Oil Rallies, China Factory Output Slumps, Equities Tumble, Bonds Rally

Financials: Dec. Bonds are currently 20 higher at 155’08, 10 Yr. Notes 10 higher at 127’12 and 5 Yr. Notes 6 higher at 119’20. During the slump in equities we have NOT seen the flight to safety in U.S. treasuries experienced in during recent past slumps as the market continues to price in a small rate hike by year end. The recent “ noise” from the Fed seems to indicate that they are willing to put aside the 2% inflation target in favor of being a bit pro-active and consider raising rates in anticipation of an eventual rise in inflation. My personal opinion is that the Fed will raise rates in the near term but this will not set in place a series of regular small rate hikes on a quarterly or monthly basis. My last “Report” recommended taking profits from ratio (yield curve) spreads of long 5-5Yr. Notes/short 3-10 Yr. Notes as the yield curve between these two items had widened to 71 basis points, it has since narrowed to 65-66 basis points. I also recommended staying with 1:1 spreads of long 5 Yr./short 10 Yr. If you had the ratio spread and just shed the 2 extra 5 Yr. to be spread 1:1 you might consider reducing the amount of spreads over the next few sessions before this weeks Unemployment Report this Friday. Current guestimates are for an increase in non farm payrolls of 218,000.

Grains: Dedc. Corn is currently 3’0 lower at 372’2, Nov. Beans 7’6 lower at 879’6 and Dec. Wheat 2’6 higher at 487’6. Over the past few sessions we have seen a dramatic rise in Crude Oil, some recovery in precious metals and an overall weakness in the Dollar. Could this be the beginning of of a bounce in Commodities from 16 year lows? I’m willing to take a calculated risk and go long with risk limited to 15 cents in Corn and Wheat and 25 cents in Beans.

Cattle: Dec. LC finshed lower yesterday closing at 145.12 and Oct. FC also lower at 198.10. Both of these markets have met my downside objectives and I am now trading LC from the long side on breaks with only limited upside potential as I do not feel that fundamentals dictate a long term bull market as attempts at herd expansion over the last few quarters will eventually result in higher marketings. My near term upside objective for Dec. LC is the 148.00-151.00 area.

Silver: Dec. Silver is currently 2 cents lower at 14.57 and Dec. Gold 7.00 higher at 1139.50. I feel these vmarkets have put in near term bottoms but for the short term upside potential may be limited to the 15.10 area for silver and 1175.00 for Gold.

S&P's: Sept. S&P’s are currently 49.00 lower at 1920.50. A 25% rise in WTI Oil over the last few sessions and continued indications of slumping Chinese and other Asian economies have had a downside effect on most Global equity markets. As mentioned last week I am a seller above the 1950 level and a buyer below the 1890.00 level. I am taking profits on sales from above the 1950.00 level.

Currencies: As of this writing the Sept. Euro is currently 30 higher at 1.1269, the Yen 85 higher at 0.8345 and the Pound 30 lower at 1.5318. I am a seller in the Euro above 1.1400 and a buyer in the Pound below 1.5300.