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S&P 500 hits record high of 1700 points on US job numbers

US STOCKS have risen after an encouraging employment report, sending the Standard & Poor's 500 index above 1700 points for the first time.

The S&P 500, which investors follow closely as a gauge for the rest of the market, was up 18 points in early trading, or 1.1 per cent, at 1704.

The Dow Jones industrial average rose 144 points, or 0.9 per cent, to 15,644. The Dow is also at a record high. The Nasdaq composite index rose 37 points, or 1 per cent, to 3664.

All 10 industry sectors in the S&P 500 index rose, led by banks and industrial stocks.

The driving force for the advance was a report from the Labor Department that the number of Americans seeking unemployment benefits dropped last week to the lowest since 2008. Higher auto sales and earnings gains at several US companies including CBS also drove the market higher.

Investors know that employment figures that track just a week are volatile, but it was still a surprisingly strong number. Economists are likely rethinking their estimates on July job growth, numbers that the government will release Friday.

The S&P 500 has never closed above 1700, nor has it crossed that mark in intraday trading. Previously, its highest close was 1695.52 on July 22.

The S&P 500 has made the jump from 1600 to 1700 in less than three months. The index first traded above 1600 May 3. The move previous 100-point gain took much longer to achieve. The index first closed above 1500 more than a decade ago, toward the end of the dot-com bubble in March 2000.

The index then lost almost half of its value over the next two years before rebounding in the four-year bull run that preceded the financial crisis. That rally ended in October 2007 when the S&P 500 was just short of the 1600 level. Stocks then slumped and the S&P 500 fell as low 676.53 in March 2009 before commencing its current bull run.

The market's sharp advance on Thursday was a contrast from the lethargy of the past few days. On Tuesday and Wednesday, the S&P 500 moved less than a point each day. On Tuesday, it was because investors didn't want to make a move before the Federal Reserve's policy announcement scheduled for the next day.

On Wednesday, it was because the Fed didn't make much of a move: It said, unsurprisingly, that the US economy was recovering but still needed help, and didn't give any indication of when it might cut back on its bond-buying program, which has been supporting financial markets and keeping borrowing costs ultra-low.

Two other major central banks, the Bank of England and the European Central Bank, also left their policies unchanged in announcements this week.

Automakers are posting sales for July, and Chrysler started the industry off with a bang. The Detroit automaker said sales rose 11 per cent last month, its best July in seven years.

The price of crude oil rose $US2.69, or 2.6 per cent, to $US107.71 a barrel. Gold slipped 20 US cents to $US1312 an ounce. The US dollar rose against the euro and the Japanese yen.

In US government bond trading, the yield on the 10-year Treasury note rose to 2.66 per cent from 2.58 per cent late Wednesday.

Among stocks making big moves:

- Dell rose 24 US cents, or 2 per cent, to $US12.90. Its shareholders are scheduled to vote on Friday on an offer by CEO and founder Michael Dell to buy the company.

- CBS rose $US2.10, or 4 per cent, to $US54.91 after reporting an 11 per cent jump in income, beating analysts' estimates. CBS benefited from licensing its shows to online streaming providers such as Netflix and from increasing the income it receives from cable and satellite TV distributors to retransmit its programming.

- Exxon Mobil fell $US1.65, or 2 per cent, to $US92.08, after reporting lower earnings as oil and gas production slipped. Profit margins on refining oil also fell.

- JC Penney rose 42 US cents, or 3 per cent, to $US15.03. The stock plunged on Wednesday after a report that CIT, the largest lender in the clothing industry, had stopped supporting deliveries from the chain's suppliers. JC Penney said on Thursday that the report wasn't true.

JC Penney was also scheduled to give closing remarks in a New York court case on Thursday. Penney had been sued by rival Macy's, which said JC Penney did not have the right to distribute Martha Stewart products because Macy's own deal was exclusive. Macy's rose 46 US cents, or 1 per cent, to $US48.80.

After ADP & ISM, expectations for NFP higher - Westpac

According to Sean Callow, FX Strategist at Westpac, with upbeat ADP survey and ISM surveys as the backdrop, "expectations for US non-farm payrolls are almost certainly higher than the 185K median forecast on Bloomberg. which shows a range from 159K to 209K."

Callow adds: "Clearly much is at stake for USD, with the FOMC mostly noncommittal on Wed, raising the importance of the two jobs report before the Sep 17-18 meeting. But the Fed will also be watching its preferred inflation measure, the core PCE deflator. Consensus for June is 0.1% m/m, 1.1% y/y."

Non-farm payrolls to beat expectations; USD stronger

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The currency market faces the third day of important economic releases now that central banks' policy meetings are out of the way. Analysts expect, however, market turmoil to explode after the non-farm payrolls release today, proving, once more, it isn't the economic authorities ambiguous 'forward guidance' which is driving markets, but rather the daily flow of the economic indicators.

