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This market is starting to get interesting.  The bull case is slowly being sliced and diced.  The end of government stimulus and the re-emergence of the credit crisis in Europe has exposed this market for what I have long thought it was – a public sector recovery that was papering over private sector weakness.  This is classic Japan syndrome.  The minute the stimulus ends the market rolls.  The housing market is exhibit A here.  There is very little to be optimistic about as of now and as the austerity calls spread like Ebola they will slowly chew at the marginal economic strength we had been seeing.  The next 6-12 months have the potential to be some of the most interesting in financial history.

The S&P 500 lost 1.7% on the day on moderate volume.  Breadth was negative at 3:1.  Daily Futures has the rest of the action:

U.S. Economy
The U.S. Labor Department said that jobless claims were down 19,000 last week to 457,000, a little less than expected. The June 2011 eurodollars were down .045 at 98.955 ahead of tomorrow’s monthly GDP report.

The U.S. Commerce Department said that durable good orders were down 1.1% in May, the first decline in six months, but better than expected. Excluding transportation, orders were up .9% in May.

The U.S. Treasury sold $30 billion of 7-year T-notes at a median yield of 2.53% with a bid to cover ratio of 3.01.

Grains and Cotton
The USDA said that, so far in 2009-2010, U.S. exports for:
Corn were up 10% from a year ago.
Soybeans were up 22% from a year ago.
Cotton were down 16% from a year ago.
December corn ended down a penny at $3.645.

Three weeks into the new 2010-2011 season, U.S. wheat exports are up 3% from a year ago. July wheat was up three-quarters of a cent at $4.63.

The USDA said that last week’s net sales of beef totaled 14,700 tons, up 38% from the four-week average. August cattle finished up .65 at 89.15.

August hogs ended down .97 at 83.25 ahead of tomorrow afternoon’s quarterly hogs and pigs report.

According to Bloomberg news, Vietnam’s coffee producers continue to hold back supplies from the market and are pushing coffee prices higher again. September coffee closed up 8.25 cents at $1.6875, the highest close in almost two years.

September cocoa finished up $51 at $3,114, the highest close in six weeks with concerns that recent rain in the Ivory Coast may hurt the quality of the cocoa beans.

The USDA expects world sugar production to be up almost 8% in 2010-2011, but October sugar closed up .38 at 16.19, the highest close in eight weeks.

September copper closed up 6.95 cents at $3.0240 in spite of today’s weak stock market. This morning’s durable goods orders report was helpful to copper prices.

August gold closed up $11.10 at $1,245.90, supported by expectations that the federal funds rate will stay low for a long time.

The U.S. Department of Energy said that underground supplies of natural gas were up 81 billion cubic feet last week to 2.624 trillion cubic feet. Supplies are now down slightly from a year ago. August natural gas was down 6 cents at $4.793.

Eurostat said that its index of industrial new orders in the EU-27 was down .2% in April, but up 21.8% from a year ago. The September euro was up .0009 at $1.2338.

Julia Gillard is the new Prime Minister of Australia after the Labor Party voted to replace Kevin Rudd. The September Australian dollar closed down .47 at 86.07.

Japan’s Finance Ministry said that exports were up 32% in May from a year ago, the sixth straight gain. The September yen closed up .0036 at 1.1183, the highest close in six weeks.

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