Stocks declined by 1% on the day as investors worried about the sustainability of the rally. News out of China and weak earnings from Alcoa were cause for concern as markets opened weak and remained weak all day. The VIX spiked higher by over 6% as investors put some hedges in place. As we mentioned yesterday, this looks like a bit of a knee-jerk reaction to the unimportant Alcoa news, but a trend in negative surprises this earnings season would certainly be alarming (though still unlikely in our opinion). Daily Futures wraps up the action from all markets:
U.S. Economy – China Tightens Reserve Requirements
China surprised the markets today, announcing that they are raising the reserve requirements for their banks by .5% starting January 18th. It is seen as a move to restrain the economy. The March U.S. T-bonds jumped up 1.20/32nds to 116.26/32nds. Most commodities were lower on the day.
The U.S. Census Bureau said that exports were up .9% to $138.2 billion in November while imports were up 2.6% to $174.6 billion. The result was net imports of $36.4 billion, more than expected.
The U.S. Treasury sold $40 billion of 3-year T-notes at a median yield of 1.45% with a bid-to-cover ratio of 2.98.
Grains and Cotton – USDA Reports
The USDA’s 2009-2010 U.S. ending stocks estimate of:
Corn was increased from 1.675 to 1.764 billion bushels.
Soybeans was reduced from 255 to 245 million bushels.
Wheat was increased from 900 to 976 million bushels.
Sugar was increased from 1.016 to 1.140 million tons.
Cotton was reduced from 4.50 to 4.30 million bales.
March corn closed down its 30-cent daily limit at $3.925.
The USDA’s 2009-2010 world ending stocks estimate of:
Corn was increased from 132 to 136 million tons.
Soybeans was increased from 57 to 60 million tons.
Wheat was increased from 191 to 196 million tons.
Cotton was reduced slightly to 51.7 million bales.
The USDA increased its estimate of Brazil’s soybean crop from 63 to 65 million tons. The estimate for Argentina was kept at 53 million tons. March soybeans closed down 32.5 cents at $9.78.
The USDA said that the winter wheat seeded area for 2010 is expected to total 37.097 million acres, down 14% from a year ago and the smallest area since 1913. The 2009-2010 ending stocks to use ratio is now at 49%, the highest since 1986-1987. March wheat fell 36.75 cents to $5.357, the lowest close in two weeks.
The USDA said that, as of December 1st, stocks of:
Corn totaled 10.934 billion bushels, up 9% from a year ago.
Soybeans totaled 2.337 billion bushels, up 3% from a year ago.
Wheat totaled 1.765 billion bushels, up 24% from a year ago.
Livestock
The USDA slightly reduced its 2010 estimate of beef production to 25.475 billion pounds, down 2% from 2009. They expect choice steers to average 89.5 cents per pound in 2010. April cattle finished unchanged at 89.22.
March feeder cattle jumped up 1.90 to 98.30, boosted by today’s big drop in corn prices.
The USDA increased its 2010 estimate of pork production from 22.4 to 22.6 billion pounds, down 2% from 2009. Their average price estimate for barrows and gilts in 2010 was increased from 44.5 to 46 cents per pound (62 cents lean). April hogs ended down .27 at 71.02.
Orange juice
The USDA kept its estimate of Florida’s orange crop at 135 million boxes, but lowered the juice yield from 1.63 to 1.60 gallons per box at 42.0 degrees Brix. The report did not take into account any damage from weather since January 1st. March orange juice closed up 4.55 cents at $1.3640.
More freeze damage was suspected in central Florida this morning. The ten-day forecast from Weather.com shows no more chances for freezing temperatures in central Florida.
Metals
March copper fell 9.15 cents to $3.3495 with investors sensitive to the news that China may be trying to restrain its economy (see article). February gold fell $22.00 to $1,129.40.
Energies
The U.S. Department of Energy (DOE) said that it expects West Texas Intermediate crude oil to average roughly $80 per barrel in 2010. It also expects the spot price of Henry Hub natural gas to average $5.36 per thousand cubic feet in 2010. March crude oil closed down $1.84 at $81.17.
Currencies
Statistics Canada said that exports were up 1.1% to C$31.6 billion in November while imports were up 3.9% to C$31.9 billion. The result was net imports of $344 million. The March Canadian dollar closed down .44 at 96.34.
Industrial production in India was up 11.7% in November from a year ago, the biggest gain in over two years.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.