As far as the EUR/USD is concerned, neither the FOMC nor the ECB managed to deliver any significant news, said Lars Christiansen, chief analyst at Danske Bank.

However, and as he explained, while central banks failed to deliver new insights, the data speaks for itself, and "yesterday’s surprisingly strong US ISM clearly indicates that the US economy is doing 'OK'. Hence, a positive labour market report today could very well convince the market that tapering in September is still a possibility."

Craig Erlam, market, analyst at Alpari UK, also believes the jobs report should give us a much better idea about how the economy is performing. "The number of jobs created in July is expected to be around 184,000, bring the unemployment rate down from 7.6% to 7.5%. That said, there has been a tendency for the non-farm payrolls figure to beat expectations this year, with stocks then performing well on days when the jobs report is released." he said.

Christiansen also noted that the macroeconomic outlook is still USD positive and whether tapering starts in September or December, monetary policy is on very divergent paths in the Eurozone and the US. "We therefore also stick to our view that EUR/USD will trend lower in the autumn and we are confident about our 1.28 three month forecast for EUR/USD," he concluded.

EUR/USD shake put ahead of Non-farm payrolls

According to Fan Yang, technical analyst at fxtimes, the USD is actually strong against JPY, GBP, AUD but the EUR has been resilient. "Still, unless USD also weakens against the rest of the majors, it will be tough for EUR/USD to breach the 1.3343 high," he said.

Karen Jones, technical analyst at Commerzbank noted that the market is still vulnerable on the downside as directly overhead lies key resistance at 1.3360/1.3417. "This is where the 2011-2013 down-trend, the 200 week moving average and the June high meet and we look for it to hold the topside and provoke failure," she remarked.

Fan Yang also agrees with the idea that there is some bearish bias in EUR/USD but, as the analyst at fxtimes pointed out, "it is definitely vulnerable if non-farm payrolls reading misses expectations."

"Also, based on EUR/USD’s RSI reading, there is yet to be any bearish momentum, as it holds mainly above 40, showing maintenance of the bullish momentum during the latter half of July," he concluded.

Building an Automatic News Trader for Metatrader 5 - read this article.

Gold / Silver / Copper futures - Weekly outlook: August 5 - 9

Gold futures bounced off a two-week low to end Friday’s session little changed, after weaker-than-forecast U.S. jobs data dampened expectations that the Federal Reserve will start to taper its stimulus program in the coming months.

Moves in the gold price this year have largely tracked shifting expectations as to whether the U.S. central bank would end its quantitative easing program sooner-than-expected.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery eased down 0.02% on Friday to settle the week at USD1,310.95 a troy ounce.

Gold futures were likely to find support at USD1,282.65 a troy ounce, Friday’s low and the weakest level since July 19 and resistance at USD1,330.55, Thursday’s high.

The Department of Labor said Friday the U.S. economy added 162,000 jobs in July, less than the 184,000 increase forecast by economists. June's figure was revised down to 188,000 from a previously reported gain of 195,000.

The unemployment rate ticked down to 7.4% from 7.6% in June, due in part to more people leaving the labor force.

The data came amid growing uncertainty over the future of the U.S. central bank’s stimulus program, after the Fed said on Wednesday that it would keep buying USD85 billion a month in mortgage and Treasury securities and gave no hint of plans to taper its bond-buying program.

Despite Friday’s flat performance, gold prices lost 1.65% on the week, the first weekly decline in four weeks, following the release of upbeat U.S. economic data released earlier in the week.

Investors have closely been looking out for U.S. data reports recently to gauge if they will strengthen or weaken the case for the Fed to reduce its bond purchases.

The U.S. Department of Labor said on Thursday that the number of individuals filing for initial jobless benefits fell by 19,000 to a seasonally adjusted 326,000 last week, the lowest level since January 2008.

Meanwhile, the Institute for Supply Management said its index of purchasing managers rose to 55.4 in July, the highest level since April 2011 and up from a reading of 50.9 in June.

The robust data came after the Commerce Department said on Wednesday that gross domestic product grew at a seasonally adjusted annual rate of 1.7% in the three months to June, beating expectations for growth of 1%.

That followed a report from payroll processing firm ADP, which said non-farm private employment rose by a seasonally adjusted 200,000 in July, above expectations for an increase of 180,000.

Any improvement in the U.S. economy was likely to reinforce the view that the Federal Reserve will begin to taper its bond purchase program in the coming months.

The precious metal is on track to post a loss of 21% on the year amid concerns the Fed will start to unwind its stimulus program by the year's end.

An exit from the stimulus would deal a heavy blow to gold, which has thrived on demand from investors who buy gold to hedge against the inflationary risks of loose monetary policies.

