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The Fed ready to further stimulate the economy if needed

WEEKLY FUTURES REPORT

07.13.11

Filed 8:38 pm

Last Last Week

Aug Crude 97.02 97.02

Aug Heat 297.79 297.79

Aug Gas (Blended) 301.20 301.20

Crude oil rallied sharply on Wednesday, at least for the first part of the trading day, as the weekly US Department of Energy report showed that crude stocks for the latest reporting period had a greater than expected decline. The Department went on to state that crude stocks fell by 3.12 million barrels to 355.5 million barrels. The trade had been looking for a decline of 1.5 million barrels. The market was given a boost overnight on news that Chinese economic growth was stronger than originally forecast. Also, the market was given a lift during Senate testimony by Federal Reserve Chairman Ben Bernanke when he said that the Fed would stand ready to further stimulate the economy if needed. This sounded to many as if the Federal Reserve chairman was putting forward the idea of introducing a third stage of quantitative easing. This was surprising to more than a few observers. This would be yet another return to the strategy of inflating asset values through the degradation of US currency. QE1 and QE2 helped to produce historic rallies in the metals complex earlier this year. As the day wound down, the rally sort of fizzled, however. The economy continues to be viewed as struggling so ramping up end use and off-take of crude oil and its products is patently questionable. By way of quick comparison, gold was up $20 on the day, crude was up 62 cents. Brent was somewhat better to close $.96 better on the day. The spread between Brent and West Texas intermediate was $20.66. Imports were down however by 8.7% to 9 million barrels a day. Gasoline stocks fell by 840,000 barrels to 211.7 million barrels for the latest reporting week. Trade was looking for a gain of 500,000 barrels. Refinery runs were down 6.6% to 8.9 million barrels a day. China’s gross domestic product grew by 9.5% from a year earlier. This was higher than the expectation of 9.3% and suggests that further rate hikes are on the way. According to the International Energy Agency, global demand should average 91 million barrels a day next year, an increase of 1.5 million barrels. But this view is not unanimous; OPEC has forecast that world oil demand will grow at a slower pace due to declines in consumption in Europe and other industrial nations. Money flow for crude oil, heating oil and gasoline all remain positive. Moody’s came out after the close and stated that they may downgrade US debt if the debt ceiling in the United States is not passed and the government goes into a temporary shutdown. This was a crude oil negative in terms of price as a one off item even though the Street had heard this from Moody’s before.

Crude oil continues to be contained by the downwardly sloping Bollinger bands while stochastics are overbought. Notice price rejections from previous highs.

Support Resistance

Aug Crude 94.30 99.85

Aug Heat 302.50 315.00

Aug Gas 300.00 319.00

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METALS

Last Last Week

Aug Gold 1583.00 1529.60

Sept Silver 38.22 35.90

Oct Platinum 1759.30 1729.20

Gold soared on Wednesday to new nominal highs as dollar weakness was exacerbated by commentary from Federal Reserve Chairman Bernanke in his semiannual Humphrey Hawkins testimony. He said that policymakers will stand ready to provide further economic stimulus if warranted. Gold is now up 11% for the year. One a one day basis, the advance by the EC against the dollar was the most in six months. It should be kept in mind that the EC had been sold off heavily against the dollar in the previous sessions as the market continues to be worried about Italy and Ireland and the ongoing debt crisis in the Euro Zone. The Swiss Franc soared to another record against the dollar as a

flight from fear move and the EC/SF cross is trading at record lows as reflected in the chart below.

Silver flew higher as it claws its way back from damage done by historic margin rate increases earlier in the year. For all the talk about additional stimulus on Wednesday, there was nothing in the latest FOMC minutes that suggested that QE3 was a topic of conversation, however. Also, even though the economic figures for China came in stronger than expected copper underperformed on Wednesday.

The rally in silver was the best one day performance since March of 2009. Silver also found buyers as traders continue to be worried that

the failure by Congress to raise the debt limit could lead to a financial crisis. After the close on Wednesday, Moody’s stated that they would possibly downgrade the credit quality of US debt if the budget impasse continues.

Support Resistance

Aug Gold 1544.00 1592.40

Sept Silver 34.80 39.50

Oct Plat 1716.50 1800.00

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SOFTS

Last Last Week

Sept Coffee 262.80 267.50

Oct Sugar 30.24 27.68

The current rally has brought sugar to a new life of new contract high. Sugar is almost amazingly 30% higher than it was on Memorial Day. Lower Brazilian production levels have helped to support sugar at these high prices. In the cash market, there are indications that India may not reach previously estimated export levels, a price positive.

Coffee had sold off sharply losing almost $.10 over the past three sessions going into Wednesday. On Wednesday, outside influences were supportive for coffee, however. There diminished chances of damaging frost in Brazil which is a negative for price. Higher exports from El Salvador and Mexico are negative for price as well. The higher estimate by the International Coffee Organization for global coffee production is yet another price negative.

Support Resistance

Sept Coffee 254.00 271.00

Oct Sugar 27.00 32.00

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Last Last Week

Sept Soybeans 13.746 13.166

Sept Corn 6.866 6.186

Sept Wheat 7.144 6.27

Soybeans were higher for the past five sessions. Money flow in soybeans continues to be positive. The recent USDA supply demand report was by itself considered to be neutral for soybeans. A stronger than expected reading for the Chinese economy was a positive for soybeans on the idea that import demand would continue to be strong. US ending stocks for

2011 were placed at 200,000,000 bushels up from hundred and 80,000,000 bushels forecasted last month. New crop ending stocks were slaughtered at hundred and 75,000,000 bushels down from hundred 90,000,000 bushels last month. That said market conditions were nearly perfect for soybeans on Wednesday with a higher than expected Chinese GDP, a weaker dollar and strength in gold prices are helping to support grains as an asset class. Money flow in soybeans remains positive.

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Corn helped lead wheat higher on Wednesday. Wheat traded to its best levels since the end of June. Short covering also drove prices higher. Increased anxiety over weather models positive feature. Traders believe that week putting a major bottom on July 1.

Continued near-term uncertainty of weather and a reduction in the fear of overhanging supply brought speculative buyers back into the market. Extremely high temperatures in key growing areas in the Midwest have the capability of stressing the crop. Prices are at their highest level since the end of June.

Support Resistance

Sept Soybeans 13.37 14.00

Sept Corn 6.35 6.98

Sept Wheat 6.32 7.50

Chuck Kespert from NY/NY

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.