FINANCIALS  
Treasuries are trading flat overnight ahead of today’s 2-year auction. Bonds and Notes are expected to remain high as the longer term view has inflation subsiding and interest rates remaining relatively lower.

Tuesday’s release of the FOMC minutes showed that the Fed is still concerned about rising unemployment and a slow economy. Although they stated a willingness to raise rates, no action is expected this year until the economy shows signs of bottoming. This news is prompting traders to call for hike in April or May of next year. Traders are betting there is almost no chance of a rate hike at the next Fed meeting on September 16 and only a 22% chance in December. This news should continue to underpin the treasuries.

July Durable Goods will be reported today. Traders expect this report to show a decrease in consumer spending on durable goods as higher unemployment and concerns about job security are encouraging consumers to hold back on major purchases. This report should support the notion that the economy is too weak to raise rates soon.

EQUITIES
The equity markets are trading weaker overnight. Lower trading in Asia and Europe is putting pressure on the markets. Trading conditions are thin so moves may be exaggerated in either direction. Some traders are saying that the lack of buy orders is encouraging the bears to push this market lower to trigger sell stops.

The economic news today is not expected to help matters either as the Durable Goods Report is expected to show the economy continuing to weaken. Higher crude prices on hurricane damage concerns may also put downside pressure on stocks. Although credit markets are tight, there has not been any fresh news this week to drive stocks lower. This is being seen as short-term supportive. 

CURRENCIES
Spreading global economic weakness is hurting the Euro as the Euro Zone has recently reported lower business confidence and economic contraction. Some traders are calling for an interest rate cut. Although there have been no comments from the ECB, today a report is expected to show higher inflation which should lessen the possibility of a rate hike. This market is not expected to go into a free-fall, however, as higher crude oil prices should provide support and may even trigger a short-covering rally. In addition, the FOMC minutes reduced the chance of an interest rate hike by the Fed this year.

The economic conditions in the U.K. are worsening as mortgage approvals dropped 65% from a year ago. High unemployment and a weak housing market are driving this market toward a recession. Longer-term, look for more selling pressure in the British Pound as talk is circulating that the Bank of England may cut interest rate 1.5% by the end of the year. Higher crude and a weaker Dollar could stabilize this market today. In the short-run, the charts indicate the possibility of a rally. The flattening chart pattern indicates downsize momentum has slowed. The weak U.S. economy has reduced the Fed’s urgency to raise rates. This news is also providing support for a rally.

The Swiss Franc and the Japanese Yen appear to be forming bottoms as the U.S. stock markets are showing signs of more weakness. Traders in these two contracts are lightening up on their demand for higher yielding U.S. assets because of instability in the U.S. credit markets. Speculation is also building that U.S. business and consumer spending will delay a hike in rates by the Fed. This news is helping to build a support base. A change in trend to up occurs at .9225 in the Swiss and .9259 in the Yen.

Higher crude oil and commodity prices should help support the Canadian Dollar. Both gold and crude oil are trading higher overnight. Crude is being driven by speculative buying in anticipation of major hurricane damage. Both of these commodities are essential elements of the Canadian economy.

ENERGIES
October Crude Oil completed its retracement of last week’s rally and reached the short-term retracement support just as the news about hurricane Gustav was hitting the market.

Traders are speculating that the hurricane will intensify as it nears key Gulf Coast refineries. A direct strike could trigger a huge rally as the target area refines about 42% of the country’s gasoline. The support base which has been built could support a rally to 129.81 over the short run. Watch for the up move to accelerate through 122.04.

Crude inventories will be out this morning. Last week’s showed a huge gain in supply inventories. Traders are expecting this week’s report to be flat, but last week’s adjusted downward.

METALS
December Gold weakened but never attracted large selling pressure on this last break. The chart shows a secondary higher bottom forming which is a bullish sign of fresh buying. This market is being buoyed by a slowdown in the Dollar’s rally and higher crude oil. Based on the current chart formation, do not be surprised by a rally over the near-term to 888.00.

December Silver is moving higher with the gold and the crude oil. The weaker Dollar is also fueling buying. Expectations are for this market to challenge last week’s high at 15.23. If upside momentum is strong at that level, look for a further rally to 16.00.

October Platinum remains weak because of bearish fundamentals, but should move higher with the Silver and Gold. This move is most likely short-covering as there is no bottom formation at this time. Longer-term, the global economic slowdown is hurting demand for autos and thus platinum for catalytic convertors.

December Copper survived the retracement of last week’s rally and is beginning to look bullish again because of the weaker Dollar. The weaker Dollar is making this commodity an attractive buy at current levels. This market looks poised for a short-covering rally as the longer-term, global economic weakness is still indicating lower demand.

GRAINS
November Soybeans and December Corn could rally today as a weaker Dollar is expected to boost exports for both commodities. In addition, higher energy prices may increase demand for these two bio-fuels commodities.

Although weather conditions have been ideal since the last USDA crop report, an independent grain association’s analysis is calling for lower corn and soybean production numbers in the USDA’s September report. This news may provide additional support.

There is potentially bullish news for soybeans coming out of Argentina. Parts of the country are suffering through the worst drought in 40 years. A smaller crop out of this region will stress already tight global supplies. Dry weather in China is also providing some support. The charts indicate November Soybeans have a chance to rally to 1402 to 1457. Sharply higher crude oil would be the best trigger for this move.

Corn is in an uptrend, but may correct to 567 before new buying comes in. A sharply higher crude oil market may cause panic short-covering over 625. If this action takes place, this market could rally to 651 to 686.

Despite the sharp sell-off this week, December Wheat is still in an uptrend as the break held at a retracement zone. This market could build support in this zone at 864 to 843 which could help the market rally back to at least 896.

SOFTS
Besides finding support from the International Cocoa Organization’s friendly report, December Cocoa is rallying because production is expected to be smaller than previously estimated. The charts indicate that this market is in a position to challenge the double-top at 3035 to 3040. A breakout over this level could send markets sharply higher. Another supportive factor is fund buying. Traders are ignoring lower demand at this time and focusing on the supply issues.

December Coffee turned the trend up on this rally and is now set up to reach 150.32. Fund buying is supporting this market as traders are anticipating that the rally in crude oil will drive all commodity prices higher. Supply concerns are the major issue at this time. Brazilian growers are holding back their production as they await a price support program from the government.

October Sugar is rallying on the weaker Dollar and supply concerns because rainy weather is slowing down the harvest in Brazil. Higher energy prices are also providing support because of sugar’s use as a biofuel. The next upside target is 14.69.

Demand for December Cotton may return if the Dollar weakens. Speculators are supporting this market in anticipation of hurricane damage if the storm reaches growing areas in southern Alabama. Although this market may rally as all commodities rise, if the hurricane turns towards Florida, traders will sell Cotton to take back the weather premium. Watch the storm’s movement to gauge the odds of a direct hit on cotton crops.

November Orange Juice is finding support because of hurricane Gustav. Although forecasts are for the storm to increase in size, there is still uncertainty about its direction. If it turns into Florida, orchards will be threatened, and the market will rally. If the storm stays out over the Gulf of Mexico, crops will be spared and the weather premium will be reduced. The first potential upside target zone is 119.50 to 124.15.

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