In the week ahead, the U.S. is to publish data on service sector activity as well as a report on the trade balance to further gauge the strength of the U.S. economy.

Elsewhere on the Comex, silver for September delivery rallied 1.2% on Friday to settle the week at USD19.85 a troy ounce. Despite Friday’s gains, silver future prices lost 0.6% on the week.

Meanwhile, copper for September delivery eased up 0.1% on Friday to close the week at USD3.168 a pound. On the week, copper prices advanced 2%.

Copper traders will be looking ahead to data on China’s trade balance as well as a report on inflation and industrial production, amid ongoing concerns over the Asian nation’s economic outlook.

China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.

5 Leadership Lessons: Listen, Learn, Lead

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Hear Ye! We all go through life half-aware sometimes. We have to – there’s so much input these days that if we actually paid attention to it all, we’d be in a straightjacket within weeks. Advertising, social media, music, TV, mobile devices and apps, games, big data, the crazy-quilt cacophony of social media life — a million voices all competing for our hearts, minds and pocketbooks. It’s all too much to handle. So we don’t. We basically hit the mute button on the vast majority of the sensory tsunami. It’s really a matter of self-preservation.

Except when it’s a matter of self-destruction. For a leader – or anyone else who wants to succeed at hiring and retaining the very best talent – listening is a crucial skill. Because when you tune the wrong people (talent) and information out, you’re depriving yourself of priceless tools that will enable you to take your career, and life, to new levels of workplace fulfillment, reward and fun.

To reach our full potential, we must master the art of listening. Really listening. Which means awareness. Which means thinking about what we hear. Which means applying it, if possible, to the leadership challenges at hand.

The art of listening isn’t difficult to master. And when you have, new worlds open up. It’s exciting

Here Are 5 Steps To Help You Keep Your Best Talent Happy:

1) Take An Input Inventory. There’s just too much stimuli and information coming at us. We would drown in the tidal wave if we tried to absorb it all. So take an inventory of where the valuable information and insight lies. Who in your work life should you be listening to? Who in your personal life? Which social media channels are relevant? Can you apply online filters to automatically filter some of the useless clutter that assaults us? Write down your inventory. Expand or contract it as your listening skills improve.

2) Stretch Your Muscles. Now that you have an idea of who and what you should be listening to, start to practice. Within the next 24 hours, seek out someone who you think is smart and insightful and pick his or her brain on a specific topic. Thank them, and then go write down what they said and anything actionable that you have gleaned from it. This exercise starts to train our ears and brains to be in sync. It gets easier with time. And it’s fun!

3) Listen To What Is Unsaid. In both our professional and personal lives, absolute candor can be tough. For a variety of reasons, we often communicate obliquely, especially when a topic is uncomfortable. Disagreeing with your boss, expressing unhappiness with a project, colleague, or assignment can be tough. Successful leaders learn to listen between the lines. They encourage direct expression, but understand it can feel risky for people. In the next 24 hours, have a conversation in which you’re listening for what is unsaid. Then go write down what was said and what you feel was meant. This exercise is closely related to emotional intelligence. Master it and your learning and leadership toolbox will have a powerful new tool.

4) Refresh Your Ears. We all fall into patterns, which can lead to stale performance and career ruts. The visionary, contrarian investment manager Dean LeBaron, who founded a local company in my universe Batterymarch, shuffled the cubicles (including his own – I know this for fact btw) in his office every few months. This workplace culture reorientation refreshed everyone’s creative juices and boosted employee morale. It also communicated loud and clear that LeBaron cared about his people and understood human nature. Refresh your ears by changing your listening patterns. Tune to a new radio station as you drive or ride to work. Trade Lady Gaga for Bach (or vice versa) for a day. Visit a new social media site. Trade Under the Dome for Storage Wars for at least one episode (yes, you can record Dome!). Ask the cashier at CVS how she’s feeling and really listen to her answer. Ask a follow-up question.

5) Keep An Open Ear (And Mind). Moliere said, “I take my good where I find it.” Smart words. Start listening to people who you never listened to before. (Yes, I know this seems to contradict Step1, but actually it compliments it, and keeps it fresh and spontaneous.) This means seeking out people who you never really paid a whole lot of attention to, and actively soliciting their input. You’d be surprised at what people have to offer when asked. The receptionist, the cleaning guy, the head of another department, someone you don’t click with on a personal level, an acquaintance who works in a completely unrelated business, a high school classmate you reconnected with on Facebook FB +1.51%. This exercise works best when applied to a specific challenge. Ask for ideas. Listen to them. Write them down. You might be surprised at what you learn (yes, 90 percent of it may be useless, but …remember the 10 percent)

Learning to listen is a blast. It makes us fuller, smarter, more empathetic, more successful people and leaders. Lets all take our earplugs out and tune in to the wondrous wealth of inspiration that surrounds us. Your future and current employees will thank you.

