"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, June 4, 2014

Dueling Economic Data

There were two pieces of economic data released this morning, both of them conflicting ( figures!). The first was the ADP private sector jobs data. It came in at 179,000 for May, well below the market expectation near 220K. That sent bond yields falling. Many market players regard the ADP data as a type of proxy for the government's nonfarm payrolls number and tend to extrapolate that report from this one.

Then the ISM ( remember our pals from earlier this week with the double screw up on the manufacturing number?) came out with the Service sector reading for May. They reported the number rose to 56.3 from last month's 55.2. That sent bond yields moving higher along with the US Dollar.

Once again the pattern of mixed economic data continues as it results in traders, particularly trend following hedge funds, getting whipsawed back and forth as the market responds to one set of data only to reverse on another.

There was a story today on the wire feeds detailing how Chinese officials now appear to be getting ready to crack down in earnest on copper-backed loans. That news sent copper prices lower. Authorities there closed down the third largest port in China, Qungdao, in order to dig deeper into possible warehouse fraud involving copper and aluminum.

Traders fear that those same authorities will force the deals involving the metal, which is used as the loan collateral, to be closed out meaning that the copper in storage will be available for sale into the market. That would send an additional supply out driving prices lower. Those traders selling are obviously convinced that this is going to happen.

Here is the most recent Commitment of Traders report for Copper. Do you recall that I posted this chart up a couple of weeks ago noting the huge disparity between the positioning of the largest speculators in the market? Guess what? That disparity has grown even larger. I noted previously that it is rather uncommon to see the LARGE speculative forces so greatly divided and at odds over their bets as to which way the market is going to move. One side or the other in this copper market is going to be proven to be quite wrong. Over the last week of trading, the hedge funds have been wrong while the "Other Large Reportables" category has been dead on target.

Depending on what we get out of the ECB tomorrow and what we get on the payrolls front this Friday, copper could move higher but this development in China is a big deal.

One of the concerns I have when it comes to gold is that the same thing has occurred with the yellow metal. It is often used as collateral for bank loans in China. The last thing that gold needs at this time is an additional supply hitting the market. If the market were to get wind of anything like what is happening to copper is heading towards gold, prices will fall. I have seen some pretty scary estimates as to how much gold is possibly being used as loan collateral in China. So far it is a non-factor but with any potential market moving event, we need to stay attuned to things that might develop on this front.

As far as market price action today goes, traders are not going to get aggressive ahead of that ECB meeting tomorrow. The result has been a narrow range for gold today with little to speak of. From a technical standpoint however, the market continues to hold above support near $1240 but thus far has been unable to gain much, if any, upside traction.

Old crop soybeans continue their roller coaster ride. Wheat finally managed a bounce today as US wheat prices appear to be getting somewhat more competitive. Also, some excessively heavy rains in certain parts of wheat country during the harvest has raised a few concerns that it might be harmful to wheat quality. The result has been a technical bounce higher.

Some of those same rains are working their way across the corn belt and that is improving prospects for a large corn and bean crop. The tightness in the old crop bean carryover however continues to impact the entire soybean market, both old crop and new crop and will probably continue to do so until we get rid of the July contract. I still wonder if we are going to see the commercials squeeze the bears during the July delivery period. They have pulled this stunt regularly this year up to this point. We have had some time however, as the summer nears, for S. American beans to make their way into the country so any squeeze might not be quite as effective as it has been previously. Needless to say, this game is not for small speculators to play. First of all, you run the likely risk of getting assigned. Secondly, if you are wrong, good luck getting out!

The crude oil number got the EIA numbers this AM and they showed a surprising large drop of 3.4 million barrels. That was a big number! The market was looking for a decline nearer 1.4 million. Crude moved higher on the number but, for now, has surrendered those gains. The market is growing increasingly nervous about the SEVEN YEAR HIGH in speculative length in the market and while today's reported drop was friendly, stocks remain near record highs. One thing will be certain about crude - it is going to be quite the roller coaster moving forward. Personally, I hate trading markets that have this much speculative length in them because they tend to become extremely volatile and snap your neck at the rate they move up and down.

I might throw a chart of gold up later on today but methinks it is best to wait until we get the ECB news tomorrow as the mining shares are relatively quiet today as well.

Silver cannot get back above $19. The Euro is hovering near 1.36 with the Dollar just below key chart resistance near 80.70 - 80.80 basis the USDX.

By the way, the yield on the Ten Year continues to rise today and is now above 2.6%. The last reading as these comments get finished up is 2.611.

The VIX remains very low at 12.03, near the low reading for the year. Complacency reigns.