The Financials Pit Review: By PitGuru Kalvin O’Brian

U.S. Economy

With the holiday now behind us the market appears to be trying to push up thanks to an early $4.00 sell off in crude and an uncharacteristic dollar spike.  Last week the US Labor Department announced that the unemployment rate was unchanged at 5.5% in June with non farm payrolls declining to 62,000 which came in line with expectations.  This was seen favorably by the market.  May non farm payrolls were revised from a decline of 49,000 to 62,000.  There is concern among traders that we have not hit a bottom and unless crude oil continues to drop like a rock this market does not have buyers flying into it.   Add to that the unofficial start to earning season which begins Tuesday and the expectation that the S&P 500 companies’ earnings will be down 10% for the second quarter and I see traders continuing to tread lightly in these markets and be quick to pull out on bad news.

Currencies

The Canadian dollar has not had a lot of strength lately.  Crude oil is the big story for our neighbor to the north; Alberta's oil sands hold the largest crude deposits outside the Middle East. Canada’s unshakable job market appears to be changing.  June’s jobs report is expected to reflect at minimum a portion of the recently announced layoffs.  This should be accompanied by weakness in the financial services and real estate sectors as well.  I would expect the national unemployment rate to increase 1/10^th of a percent from 6.1% the current level to 6.2%. Poor jobs number and weakness in crude oil will bring this market down.

The US dollar appears to have been inspired by the 4^th of July.  The ECB did shake things up temporarily with their ¼ point increase.  This was a seen as a surprise because the consensus was that the rate would remain unchanged through to the end of summer, however the increase was made due to ongoing concerns about inflation according to the ECB. With a rally in the US dollar coming off of the double bottom being set on July 3^rd this market could continue to have strength despite the problems facing the US markets. This market has been down and out long enough.

*Chart Courtesy of Gecko Software’s Track n’ Trade Pro

The Softs Pit Review: By PitGuru Jamie Fink  

Warehouse inventories of cocoa in Europe may have fallen last month but not enough to keep cocoa on its high price run. After marking the largest percent gain in four months, cocoa futures finally turned lower amid news that bean deliveries to port in Ivory Coast had risen. This correction is overdue and not quite over. Look for the market to continue to hone in on weather news and quality issues to find excuses to take profits for now. Long term bullish fundamentals still remain for this market but the large gains so soon beg for a quick and sharp turn back.

Coffee also turned lower during our holiday shortened week. Harvest is underway in Brazil and looks like it will be a few weeks behind last year's pace. Although the South American coffee growing giant might pack a few more bags of beans for export this year, a few smaller coffee growing regions are noting smaller crops. El Salvador and Costa Rica are likely to produce 3 to 4 percent less coffee and little dents like that in the world supply can add up. With such a delicate supply and demand balance this year and the potential for shortfall, coffee still looks like a bargain at these prices.