Technical Trading: Chart Signals Warn Gold Is Vulnerable To Slippage

Gold prices shrugged off modest gains in European trade to weaken slightly heading into the New York open. Very short-term the Comex December gold futures contract is vulnerable to modest slippage following Friday's bearish candlestick formation. The gold market has been in a modest sideways to lower drift in recent days and the bulls have lost control of momentum.

Taking a look at the daily chart, seen in Figure 1 below, Friday's action etched a type of "hanging man" formation on the daily candlestick chart. See point A. That is traditionally viewed as a warning signal that an uptrend has become vulnerable. In order to confirm the bearish potential of the hanging man, a bearish close would be required on Monday.

Gold prices posted a strong bullish run last month. From July 3 to July 23 (the day it peaked), December Comex gold futures climbed just about 9%. However, the minor bull move stalled out at the $1,349.20 level on July 23. The $1,349.20 to $1,350 ceiling is important near term resistance for gold. That is the level the bulls need to conquer in order to continue the recent uptrend move.

However, there are technical signals which reveal the bulls are losing the upper hand. Daily momentum, as measured by the nine-day relative strength index, a widely watched momentum tool is trending lower from nearly overbought levels. The market is closing in a test of initial 20-day moving average support at $1,301.70 in pre-New York trading action. Watch that zone closely. Sustained declines under the 20-day moving average would be a negative signal.

Also, watch the position of the 10-day moving average (seen in blue). If the 10-day moving average were to fall under the 20-day moving average (seen in red) in the days ahead that would indicate a bearish moving average crossover signal, which would be suggestive of a minor top to the recent rally move. The 10-day is showing signs of turning down.

On the downside, initial support lies at $1,282.40, Friday's low. If that level were to come out, it would show the bears are back in charge short-term.

On a multi-week basis, December gold futures are in a trading range between $1,350 on the upside and major support at $1,182.60 on the downside. Those are the major levels that both the bulls and the bears would need to violate in order to signal new directional breakouts. There is potential for multi-week type of consolidation within that fairly large range.

Bottom line? Gold has been in a minor corrective phase higher since late June. The burden is on the bulls to continue the rally through $1,350 and show that the rally move has some teeth. If not, the long-term primary bear trend remains dominant, which could weigh on the market in the days and weeks ahead.

Interview with Trading Legend J. Welles Wilder

Introduction

It is not often you find a legend living in your back yard. Especially if you live in a small town by the sea on the East Coast of New Zealand! But technical trading legend J Welles Wilder lives about a mile from my house and we have at least two mutual friends.

Welles Wilder was described in 1980 by Forbes Magazine as "..the premier technical trader publishing his work today."

Barron's (July 1984) noted: "In 1978, the basis of mathematical analysis was expanded when J. Welles Wilder, Jr. published “New Concepts in Technical Trading Systems”.”

Financial World (July 1985) said: "Over the years, Wilder has developed more accurate commodity trading systems and concepts than any other expert."

And in Technical Analysis of Stocks and Commodities (February 1986): "It's not often that truly original discoveries are made in technical market analysis. J. Welles Wilder, however, lays claim to an entire collection of systems that have reshaped contemporary commodities trading and analysis”

More recently in The Trader’s Journal (May 2005): “Around the world there are probably more traders using Mr Wilder’s systems and methods than any other discipline.”

I met with Welles Wilder in September and October 2009 at his home. He is in his 70s and by his own admission doesn’t remember things as well as he used to. The interview was not a hurried affair, and I did not feel I was able to ask detailed technical questions. However I found Welles Wilder and his wife to be warm, friendly and generous. I felt it was a privilege to meet with him. I was more than delighted when he gave me a signed copy of his excellent book “New Concepts in Technical Trading Systems”.

Oli Hille

Interviewer

The Interview

Part 1: Trading Related Questions

OH: You are probably best known for inventing the Relative Strength Index (RSI), Average Directional Index (ADX) and Average True Range (ATR). Which of these is the most powerful tool for a trader?

WW: The ADX.

OH: Is it the indicator you are most proud of?

WW: I guess so.

OH: The Failure Swing Point is an important feature of the RSI. However it seems to be used very little. How powerful is it?

WW: It’s powerful. I don’t know why it is not more used. It could be people don’t understand it very well.

OH: What has changed in the markets since you started?

WW: Not much!

OH: How did you self publish your book New Concepts in Technical Trading Systems?

WW: I used to be the best copy writer in the industry. I also put small ads in magazines. I also rented a list of people and did one big mail-out.

