergency powers to temporarily ban short selling or trades in CDS on sovereign debt in the EU, the Parliament said.

The Italian regulator said short sellers must disclose their net positions when they reach 0.2 percent or more of a company’s capital and then make additional filings for each additional 0.1 percent.

Politicians including German Chancellor Angela Merkel and French President Nicolas Sarkozyhave claimed that naked short- selling and credit-default swaps worsened the euro area’s sovereign-debt crisis, and have called for EU curbs.

Michel Barnier, the EU’s financial-services chief, said last year such trades may lead to “disorderly markets and systemic risks.” Finance ministers from the 27-nation region agreed in May that traders should be allowed to short sell government bonds and stocks if they have a “reasonable expectation” that they can obtain the underlying securities. They also rejected calls from Germany for a ban on sovereign CDS.

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