MARKET WRAP – IS IT ALL CLEAR?

Today had an eerily reminiscent feel to it.  As we all know, the market has traded with an abnormally high level of complacency leading up to the market crash and the action from the last two days had all the same feelings.  First we get a Monday melt-up, then we get dip buyers  in the morning, then we get dip buyers on every marginal decline.  Meanwhile we get a sell-off in the Euro that is entirely ignored.  The Euro lost 0.8% on the day and triggered an overnight sell-off, but investors were eager to buy the dip.  Stocks actually rallied all the way back from a 1% morning loss and at one point during the day were higher by more than 1%.  Ultimately, stocks lost a bit of ground on the day finishing with a 0.35% loss.  It was another very volatile day, but on the back of a 4%+ move on Monday the bulls can’t really be too upset about a bit of give back.  The most disturbing part of the trading in the last two days is that the equity markets have become convinced that government intervention can get us out of every quagmire.

The moral hazard that will result from such precedence is potentially terrifying.  What you get is incredibly complacent investors who take risk with the idea that government will never let them fail.  Then we see stocks rally in a straight line for multiple months before being upset by one tiny potential failure and the market literally crashes.  But lo and behold, government steps in and saves everyone again.  The orchestration of this whole thing is an utter mess.  Not only have the politicians completely misdiagnosed the actual causes, but in bailing everyone out at every twist and turn they have only emboldened the people that should have been punished in the first place.  It’s almost like we’re living in a bad dream.

From Daily Futures:

U.S. Economy
The U.S. Census Bureau said that wholesale sales were up 2.4% in March while inventories were up .4%. The June 2011 eurodollars ended up .005 at 98.715.

The U.S. Treasury Department sold $38 billion of 3-year T-notes at a median yield of 1.37% with a bid-to-cover ratio of 3.27.

Grains and Cotton
The USDA’s 2010-2011 U.S. ending stocks estimate of:
Corn is 1.818 billion bushels, up from 1.738 billion bushels in 2009-2010.
Soybeans is 365 million bushels, up from 190 million bushels in 2009-2010.
Wheat is 997 million bushels, up from 950 million bushels in 2009-2010.
Sugar is 844,000 tons, down from 1.23 million tons in 2009-2010.
Cotton is 3.0 million bales, down from 3.1 million bales in 2009-2010.

July corn closed up 7 cents at $3.775, the highest close in seven weeks, boosted by a surprise cut in the USDA estimate of ending stocks for 2009-2010.

The USDA’s 2010-2011 world ending stocks estimate of:
Corn is 154 million tons, up from 147 million tons in 2009-2010.
Soybeans is 66 million tons, up from 64 million tons in 2009-2010.
Wheat is 198 million tons, up from 193 million tons in 2009-2010.
Cotton is 50 million bales, down from 53 million bales in 2009-2010.

The USDA said that 111,710 tons of U.S. wheat were sold to unknown destinations. July wheat ended up a half-cent at $4.932.

Livestock
The USDA said that it still expects beef production to be down 1% this year, but raised its estimate of the average price for choice steers in 2010 from 91 to 96 cents per pound. Next year, they expect beef production to be down 2%. August cattle were up .30 at 95.37.

The USDA still expects pork production to be down 3% in 2010, but raised its estimate of the average price for barrows and gilts in 2010 from 51.5 to 56.0 cents per pound. Next year, they expect pork production to be up 2%. August hogs fell .72 to 85.02.

Orange juice
The USDA kept its estimate of the Florida orange crop at 132 million boxes, but reduced the projected juice yield from 1.56 to 1.55 gallons per box at 42.0 degrees Brix. July orange juice closed up 3.80 cents at $1.4185, the highest close in six weeks.

Metals
August gold closed up $19.50 at $1,220.30, the highest close in five months, still seen as a safe haven from Europe’s debt problems. July silver finished up 74.2 cents at $19.294, also the highest close in five months.

Energies
The U.S. Department of Energy (DOE) said in today’s Short-term Energy Outlook that they expect the price of West Texas Intermediate crude oil to average “about $84 during the second half of this year, rising to $87 by the end of next year.” They also expect regular retail gasoline to average $2.94 a gallon this summer. July crude oil ended down .30 at $80.22.

The DOE also said that they expect the spot price of Henry Hub natural gas to average $4.62 per thousand cubic feet in 2010, up from $4.06 last year.

In today’s Monthly Oil Market Report, OPEC increased its estimate of world oil demand for 2010 from 85.21 to 85.38 million barrels per day.

Currencies
The U.K.’s Office for National Statistics said that industrial production was up 2.0% in March, the strongest monthly performance since 2002. Also, Gordon Brown resigned as Prime Minister (see article). The June British pound closed up .0074 at $1.4951.

China’s Statistics Bureau said that consumer prices were up 2.8% in April from a year ago, the biggest annual increase in over a year.