Mrs Wilder chips in: “He sent a chapter to Futures Magazine and they published the chapter, so there were orders stacked up even before we had the book printed.”

OH: Back in 1978 $65 was a huge amount of money for a book. How did you go about selling it for so much?

WW: I thought big! Back then most books sold for $5 or $10 at the most.

OH: How many years of work went into the book?

WW: I was broke and I had to figure something out! I wrote the book in six months, including the research.

OH: Do you mind me asking how it was that you were broke?

WW: After 10 years of trading (and living) I was broke.

Mrs Wilder chips in: “What he means is he lost quite a lot of money trading!”

OH: Once again if you don’t mind me asking, how much money did you start with?

WW: Two partners and I built 1,035 apartments in the 1960s. My two partners bought me out before they were all completed. After I sold my third to them I had about $100,000. That was in 1968. [US$100,000 in 1968 dollars would be worth around US$630,000 in 2009 dollars.]

OH: Was the book then taken up by a publisher?

WW: No it has never been published by anyone but me. Incidentally the book sold over 3,000 copies last month (August 2009) alone.

[Note that the book was first published in 1978 and has not been changed or updated since then. It still sells for exactly the same price it did in 1978 – US$65. This represents a self publishing phenomenon, over 36,000 books sold per year for a book written over 30 years ago.]

OH: Can you make any general recommendations on trading today?

WW: If I was to give advice on making money right now I would advise only trading gold and silver and gold and silver miners from the long side. I expect gold to be at US$5,000 an ounce in two years time. Before then, my charting system suggests that we will see an intermediate high in gold around February 10, 2010.

US$5,000 might be slightly ambitious but it could be in that ballpark.

[On both occasions I visited Welles Wilder he showed me his current stock portfolio and his P&L. As he recommended, every one of his 16 holdings was either a gold or silver related instrument. On my first visit 15 of the 16 showed a profit. On my second visit all 16 were profitable.]

OH: Why are you so bullish on gold?

WW: Big banks and central banks have been selling gold, keeping a lid on the price. But Hedge Funds are now jumping in because it is one of the few ways they can preserve the value of their funds. I think the buying power of the Hedge Funds will eclipse the selling power of the banks.

[Interestingly this comment was made a few weeks before Bloomberg.com reported Paul Tudor Jones writing to his investors in October 2009: “I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time.”

This comment was also made a few weeks before India purchased 200 tons of gold from the IMF, also in October 2009.]

OH: What have you found to be the most robust technical analysis tools over time?

WW: Let me just say, the simpler the better!

What I prefer to see now is a stock or a commodity that has put in a base and has just started rising out of that base. I pretty much look at the charts.

OH: Is that because you have decades of experience and you can now see the technical information you need just from looking at a chart.

WW: Yes that is correct.

OH: If you were 44 years old (the age of the interviewer) and a full time technical trader, what would you do?

WW: The same thing I am doing now! Just like I said before about reading charts.

Part 2: Lifestyle QuestionsOH: What is the most important lesson you have learned in life?

WW: Discipline.

OH: What advice would you give yourself if you could talk to yourself at age 17?

WW: Get a College education in an area you are interested in. Then look to create your own job in that area.

Also, treat others the way you expect them to treat you.

OH: How can a young person today achieve great things?

WW: By doing something the world doesn’t have but that it needs.

OH: What wise words have been important to you in your life?

WW: Don’t bite off more than you can chew!

OH: What is the best advice you have ever received?

WW: To go to College.

OH: What mistake have you learned the most from?

WW: Not knowing how to handle money. You learn by making mistakes.

OH: What activity has been the biggest waste of time in your life?

WW: I’ve always been a workaholic at least until I was in my early 70s. I had no time for time wasting!

OH: What are the reasons you have succeeded in technical analysis and trading while many others who have tried have not succeeded?

WW: Tenacity and flexibility!
But when you find something that works, use it! Don’t keep looking for something else.

OH: If a score of 10 means that you have lived your life to its fullest potential, what score out of 10 would you give yourself on your life to date?

WW: Nine.

OH: What would you have had to do differently to be able to score a 10?

WW: I don’t know!

OH: Why did you leave the US and move to New Zealand in the 1980s?

WW: 25 years ago I had the insight to know that the US was drowning in debt. I thought: “What is the best country in the world?” Is has to be a small country with a democracy. It has to be neutral and have no enemies. New Zealand has been a wonderful place to live!

All of Welles Wilder’s books can be purchased from his US Office by visiting:
www.deltasociety.com

Oil Gains With Metals on China Output; S&P 500 Retreats

U.S. equities fell, with benchmark gauges capping their worst week since June after a rally to a record left the Standard & Poor’s 500 Index at its most-expensive valuation in three years. Oil and metals advanced as Chinese industrial output expanded faster than estimated.

