China restricts credit again for the second time, commodities futures are lower

Weekly Futures Report

02.11.10 Filed Wednesday 4:20 pm

ALL CHARTS THIS WEEK ARE Daily Bars

Last Last Week (2.03)

Mar Crude 75.36 76.95

Mar Heat 196.57 202.11

Mar XRB (Blended) 193.70 203.45

Crude oil rallied on Thursday on speculation that demand will increase

and that somehow, the EC will find a way to deal with Greece and its

rising internal deficits. Also, the market traded higher after China

reported a less than expected inflation rate. There had been fear the

commodities markets that China was going to restrict credit, tell banks

to set aside more in reserves and that this would effectively diminish

growth. The market has temporarily convinced itself that this won’t

happen but more on this later. Crude oil was higher on Wednesday as

the Department of Energy raised its projection for demand in the

coming year to 85.2 million barrels a day from 85.18 million barrels.

Earlier in the week, the American Petroleum Institute reported that US

inventories gained 7.2 million barrels to 337.6 million barrels, the

highest inventory levels since October. The Department of Energy

report was delayed until Friday due to the snowstorms that have

effectively shut down Washington this week. Money flow in crude oil is

positive as it is in heating oil while money flow in gasoline remains

negative.

Support Resistance

Mar Crude 71.50 76.50

Mar Heat 188.50 199.00

Mar Gas 186.50 197.50

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METALS

Last Last Week

Apr Gold 1093.30 1110.60

Mar Silver 15.615 16.375

April Platinum 1530.5 1578.40

Gold surged on Thursday as commodity surged and traders sold EC’s

to buy gold. Both the dollar and gold were stronger as the political plan

announced by Germany to deal with the crisis in Greece was very short

on details. It also remains to be seen if Greece will go along with

austerity plans to reduce its growing internal deficit. Also, a reportedly

less than expected ate of inflation for China gave traders the idea that

the Chinese may not be raising rates immediately to stem inflationary

pressures. This allowed copper to rally sharply higher carrying other

markets with it. But as you can see from above we are still trading

below last week's price and money flow remains negative for gold and

silver while platinum remains positive. Also, if the EC trades down to its

projected target of 128, this could pull the commodity complex lower.

Support Resistance

April Gold 1055.00 1115.00

Mar Silver 14.77 15.91

April Plat 1476.00 1546.00

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SOFTS

Last Last Week

Mar Coffee 132.20 132.90

Mar Sugar 27.53 28.53

Coffee was basically flat from last week at this time. Independent

consultants believe that coffee prices may be positive for the balance of

this year due to shortages of certain types of coffee in Colombia and

Costa Rica. Brazil may come in with a greater than expected crop

however and this could balance prices.

Sugar rallied sharply on Thursday along with the commodity complex

in general. Shortages in major consuming countries are helping to

sustain the rally that pushed prices to 29 year highs last year. China

may re-enter the market after April. Dry weather hurt production in

India last year while excess rain in Brazil damaged crops there. Global

supplies are expected to be at their lowest levels in 20 years.

Support Resistance

Mar Coffee 128.00 135.00

Mar Sugar 25.95 27.55

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Last Last Week

Mar Soybeans 9.43 9.08

Mar Corn 3.632 3.53

Mar Wheat 4.934 4.69

Soybeans rally over the last five sessions masks the larger trend which

remains negative. The USDA reduced acreage for soybeans to 73.5

million acres by 2011. In the meantime soybeans rallied to their best

levels in more than two weeks as oil prices rallied making alternative

bio-fuels more competitive.

Wheat futures have dropped 8.5% this year as production exceeds

demand and stockpiles increased. The US Department of Agriculture

raised global wheat stocks to 195.9 million tons up from a previous

projection 195.6 million tons.

The belief that a lower rate of inflation in China was a positive for the

commodities markets was a short term positive but the Chinese

economy remains fragile. China will eventually reduce bank lending

because their gross domestic product increased by 10.7% last quarter,

the fastest pace since 2007. Also real estate values are overheating.

Because of this China will most likely curb spending for the year and

this will hurt the commodities complex including wheat and corn and

soybeans.

Support Resistance

Mar Soybeans 9.11 9.53

Mar Corn 3.50 3.71

Mar Wheat 4.72 5.156

Chuck Kespert

NY/NY