FINANCIALS  
Traditionally the week before Labor Day in the financial markets is often lifeless and dull, but this year may be different because of expectations of a Fed takeover of Fannie Mae and Freddie Mac, rumors of a hostile takeover of Lehman Brothers, and growing uncertainty over the situation between Russia and Georgia.

Besides these news events, traders still have to deal with the U.S. economic reports. On Monday, the July Existing Home Sales Report will be released. With home sales at a 10-year low, mortgage rates high and credit getting tighter, it’s hard to believe that this report will show anything but a decrease.
On Tuesday, August Consumer Confidence and July New Home Sales will be released at the same time. Depending on when the report was taken, Consumer Confidence may show a slight increase. Lower gasoline prices since July 15 may have helped boost the confidence of consumers.

Like Existing Home Sales, New Home Sales are likely to be lower as buyers may not have the income or job stability to take on a mortgage nor are mortgage companies willing to lend to everybody anymore. The FOMC Minutes from the August 5 meeting will be released. It will be interesting to see how the members voted and what their comments were regarding the status of the economy and inflation. This may give traders insight as to when the next rate hike will take place.

Wednesday is Durable Goods day. Traders expect this report to show a decrease in consumer spending on durable goods as higher unemployment and concerns about job security may be encouraging consumers to hold back on major purchases.

Second Quarter GDP will be released on Thursday. Estimates are for an increase. If there is a surprise it will most likely be in this report. Everyone has been talking about a global economic slowdown so traders should watch to see if this report confirms the slowdown has reached our shores.

Finally, Friday features four reports. All should provide some volatility as Friday is also a shortened day for the financial markets. Personal Income and Spending should decline from the previous month because of higher food and energy prices as well as job losses. Chicago PMI is expected to be down as businesses curtail spending and take a wait and see attitude toward the economy. The last report for the week is Michigan Sentiment. Once again this report depends on when the survey was taken. Consumers were more likely to show higher confidence as gasoline and food prices dropped in late July.

EQUITIES
Thin trading conditions and news could add up to a wide range today. Although stock indices closed lower last week, the recovery from the lows was quite impressive. The key for the week was the market holding steady and rallying in the face of a $6.00 gain in crude oil. The way the market traded late in the week, it seem that traders have accepted that Fannie Mae and/or Freddie Mac will get some kind of government aid or may even be take over. The late session rally on Friday came as news began circulating of a Korean Bank purchase of some of Lehman Brothers’ assets. Rumors also came out of a possible hostile takeover of Lehman.

There is a U.S. economic report every day this week, but the focus is likely to be on the August 28 Second Quarter GDP. The pre-report estimates are for a slight increase, but there may be a surprise.
The key story to watch will be Lehman Brothers. Any news that brings stability to the financial markets is likely to attract buyers.  

CURRENCIES
The Dollar recovered from the August 21 sell-off, taking back in some cases more than 50% of the week’s decline. This indicates that the spike rally last Thursday was short-covering rather than new buying.

Although the Euro fell on Friday, it did close up for the week, but without a rally through last week’s high, is likely to pick up the downtrend. Economic conditions are just too weak in the Euro Zone. The British Pound fell to a new low for the year on Friday as a report showed that the economy had contracted. Traders are already anticipating a recession, but are now factoring in a possible interest rate cut. U.K. markets are closed today so the trade may be one-sided to the downside. The appetite for risk is picking up in the Japanese Yen and especially in the Swiss Franc. U.S. economic reports will dictate the direction in these two markets. The Canadian Dollar could find selling pressure once again as commodity prices, especially gold and crude oil, may weaken after last week’s one-day surge failed to attract additional buyers.

ENERGIES
October Crude Oil gave back all of its gains from the day before, but still managed to close slightly better for the week. A case can be built for a rally as some traders believe that shorts were taken out of the market after a $6.00 gain, and traders have set this market up for a buy on this break. If this is the case, then buyers should come in today at current levels. The problem with this line of thinking is that the fundamentals do not support a buy. Furthermore, there is no evidence yet of fund traders recommitting to the long side. Fundamentally, the situation between Russia and Georgia or some other geopolitical event has to take place to send Crude Oil higher. Until something happens to affect supply, the slowdown in demand is likely to keep downside pressure on this market.

METALS
December Gold was able to close higher for the week despite heavy selling pressure on Friday. The longer-term charts are bearish; however the short-term chart may still find buying on the current pullback. Unless the U.S. credit crisis claims another victim, it looks as if this market may trade sideways-to-lower. A strong Dollar may also put downside pressure on the market.

September Silver is trying to build a base for a rally, but with tensions easing regarding the credit crisis and the Dollar getting stronger, the down trend may resume this week. Technically, there was no damage done to the chart last week so look for a sideways-to-lower trade.

October Platinum remains weak because of bearish fundamentals. Longer-term, the global economic slowdown is hurting demand for autos and thus platinum for catalytic convertors.

September Copper is trying to build a support base, but a strong Dollar and weak demand may pressure this market lower. Longer-term, global economic weakness is causing demand to fall and inventories to rise.

GRAINS
On the demand side of the equation, the soybean and corn markets have been supported lately by a weaker Dollar which has allowed exports to rise. This short-term buying spree may come to an end as it looks as if the Dollar is ready to resume its strong uptrend.

Soybeans and Corn have been up since the August 12 USDA crop report. Based on a field survey by an independent farm service, contracts may continue to rise as expectations are for the USDA to lower crop production estimates in its September report.

Wheat may also feel pressure from the stronger Dollar. Buying suddenly dried up on the last rally, leading to speculation that the stronger Dollar is likely to stifle demand. Traders may now begin to refocus on the supply side of the market which is bearish because of the size of the global crop.

SOFTS
Cocoa found strength last week when the International Cocoa Organization reported that the global production shortfall is likely to be bigger than reported in May. There are also concerns about the size of the cocoa bean because of disease in the Ivory Coast. The bull/bear battle will center on whether supply issues will overtake a strong Dollar.

September Coffee has been building a support base and is poised to break out over 1.4225 to turn the main trend higher. A stronger Dollar may put pressure on this market, but the continuing slowdown in Brazilian exports because of harvest delays could provide support.

October Sugar is being driven by technical levels. A stronger Dollar and weaker crude oil is curtailing demand which is putting downside pressure on the market over the short-run. Longer-term, lower global production numbers and higher demand for cane-based ethanol is likely to be supportive.
December Cotton found support after a technical reversal on the daily charts. Demand came in the form of increased mill buying when the Dollar dipped late last week. Mill buying could dry up if the Dollar recovers, thereby putting an end to the rally. News that excessive rainfall from tropical storm Fay has caused crop damage in Georgia may also provide support.

Another rally in September Orange Juice could occur this week as two tropical storms are developing in the Atlantic. Traders are betting that odds are one of the storms will reach Florida’s Orange Juice orchards.

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