The S&P 500 lost 0.4 percent to 1,691.42 at 4 p.m. in New York and slid 1.1 percent for the week. West Texas Intermediate crude climbed 2.5 percent to $105.97 a barrel while zinc, nickel and lead jumped at least 1.9 percent. South Africa’s rand reached the strongest level this month against the dollar and Australia’s currency posted its biggest weekly gain since December 2011. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 1.2 percent.


The S&P 500 has rallied 19 percent in 2013 and closed at a record 1,709.67 on Aug. 2. The index trades at about 15.3 times projected earnings, up from a multiple of 13.1 at the beginning of this year and holding close to a three-year high reached last week. That compares to a five-year average of 13.9 times, data compiled by Bloomberg showed. Stocks and Treasuries have been whipsawed since May amid speculation the Federal Reserve will begin to reduce its quantitative easing as the economy improves.

“We have been losing enthusiasm over the course of recent days,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “There still seems to be half the market that is focusing on improving fundamentals and the other is worried about the Fed removing quantitative easing sooner rather than later.”

Market Breadth

Forty stocks in the S&P 500 closed at their highest levels in 52 weeks or longer yesterday, according to data compiled by Bloomberg, compared with 193 on May 15. Less than 79 percent of the 500 companies traded above their 50-day (SPX) moving averages, down from 93 percent on May 17.

Investors pulled money out of exchange-traded stock funds after last week’s record highs in benchmark indexes. Almost $1.20 billion was withdrawn from U.S. equity ETFs over the last four days, according to data compiled by Bloomberg from about 1,500 funds. About $32 billion of deposits went to the funds in July, the most since September 2008, the data show.

Markets ‘Overbought’

Credit Suisse Group AG cut its holdings of equities as global stocks rallied to a five-year high and Fed policy makers began considering whether to trim stimulus measures. Switzerland’s second-largest bank reduced its allocation to stocks to neutral from overweight, meaning it no longer holds more of the asset class than is represented in global benchmarks, according to a note to clients dated Aug. 5.

“The fundamental environment remains attractive, but the markets are overbought in the wake of the recent rally,” Michael Strobaek, the Zurich-based global chief investment officer at Credit Suisse, wrote in the report. The “combination of a positive economic outlook and a further supportive monetary policy seems largely priced into the markets. We therefore see limited upside in the near term,” he wrote.
Among stocks moving today, Gap Inc. dropped 3.1 percent after saying July sales at stores open at least a year rose less than analysts estimated. Nvidia Corp. lost 1.4 percent as it forecast third-quarter sales that missed analyst estimates on a weaker personal-computer market.

Cliffs, Priceline

Cliffs Natural Resources Inc. added 11 percent as industrial metals rallied. Priceline.com Inc. (PCLN) climbed 3.9 percent as the largest U.S. online-travel agent by market value reported second-quarter sales that exceeded analysts’ estimates.

The S&P 500 rebounded almost 5 percent in July after slumping as much as 5.8 percent from May 21 to June 24 as Fed Chairman Ben S. Bernanke indicated the central bank could start tapering stimulus if the labor market continues to improve. The benchmark index has gained almost 8 percent since. Ten-year Treasury yields jumped from their 2013 low of 1.63 percent on May 2 to as high as 2.74 percent on July 5.

Charles Evans, Sandra Pianalto and Richard Fisher, regional Fed presidents in Chicago, Cleveland and Dallas, said this week the central bank may be closer to tapering. Data yesterday showed U.S. jobless claims fell in July to the lowest monthly rate since before the recession. Fed stimulus has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009.

Volatility Bets

Investors trying to protect against declines in U.S. stocks have spurred record demand for securities tracking equity volatility and traded more VIX options than ever before.

Shares outstanding of the iPath S&P 500 VIX Short-Term Futures ETN, a security designed to rise when stock fluctuations increase, have tripled this year, reaching a record 99.9 million on Aug. 5. Call volume on the Chicago Board Options Exchange Volatility Index rose to 1.12 million on Aug. 6, the most ever and about five times more than put trades, data compiled by Bloomberg show.

Equity investors are piling into securities that hedge losses as a way to protect gains after the S&P extended its rally to send the gauge past 1,700 for the first time. While volatility has evaporated in the past month amid economic data showing stronger U.S. growth, money managers including Lake Hill Capital Management LLC’s Justin Golden said investors are preparing for swings to increase. U.S. legislators must decide whether to raise the government debt limit later this year and most economists expect the Fed to cut the pace of bond purchases in September.

China Economy

The retreat in U.S. stocks today halted an earlier global advance triggered by China’s economic data. Factory production in China grew 9.7 percent in July from a year ago, the government said today, compared with the 8.9 percent median estimate in a Bloomberg News survey of economists. The acceleration may bolster confidence that the nation will avoid a deeper economic slowdown after larger-than-forecast gains in exports and imports as well as improvement in gauges of manufacturing and service industries.

