Coffee Break
Coffee broke down from highs as the market shrugged off
the potentially bullish aspects of Wednesday’s Association of Coffee Producing
Countries (ACPC) meeting in London after no substantial “retention”
was forthcoming. Coffee had rallied 17% off an eight-year low on speculation
that the ACPC would be able to negotiate a plan to pull supplies of coffee off
the world market and drive the price up. Failing to do so, the market trained
its focus on the good growing conditions and a potentially bumper crop in the
largest producing country, Brazil. March coffee
(
KCH1 |
Quote |
Chart |
News |
PowerRating) came off its
65.90 low to close 2.20 lower at 67.85.
Financial futures took their cue from Alan Greenspan. The
Federal Reserve Chairman told Congress that “reductions appear required,”
lending support to a plan incoming President Bush has to cut taxes. While tax
cuts have a longer-term stimulative effect on the economy, the market was
monitoring the Fed chief’s comments before the Senate Budget Committee today for
clues about how aggressively he and other members of the FOMC might cut interest
rates next week to stimulate the economy in the nearer-term.
Lower tax rates imply that the Fed will not have to be as Federal funds
aggressive in cutting interest rates because any tax cuts would, eventually,
have a stimulative, although lagging effect on the economy. Bonds initially sold
off on the comments, but recovered throughout the question-and-answer period as
nothing emerged to rule out a 50-basis-point cut. In fact, the Fed topper left
the impression to many traders that an unprecedented (for Greenspan’s tenure)
additional 50-basis-point cut may be in the offing next week.
futures
(
FFG1 |
Quote |
Chart |
News |
PowerRating), the most accurate predictor of the Fed’s interest rate
moves 10 days prior to their FOMC meetings, continue to price in nearly a 90%
chance of a 50-point cut.
T-bonds
(
USH1 |
Quote |
Chart |
News |
PowerRating) and
10-year notes
(
TYH1 |
Quote |
Chart |
News |
PowerRating) had a roller coaster ride this morning, trading
over as much as a 42-tick range as traders sought to interpret Greenspan’s
veiled guarded comments. T-bonds closed 16/32 higher at 102 30/32 and 10-years
rose 7/32 to 104 12/32.
March dollar index futures
(
DXH1 |
Quote |
Chart |
News |
PowerRating)
initially bolted higher as traders bought the buck on the prospect that an only
25-basis-point cut would attract investors seeking relatively higher yielding
dollar-denominated securities. DXH1 fell .12 to 111.60.
Japanese yen
(
JYH1 |
Quote |
Chart |
News |
PowerRating) came off lows and extreme oversold conditions for
a close .0096 higher to .8642. The yen also rose because many observers believe
that Japan’s economy may not be as dire as is being priced into the
market.
March soybeans
(
SH1 |
Quote |
Chart |
News |
PowerRating) and
soymeal
(
SMH1 |
Quote |
Chart |
News |
PowerRating) moved lower after registering on the Implosion-5 List.
Soymeal traded straight down after a fake-out to the upside and has made good on
an Off The Blocks
entry after trading below Wednesday’s last-hour low. Beans closed 3 3/4
lower at 466 and meal lost 2.8 to 169.4.
Cocoa
(
CCH1 |
Quote |
Chart |
News |
PowerRating), from the Momentum-5
List, continued to set up in a bullish way, showing higher lows an
persistent upside pressure despite a recent parabolic run. Cocoa lapped open,
closed the lap, and then settled 15 higher at 1004 in a pattern of higher lows.