Softs Rally Hard

  • January 5, 2001
  • Marc Dupee

Cocoa
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contract trading up 32 to 800. Cocoa had been setting up in a six-day flag
pattern. One of the reasons cited for cocoa’s rally is due to purchases in
euros. Cocoa also trades in London and is frequently purchased in pounds sterling. The euro FX futures
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have risen twice as fast as British pounds
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up 15% and 7%, respectively. This makes purchases in euros relatively cheaper and
implies European cocoa users are swooping in to get a discount on beans for their
chocolate production. Lower crop yields are also being forecast in Nigeria, a
secondary producer.

The freeze that occurred days ago in Florida’s citrus
belt is now surfacing as a concern in orange juice. March orange
juice
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From the
Implosion-5 List,
March cotton
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following through on its big downside momentum impulse from yesterday. 

Some panic buying in the shorter end of the yield curve is occurring as stock
index futures fall.
Five-year
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this morning.
T-bonds
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confidence that what appears could be a problem in the financials (trading of
Bank of America
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corrected over the longer term. Ten-years and bonds have been in an up-momentum
phase as evidenced by their recent standing on the Futures Indicators Momentum-5
List. 

 

Last night’s cut at the Fed’s discount window to 5.5% highlights the perception
that the Fed is panicking about the state of the economy. For although the
discount rate traditionally remains 50 basis points below the federal funds
rate, a rare second “inter-session” move on interest rates leaves the
impression that banks may be in trouble and may need the additional liquidity
provided by the discount rate, which is the interest rate the Fed charges to
commercial banks to cover short-term capital requirements such as maintaining
adequate reserves. Not having adequate reserves becomes a problem when banks are
in trouble.

At the same time, an as-expected jobs report out this morning reduces that
chance that the Fed will cut interest rates as aggressively as hoped.
Stocks are selling off, with the
Nasdaq 100 futures
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Downside setups were pointed out in this contract on the TradersWire.

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