“Chinese data surprised to the upside this week which particularly benefited industrial metals,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. There “could be a potential turnaround in expectations where the Chinese economy is heading over the coming months,” he said.

Copper climbed 1.3 percent in London and 3.9 percent this week, the most since September. All six of the main industrial metals on the LME rose, spurring a third day of gains for the LME metals index. China is the biggest buyer of industrial metals.

Commodity Currencies

South Africa’s currency advanced 0.9 percent versus the dollar and is up 0.5 percent this week. The Aussie rose 0.9 percent, advancing 3.2 percent on the week for its biggest gain since December 2011.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major counterparts, was little changed after falling for five straight days. The gauge has declined 1.1 percent this week, the biggest drop since the period ended July 12. The yen strengthened 0.5 percent to 96.18 per dollar today.

Norway’s krone gained 1.3 percent against the euro, the most in four weeks, after a report showed inflation accelerated faster than economists estimated.

About two shares advanced for each that declined in the Stoxx Europe 600 Index. The index gained 0.6 percent this week. Royal KPN NV surged 16 percent in Amsterdam, the most in more than a year, after billionaire Carlos Slim’s America Movil SAB said it plans to make a takeover offer for the Dutch phone company.

The volume of shares changing hands in Stoxx 600 companies was 15 percent greater than the 30-day average, according to data compiled by Bloomberg. S&P 500 trading was about 10 percent below average.

Emerging Markets

The MSCI Emerging Markets Index rose for a second day, adding 0.5 percent and trimming this week’s decline to less than 0.5 percent. The benchmark for developing nations has lost almost 10 percent this year, trailing the S&P 500’s performance by almost 30 percentage points. The Shanghai Composite Index advanced 0.4 percent and Russia’s Micex Index added 1.5 percent. Exchanges in India, Malaysia, Indonesia, the Philippines, South Africa and Turkey were closed for holidays.

Junk-rated corporate bonds rose for a sixth week in Europe, paring a selloff in June after the cost of insuring securities against losses fell to the lowest in two weeks. Debt sales slowed.

High-yield bonds returned 0.2 percent this week, bringing the six-week gain to 2.1 percent after the securities lost an average 2.3 percent in June, according to Bloomberg bond index data. The Markit iTraxx Crossover Index of credit-default swaps on 50 high-yield companies was little changed this week at 399 basis points at 12:26 p.m. in London. The gauge fell to a two-week low of 392 on Aug. 5.

China data lifts industrial metals; oil lower

China's commodity imports recovered strongly in July with strong increases seen in energy and metals. Whether this is a sign of a pickup in activity or just a buildup in stocks remains to be seen. Industrial metals nevertheless received a boost with copper seeing a significant amount of short-covering which also positively impacted silver and to a lesser extent, gold. Oil markets, however, went the other way led by gasoline after weekly inventory data raised doubts about whether demand for gasoline from US motorist would be strong enough to absorb the increased production seen during July.

Overall, both of the major commodity indices still recorded losses with the sell-off in energy and grains more than offsetting gains in the other sectors, especially industrial metals and softs. The dollar was weaker against all of its major counterparts, especially the JPY and AUD, but this failed to have any major positive impact on commodities, perhaps apart from gold which managed to recover from another bout of selling.


Crude oil lower but support not far away


The main driver behind the rally in WTI crude oil during July was the unexpected large increase in demand from refineries which were gearing up after maintenance in order to satisfy motorists' demand for gasoline during the summer driving season. As a result, we saw national levels of crude inventories drop sharply during July, not least at Cushing, the delivery hub for WTI crude oil trading in New York.


The latest weekly inventory data from the US, however, surprised the market in the sense that national motor gasoline inventories rose instead of dropping as expected. In fact, the increase of 135,000 barrels to 223.6 million resulted in the highest level of inventory for this time of year since at least 1990. In other words, it looks as if demand is failing to keep up with supply just as we approach the final weeks of the US driving season which normally ends around Labour day in early September. As a result, the price of RBOB gasoline traded in New York has seen a sharp retracement from its July peak and ended up being one of the worst performing commodities this week at one stage loosing more than six percent.


OPEC production slowing


WTI crude dropped to its lowest level in a month before better-than-expected Chinese industrial production number together with continued focus on supply disruptions in Libya helped stabilise prices. Worsening labour disputes in Libya combined with faltering supply from Iraq resulted in OPEC output dropping to its lowest level in six month during July, according to the International Energy Agency. Saudi Arabia produced the most in a year in order to meet a seasonal increase in domestic demand with crude oil being used by power generators during the peak season for electricity demand.

With growth expectations rising or at least showing a stable outlook in China, the USA and Europe, slowing supply from OPEC, especially from countries like Libya, Nigeria and Iraq, will continue to keep oil prices supported into September.

After this, seasonal demand from refineries across the northern hemisphere should drop and leave the price more exposed to the downside. According to OPEC data, the production level from Libya, Nigeria and Iraq are down by almost 900,000 barrels compared with a year ago. Most of the losses stem from the situation in Libya where strikes and social unrest have triggered a sharp reduction over the past few months. Although the Libyan reduction has been the largest, a return to normality is expected, but the production slowdown in Iraq is more of a concern in the medium term as no quick fix exists to mend sectarian violence and poor infrastructure.


Brent crude oil has since April been stuck in a rising channel currently between 110.50 and 102 dollar per barrel with the upper half of this range seeing most of the action since July. This trading pattern with the added support/risk of additional supply disruptions is expected to continue for at least another month until the expected seasonal slowdown in demand begins.


Industrial metals takes the lead


The price developments of key metals such as copper and iron ore used in steel production are still much dependent of the level of demand coming from China, the world's biggest consumer. This was clearly seen this week when July data showed that iron ore imports rose to a new record while copper imports increased by 12 percent compared with a year ago. Copper rallied strongly as a result and in the process broke out of its recent range. Speculative traders such as hedge funds have maintained a net-short position in High Grade Copper since February and some short covering would have been seen during this week. Using copper as way of obtaining finance continues to be popular in China and until we see fresh signs of copper actually being consumed and not just put away for financing purposes, further upside potentials beyond 340 cents per pound on High Grade Copper seem limited.


Silver supported by the rally in industrial metals


The rally seen across industrial metals also lent some support to silver given its industrial credentials. As a result, it managed to outperform gold with the price of one ounce of gold falling from a three-year peak at 67 silver ounces to 64.6. Gold, which earlier had run into renewed selling below 1,300 dollars per ounce, found support towards 1,264 before a weaker dollar and stronger silver saw buyers return taking it back to relative safety above the mentioned 1,300 level.

Precious metals are still focusing on raised growth expectations, low inflation and early tapering of US quantitative easing and this will continue to dampen any recovery hopes. Gold needs to make a decisive break back above 1,350 before additional buying can be seen and until then the most likely outcome is continued range bound trading between 1,245 and 1,350.


Government intervention supporting Arabica coffee


High quality Arabica coffee, which recently dropped to the lowest level in four years, has since managed to recover and it is currently one of the top performing commodities. Whether this is a case of "low prices cure low prices" remains to be seen but news from Brazil that roasters are beginning to increase


Brazil is the world’s largest producer of the quality beans and has been losing out to the cheaper and lower quality Robusta bean in recent years. But the drop in the spread between the two beans from 190 cents in 2011 to 31 cents last week may provide the incentive to increase the portion of Arabica in blends thereby assisting demand.


Most important, however, is the long-awaited initiative by the Brazilian government to support prices. In an effort to prop up prices it announced an intention to buy as many as three million 60 kilogram bags at USD 149, well above the current market price of around 123 dollars. The move has been in response to calls from farmers who are currently selling their crops below cost. Although this intervention will remove bags from the market, the outlook which points towards a record crop both in 2013 and 2014 will if anything probably only help to stabilise prices not trigger a change in direction.


Key crops stuck in negative momentum with bumper crop lurking


The summer across the northern hemisphere has so far, in contrast to the previous two years, been providing near perfect growing conditions for key crops such as corn, wheat and soybeans. This has resulted in negative price momentum building over the past few months, much in contrast to the dramatic drought last summer especially in the US but also around the Black Sea region which resulted in record high prices and low inventories.


As a result of this continued weakness in agriculture prices we have seen increased selling pressure by hedge funds and recent data shows they are now their most gloomy ever on the agriculture price prospects. As of Tuesday July 30, they held a combined net-short position of 88,397 contracts of futures and options exposure, a dramatic change from plus 211,000 contracts a month earlier.


The crop that has seen its price prospects deteriorate the most has been corn, resulting in hedge funds now holding a record short position of 108,089 contracts while soybeans still attracts a net-long position of 75,490 contracts. Taking a closer look at corn we see that the current price of this year's new crop is trading well below what we have seen for the same time in the previous two years. The December future has reached 460 cents per bushel which corresponds with the lowest new crop price since September 2010.


As long as we continue to see excellent prospects for this year's crop, producer and speculative selling will continue to keep prices under pressure. However one of the potential dangers which could lend some support, especially to corn, later on, could be the risk of early frost. The planting this spring was delayed in the US due to very wet weather conditions and this should also lead to a later harvest than usual which carries the outside risk of some frost damage.